What the Future Holds for Stablecoins After Senate Passes Genius Act
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Welcome to Tech News Briefing. It's Wednesday, June 18th. I'm Victoria Craig for The Wall Street Journal. As Iran loses ground on the physical battlefield in its raging conflict with Israel, could it look to cyberspace to inflict more damage? Then, the Genius Act gets the Senate's blessing to head to the House for a vote. We talk to our Heard on the Street columnist about what the legislation means for the stablecoin industry and what consumers should know.

But first, the conflict between Iran and Israel could spill over into places conventional weapons never would. That's a concern cybersecurity experts have expressed, warning that companies could be caught in a digital crossfire as the battle escalates.

James Rundle covers cybersecurity and national cyber policy for The Wall Street Journal. James, you write that cyberspace could provide an avenue for Iran to cause problems not just for Israel, but its allies, too. How likely is that? It's not just likely. It's happened before. Iran has been known to target critical infrastructure in the U.S. in past cyber attacks. We saw that in 2023 when Iranian hacktivists attacked a water plant in Pennsylvania, defacing screens with anti-Israel propaganda.

But Iran has been a perennial cyber threat for a number of years now. It's one of the big four adversaries of the US and the West in cyberspace, along with Russia, China and North Korea. So it's very capable. It has done it before. So is there any evidence of an increase in attempted or successful attacks on the US or any of other of Israel's allies? So far, it's a little early to tell. Some sources say they have seen increases. Most people I've spoken to have said that

Iran is fairly preoccupied, as you might expect, with the physical war right now. A lot of its cyber activity has increased in terms of disinformation. So it's sending text messages to Israeli residents, warning of missiles falling in their area.

that sort of thing. But a lot of people I speak to say that they haven't noticed a lot in terms of destructive attacks, such as malware, ransomware, wipers, that sort of thing. Not yet, anyway. And here in the U.S., you write that analysis centers for the U.S., FDA, and tech sectors have warned their members to take extra precautions.

Why is that? How are they preparing? Well, the problem is really on two fronts. Number one is the deliberate attacks that could come from Iran trying to pick out what we call low-hanging fruit in cybersecurity, which is companies that don't have great defenses and can be easily breached.

The other is that by its nature, cyber attacks can have quite a large blast radius. So they can spread far beyond the intended target, whether that's in the Middle East, Asia or the West. So companies are being urged to make sure they're following the basics and make sure that their software is up to date and is patched against the latest threats just to make sure that they're not either targets of opportunity or they don't get caught in the shockwave, so to speak.

If Iran decides to target critical U.S. infrastructure, how could that play out? It depends on the motivation. A lot of the time, Iran has groups linked to it that want to make a political message. So hacktivists, we call them. And that's happened before in 2023, where you saw anti-Israel propaganda being displayed on hardware within water plants.

The worry and the concern, of course, is that if they do manage to get into the systems of something crucial, such as a power plant, such as a energy facility of some kind, that it could quite rapidly disrupt everyday life in America, whether that's to discourage us from joining the conflict with Israel or to make a wider point as well.

So when we talk about whether the U.S. or how the U.S. is prepared to handle it, are we equipped to handle all of these threats? Or is the government or companies doing more now to prepare themselves as the threat level sort of rises? It's definitely got better in the last few years. There's been a very strong governmental focus from the cybersecurity and infrastructure security agency, from even the National Security Agency and the FBI on hammering home this point that companies need to start handling.

taking responsibility for their own defense. Because the problem in America is that the federal government can only do so much. The vast majority of critical infrastructure, so our wastewater plants, our power plants, is all in private sector hands. So getting that kind of collective immunity, so to speak, from cyber attacks is very important. And do we have a critical level of that at this point? I would not think so. That's not what I hear from officials or from experts saying they're the larger, more well-resourced companies. Yes, they have pretty sophisticated defenses in place.

But in a lot of places in America, it's a huge issue. That was James Rundle, WSJ's cybersecurity and national cyber policy reporter. Coming up, how could more regulation of the stablecoin industry affect consumers and the banking system? We'll explore that with our columnist after the break. At Capella University, you can learn at your own pace with our FlexPath learning format.

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U.S. dollar coin and Tether are two examples of well-known stable coins. Both are designed to maintain, as their name suggests, a stable price thanks to their one-to-one exchange rate with the U.S. dollar's value. These cryptocurrencies have not gone mainstream enough to be used as common payments for everyday purchases. But Congress is thinking about what happens to the banking system as we know it, if and when they do.

