Former Greek Finance Minister Issues Sudden Warning: Stablecoins Are Like Ticking Time Bombs

The author Yanis Varoufakis is an economist who served as the Minister of Finance of Greece. He has written several bestselling books on economics, and his latest publication is "Another Now: Dispatches from an Alternative Present."

Francisco Goya warns the world in his print work "The Sleep of Reason Produces Monsters" that when reason relaxes its vigilance, terrifying powers are unleashed in the mind. Today, with President Trump's cryptocurrency dreams becoming a reality without the constraints of reason, stablecoins are emerging as a terrifying force being released into the global economy. With the Senate's passage of the "Genius Act" on Tuesday, stablecoins are one step closer to becoming the core of global finance.

Stablecoins are the offspring of two seemingly eternal opposing camps: the libertarian crypto community and the nationalist worshippers of the dollar. Stablecoins are built on blockchain technology aimed at dismantling financial oligarchs (Wall Street and the Federal Reserve), yet they are tightly linked to the most powerful totem of financial oligarchs—the dollar—at a 1:1 exchange rate. As a result, a supposedly depoliticized currency is closely tied to the most politically dominant form of currency.

Stablecoins are considered a win-win solution. They do not have the terrifying volatility of Bitcoin, yet retain the freedom of anonymity and global transactions—unregulated by any government. Setting aside their uses for criminal organizations like the mafia—they naturally crave any payment method that can facilitate their transactions—stablecoins are a godsend for people in countries with fragile monetary systems (especially in Africa). In addition to providing an always-available dollar alternative for those without bank accounts, stablecoins also offer a more reliable means of cross-border remittances than the shaky interbank transfer systems (like SWIFT) to bypass U.S. sanctions.

In short, as long as governments around the world ignore stablecoins, they can bring a considerable amount of benefits without causing too much harm. However, the Trump administration is now weaponizing them to achieve its own purposes, and the potential for serious damage has increased exponentially. The two executive orders issued by President Trump (one on January 23, 2025, and the other on March 6, 2025) along with the current Genius Act are turning stablecoins into a massive ticking time bomb hidden in the foundations of the global economy.

Currently, the dollar value of circulating stablecoins is approximately $250 billion. To obtain sufficient reserve support, it is estimated that last year, issuers bought $40 billion in U.S. Treasury bonds, a figure that exceeds the purchases of any foreign bond buyer in 2024. In the same year, the stablecoin issuer Tether reported a pre-tax annual profit of $13 billion—quite impressive for an offshore company with about 100 employees.

Stablecoins are considered a win-win solution.

As for the number of crypto wallets containing stablecoins, it surged from 27 million last year to 46 million, with trading volume increasing by 84%, from $409 billion to $752 billion. Stablecoins now account for about 80% of all crypto transactions.

Such rapid growth will only encourage financial institutions that originally aimed to disrupt cryptocurrency. Giants like Visa and Stripe are joining this trend, and large tech companies will soon follow, seeking to retaliate against Wall Street for pushing them out of the payment system. Even Uber is eager to stop more funds from flowing to financiers from its ride-hailing platform and is developing a fully autonomous cross-border stablecoin.

Before the Trump administration introduced the "Genius Act" to promote the development of stablecoins, Standard Chartered estimated that by 2028, the circulating stablecoins would grow eightfold, exceeding $2 trillion. So the question is, why are Donald Trump, JD Vance, and their "Make America Great Again" compatriots so intent on further promoting the development of stablecoins?

Besides the obvious self-enrichment motive, a more interesting explanation is that stablecoins perfectly align with the Trump administration's goal of narrowing global trade imbalances and achieving "Make America Great Again." Nothing motivates these individuals more than the idea that "what's good for their bank accounts is good for America."

The intentions of the Trump team have become very clear: devalue the dollar, reduce the U.S. trade deficit, and use tariff threats to maintain its dominance. Stablecoins play a key role in this plan. For example, suppose Japan is forced to use a significant portion of its $1.2 trillion assets to purchase stablecoins denominated in dollars. The total supply of dollars will increase, leading to a devaluation of the dollar. Stablecoin issuers will buy U.S. Treasury bonds with the dollars received, thereby lowering the borrowing costs for the U.S. government and consolidating the dollar's hegemonic status in the process. In the words of JD Vance, the greater adoption of stablecoins will "enhance our economic power."

However, stablecoins pose systemic risks that the Trump team should not ignore. Stablecoin issuers can profit by issuing more tokens than the dollars they have raised or by purchasing less liquid (but higher-yielding) securities. When stablecoins were still in their infancy (for example, in 2021, New York regulators fined Tether $21 million for undisclosed reserve violations), the threat of inadequate reserves was negligible, not enough to keep one awake at night. However, as stablecoin scale surpasses the $2 trillion mark, the risks could be greater than those of the 2007 subprime mortgage crisis.

