The Indicator from Planet Money - How stable is Stablecoin?

Episode Date: April 30, 2025

Stablecoins are the latest digital asset to grab headlines. Congress is considering legislation around the cryptocurrency, and a Trump family-affiliated company is preparing to launch its own Stablecoin. But does this digital currency live up to its own name? Related episodes:What's this about a crypto reserve? (Apple / Spotify) Is 'government crypto' a good idea? (Apple / Spotify) WTF is a Bitcoin ETF? (Apple / Spotify) For sponsor-free episodes of The Indicator from Planet Money, subscribe to Planet Money+ via Apple Podcasts or at plus.npr.org. Fact-checking by Sierra Juarez. Music by Drop Electric. Find us: TikTok, Instagram, Facebook, Newsletter. See pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences.NPR Privacy Policy

NPR. This is the indicator from Planet Money. I'm Patty Hirsch. And I'm Whalen Wong. In an unusual show of bipartisanship, the House Financial Services Committee this month passed the Stable Coin Transparency and Accountability for a Better Ledger Economy,

or Stable Act. A similar bill also cleared a Senate Banking Committee in March. The legislation now goes up for debate, and quite a debate it's likely to be, given the announcement in March by a White House-connected company called World Liberty Financial, that it plans to launch a stable coin called USD1. The news has attracted the attention of lawmakers concerned about a conflict of interest for

President Trump. A company affiliated with Trump and his family members own about a 60% stake in the business. And Trump has been very chatty about championing the mainstream use of crypto in the US. But what exactly is this stablecoin thing? On today's show, we'll explain how stable coins work and how the they make money and for whom? If you've ever been to a casino, or even if you've only ever seen a casino on TV, you already know the basics of highest stable coin works. This is because if you go to a casino, right, you go to the cashier first.

You give her $100 and she gives you a bunch of chips, in this case, a hundred single dollar chips. And you go into the casino and you play roulette and craps and whatever, and then you bring whatever chips that you have back, back to the cashier. And guess what? She gives you a dollar for each chip that you give her. The value of each of those chips has not changed during your time in the casino. And it wouldn't change, even if you kept those chips for a year.

Their value is stable. Stable coins are just like those chips. You buy them for a buck each and they retain their value. You can cash them in at any time for a dollar. It really is just like a poker chip. Yimeng Ma is an associate professor at Columbia Business School. She says there are several reasons why people buy stable coins. The first is, of course, so you can play in the crypto casino.

If you want any kind of trading in crypto markets, it's easier to first convert your dollars or any other fiat currency into a stable coin and then use stable coins basically as a means of payment to transact crypto or in different crypto markets. Sure, you can use fiat currency like dollars or euro. or yen in crypto world, but it's just less hassle to use a stable coin that everyone accepts. Now, the second reason that people buy stable coins is to move money around outside of crypto world. So in the US, if you've attempted to make payments with a foreign bank somewhere to someone, you may notice that this could take quite some time. This could be very expensive.

It's not clear at what exchange rate things will settle. And this is true. I speak from experience here. If my mom ever wants to send money, to me from the UK. It literally takes a week. And it's expensive. Yeah, it really does. There are currency exchange costs and then both her bank and mine charge a fee. Stable coins can let you do this kind of thing more easily and quickly and generally more cheaply than you can do with regular currency. So you convert your dollars to stable coin, send the coins to your friend in Argentina or wherever, and she converts them to dollars on her end. Shazam. This all sounds good, but there are a couple of problems here,

says. First, buying and selling these coins is not quite as straightforward as going to the cashier in a casino. Most buyers purchase stable coins on the market, not from the issuer. So you need to find someone who's willing to sell to you. It's like you have to hang out around the casino looking for some dude in a grubby raincoat who's got some chips that he's trying to unload. And later, when you want to cash out, you kind of got to do the same thing. You are actually selling your stable coin to someone else on the market. And the hope is that this price at which you're selling is going to be as close to $1 as possible. So in that sense, you can think of it as like a stock that is trading and on the stock market,