Telus Demos is a columnist for WSJ's Heard on the Street. He's been writing about legislation which passed the Senate yesterday called the Genius Act. Telus, what is this bill and what would it do if it is eventually signed into law?

So the Genius Act is a piece of legislation that is basically designed to give a kind of regulatory framework for stablecoins. Stablecoins exist today. They are regulated in a number of respects by states and other applicable laws. But what this is designed to do is to sort of really clear a pathway for, okay, what officially is a stablecoin? Which sort of federal regulators will sort of address it? And what are the requirements for

that you have to follow to be able to issue it under these guidelines, right? And the main things are you have to have reserves backing the stablecoin that are audited. Those reserves have to be held in certain instruments. And then you're sort of blessed to issue a stablecoin in the United States. The intention is to then really

Give everyone license, payments companies, banks, et cetera. Give everyone license to say, okay, we can actually do business with stable coins. Because in the past, there was just question marks around, oh, okay, well, yeah, we understand that they work in this way, but we kind of need this regulator or that regulator to sort of bless them. And this sort of lays the landscape is the hope for that.

Some of America's biggest retailers have been watching how this legislation is progressing through Congress. The Journal last week reported that retailers like Amazon and Walmart are considering launching their own stable coins. But I think the biggest question is, how could that sort of thing happen?

disrupt the banking system as we know it because it'll change the way that people pay, right? It's relevant to banking in a couple of ways. Number one is what a stablecoin essentially is, is a place to park money that isn't a bank account. And we've seen things like that emerge in the past. For example,

Money market funds are essentially like a stable coin, right? It's a place you put in a dollar. You hope to get a dollar out. That dollar sits not necessarily just in cash, but in like a treasury bill or something like that.

Things like that have had big impacts on the banking system over the years by essentially making banks compete with them as a place to put your cash. And so the concern has been, well, what will it mean if we create a whole new category of things that can do this? And so people have questions about what it will mean for the banking system to have this new place, this like new location for money.

That's one part of it. The other part is like you referenced in payments. One of banks big businesses today are payments. Mostly that means for consumers you buy things with your debit or credit card. The bank facilitates that. The bank issues a card and they earn a fee basically paid by the merchant when you use that card. And stable coins are

present to the people who back them the opportunity to move money in a way that doesn't need a credit card, because I can transfer a stablecoin to you just by moving it on the ledger. I don't need a network like Visa or MasterCard. Stablecoins using a blockchain represent another network to move money around. And so merchants who are on an eternal quest to

to get around credit cards because it costs them. It costs them. When you use your credit card or debit card at a merchant, they essentially pay for that. And so for many years, basically anytime a new payment technology emerges, merchants pop up to say, hey, maybe we could use that.

They've had middling success doing that over the years. I mean, the fact is that most people like to use their debit cards. Most people like to use their credit cards. Some people are richly rewarded for using their credit cards. And so whether stable coins are truly going to disrupt kind of payments in that sense is

Remains to be seen. And you mentioned Silicon Valley Bank and its downfall in 2023. The impact of uninsured corporate deposits you write in your piece is a source of concern for widespread use of stable coins. The SVB example sort of illustrates how messy these kinds of things can get. Is the industry ready for a disruption like that? If stable coins really reached a massive scale, it would represent a pretty meaningful change in like how deposits live today.

in banks in the United States. That's because a lot of smaller kind of individual checking savings, kind of day-to-day business accounts, if those things all get pooled into this big pot of money that backs a stable coin, that is a very, very different kind of deposit. My small sub $250,000 checking account is fully insured by the FDIC.

accounts that are larger than that, like the account that a stablecoin issuer might have at a big bank, are not insured. And so lots of small insured deposits transform into big uninsured deposits. And uninsured deposits are a riskier source of funding for the bank because the holder of that deposit, because they're not protected by the FDIC, well, they ended up being protected in the case of SVB, so it's debatable perhaps, but they are much more sensitive to like

Like, is this a quality bank? Do I want to keep my money here? Is another bank offering me a better deal for this money? Maybe I should take it there. Like, it's a very different kind of deposit. And so it really changes just the way that money will flow around in the U.S. economy. That was WSJ Heard on the Street columnist, Telus Demos. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with supervising producer Melanie Roy. I'm Victoria Craig for The Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.