As money flows from domestic bank accounts in the U.S. to stablecoins, the demand for U.S. Treasury bonds rises, causing their yields to fall. Banks must raise interest rates to prevent capital outflow, while the Treasury must issue more bonds to meet the growing demand. A sudden divergence emerges between different types of interest rates: bank rates and long-term Treasury yields rise, while short-term Treasury yields fall, leading to what is known as a steepening yield curve — a clear signal of financial instability.

In 2023, Circle, the issuer of USDC (the second largest stablecoin), deposited $3.3 billion in reserves with Silicon Valley Bank (SVB). When the latter collapsed, USDC began to experience a run on the bank, and its peg to the US dollar was broken. If the Federal Reserve had not stepped in to rescue SVB, Circle would have faced collapse. This little episode now seems like a minor issue, as the U.S. Treasury predicts that $6.6 trillion in U.S. bank deposits is migrating to stablecoins, following the Trump administration's praise for cryptocurrencies and the new environment shaped by the Genius Act.

Wall Street is keen on leveraging blockchain-based technology to accelerate and secure securities transactions while reducing costs - attempting to disrupt the traditional and crumbling securities trading system, much like stablecoins are disrupting SWIFT. However, to move the trading of stocks, bonds, derivatives, and various exotic financial contracts onto the blockchain, contracts and tokens must be embedded within the same blockchain. This means a "race for arms" is about to begin, competing for which dollar-backed stablecoin will dominate securities trading. Once the answer is revealed, its usage is bound to skyrocket. However, if the private company issuing this stablecoin encounters difficulties, the entire stock market and the U.S. Treasury market, which is worth up to $29 trillion, will be in jeopardy.

What would happen if stablecoins issued outside the United States collapsed? Non-U.S. institutions, including European ones, cannot access the Federal Reserve's rescue mechanisms. Would the Trump administration provide Federal Reserve currency swap lines to European banks like it did in 2008? That is questionable. Therefore, dollar-backed stablecoins issued in Europe, Asia, Africa, or Latin America could potentially export financial fragility globally. Even the European Central Bank is panicked at the prospect of having to seek dollars to rescue holders of European dollar-denominated stablecoins.

At the same time, developing countries face a threefold dilemma: banning stablecoins (giving up their huge benefits), creating sovereign alternatives, or accepting deeper dollarization. China has wisely chosen to completely ban stablecoins with its digital yuan, thereby protecting its financial system. However, its $4.5 trillion in dollar reserves presents a dilemma—selling off dollars helps devalue the currency under the Trump administration, while holding dollars exposes them to volatility risks dominated by the U.S. The preparations of BRICS countries stand in stark contrast to most economies, which are caught between dollar dependence and the instability brought by cryptocurrency experiments.

Therefore, the "Genius Bill" is hard to criticize—if its aim is to maximize the threat of financial collapse. Essentially, the bill weaponizes stablecoins for monetary privatization and effectively outsources the dominance of the dollar to pro-Trump tech giants.

Many Democrats support this bill, which proves their immense stupidity. First, the bill will impose an absurd ban on interest-bearing stablecoins to protect their cronies on Wall Street. Second, the bill is said to regulate Trump's new digital "Wild West." How will it regulate? Institutions issuing stablecoins with a value of less than $50 billion will be subject to state government regulation, which will allow thousands of smaller stablecoins to thrive across the United States. As for those stablecoins that are systemically important, including issuers registered outside the U.S. (such as Tether, headquartered in El Salvador), they will be required to undergo an "independent" audit of the quality of their dollar reserve assets.

The "Genius Act" paves the way for a massive collapse. The drafters of the bill did not clearly define the regulatory approach for reserves and unforgivably overlooked the risk of a vicious cycle. However, there is a far worse aspect to this bill. It deprives the Federal Reserve of the power to issue its own stablecoin, namely the digital dollar, to counter the digital renminbi already in use by the People's Bank of China. Furthermore, the Federal Reserve will be stripped of necessary regulatory tools (such as those equivalent to the Federal Deposit Insurance Corporation) while being tasked with cleaning up the chaos inevitably created by private stablecoin issuers.

Making mistakes in the field of financial innovation is human nature. But to completely mess things up, all it takes is for the U.S. government to promote the issuance of private stablecoins, cloaked in a slight regulatory legitimacy, while banning the Federal Reserve from using the same technology and depriving it of the means to clear the inevitable chaos. With the introduction of the "Genius Act," we are almost at this point. Now is the time to oppose it, obstruct it, and repeal it.