but the value of the stock or the price of the stock is stable at $1. Well, kind of stable. It is a market, remember, and we all know what happens in markets. If there aren't any buyers for your so-called stable coin, then maybe it's price, won't be so stable after all. Its price might actually fall. This happens. And sometimes we're talking about more than a few cents. In 2023, the value of a stable coin called USDC dropped below 88 cents. And Yoming says there's no protection for people who buy these coins. It is not like a deposit in a bank account in the US that is protected by

deposit insurance. There's no promise that it's always at $1. And indeed, over the past years, has fluctuated and it could fluctuate in the future. Okay, so maybe stable coins are not as stable as casino chips after all, but they are like casino chips in one particular way. They don't generate any kind of income on their own. Yeah, stable coins are not like Bitcoin or a meme coin or anything like that. They don't go up and dine in value like those kinds of coins do. You know, stable coins are supposedly stable.

They also don't pay interest the way that your dollars do when you put them in a bank account or a money market fund. The only way you can make money with stablecoin, just like casino chips, is to use them in the casino. You use them to play the crypto markets, investing them in Bitcoin or other crypto assets, maybe even lending them out. And still, despite the fact that these stable coins on their own don't make any money, they are becoming increasingly popular. The volume of stablecoin transactions last year was more than $27 trillion. That's more than Visa and MasterCard combined. And that means big money for issuers like Tether and Circle, the biggest players in the market.

And there are a couple of ways these issuers make money. First, they charge fees to buy and sell on their platform. And then they make money by investing your money, just like a bank. When you deposit your cash, the bank turns around and invest that money. So a stablecoin issuer takes the dollar you gave it for your stable coin and goes out and buys assets, usually U.S. treasuries. You know, on treasuries, there's a coupon, there's a yield, on deposits, there's the deposit rate. The issuer is essentially pocketing all that income, and there's nothing that they pay out to the holders of the stable coin. Right. So it's an extremely profitable business to be in.

Yeah, and this is why a company, say a company with ties to the Trump family, like World Liberty Financial, might want to get into the stable coin business. If you can make it work and you can grab some of that market share, it is a license to print money. People literally give you billions of dollars, and you don't have to pay them any interest in return. But even for an organization as politically connected as World Liberty Financial, succeeding as an issuer could be a challenge. A successful stable coin requires a network of people to adopt and accept and use those coins. And building out those kinds of networks can take years. Yeah, and then there's the fact that the stable coin world is dominated by the biggest issuers, tether and circle. And there are only limited ways that a newcomer can compete.

Eming says most financial companies compete on price, like a bank might offer you a higher interest rate on your deposit account. But you can't do that with a stable coin because stable coins, well, they don't pay interest, remember? But because stable coins are not distributing any of that income to their investors, it's actually currently not possible to compete on the price dimension. One thing you have to say about stable coins, they are very well branded. It's a stable coin. The problem is, as we've already established, stable coins are not always stable. In fact, compared to traditional investments, they look pretty risky once you look under the hood. Yeah, here's a list.

They're not insured like bank deposits are. They provide no returns. Their issuers are not fully audited, and they are very lightly regulated for now. They're also not particularly transparent. And this despite being on a blockchain, you know, one of those great big, unalterable Google Docs in the sky that supposedly anyone can see. But all of that might be about to change because Congress is on the case. The current regulations put forward both in the House and the Senate, they generally are trying to make things more transparent.

The Stable Act, which we mentioned earlier, will make Stablecoin issuers look a lot more like banks. If legislation passes both houses, stable coin issuers will be regulated at either the state or the federal level. They'll be required to submit regular reports to ensure their coins remain stable with the dollar, and they'll have to comply with anti-money laundering rules. Yeah, what about those potential conflicts of interest for the president and his family?

Well, Whelan, that's a whole other enchilada. This episode was produced by Cooper Katzby Kim. It was engineered by Harry Paul. It was back-checked by Sierra Juarez and edited by Julia Ritchie. Kicking Cannon is our show's editor and The Indicators of Production of NPR.