How stable is Stablecoin?

Summary

Podcast Summary: The Indicator from Planet Money

Episode Title: How Stable is Stablecoin?
Host/Author: NPR
Release Date: April 30, 2025

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Introduction to Stablecoins and Legislative Developments

In the April 30, 2025, episode of The Indicator from Planet Money, hosts Paddy Hirsch and Waylon Wong delve into the complex world of stablecoins—a prominent type of cryptocurrency designed to maintain a stable value relative to a fiat currency. The episode opens with a discussion on recent bipartisan legislative actions, highlighting the passage of the Stablecoin Transparency and Accountability for a Better Ledger Economy (Stable Act) by the House Financial Services Committee, mirroring a similar advancement in the Senate Banking Committee (00:15).

This legislative momentum arrives amidst the announcement by World Liberty Financial, a company with ties to former President Trump and his family, to launch a new stablecoin named USD1 (00:45). The involvement of a Trump-affiliated business, which holds a significant 60% stake, has raised concerns among lawmakers about potential conflicts of interest, especially given Trump's vocal support for mainstream cryptocurrency adoption in the U.S. (00:45–01:01). The hosts set the stage to explore not only the mechanics and economic implications of stablecoins but also the regulatory and ethical considerations surrounding their proliferation (01:01).

Understanding Stablecoins: The Casino Chip Analogy

To demystify stablecoins, Paddy Hirsch employs an accessible analogy comparing them to casino chips (02:49). He explains that just as casino chips maintain a consistent value—each chip equating to one dollar regardless of where or how long they are held—stablecoins are designed to retain their value relative to a specific fiat currency, typically the U.S. dollar (02:49–03:39). Waylon Wong reinforces this analogy by stating, “Stablecoins 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” (03:37).

Why Do People Buy Stablecoins?

Yiming Ma, an associate professor at Columbia Business School, offers insights into the motivations behind stablecoin adoption. She identifies two primary reasons:

1. Facilitating Crypto Transactions: Ma explains that converting fiat currencies into stablecoins simplifies trading within crypto markets, serving as a convenient medium of exchange (03:51–04:10).

   “You do want any kind of trading in crypto markets, it's easier to first convert your dollars or any other fiat currency into a stablecoin and then use stablecoins basically as a means of payment to transact crypto or in different crypto markets.” (03:51)

2. Efficient Money Transfers: Stablecoins enable faster and cheaper cross-border transactions compared to traditional banking methods. Wong illustrates this with a personal anecdote about the delays and costs associated with international bank transfers, emphasizing stablecoins' potential to streamline such processes (04:24–05:09).

   “Stablecoins can let you do this kind of thing more easily and quickly and generally more cheaply than you can do with regular currency.” (04:53)

Challenges and Risks Associated with Stablecoins

Despite their advantages, stablecoins are not without flaws. The hosts discuss several critical issues:

• Market Liquidity and Stability Threats: Unlike the guaranteed exchange rate in casinos, stablecoins are subject to market dynamics. If there are insufficient buyers, the value of stablecoins can dip below their pegged value, as seen when USDC fell below 88 cents in 2023 (05:35–06:16).

  “It is not like a deposit in a bank account in the US that is protected by deposit insurance. There is no promise that it's always at $1. And indeed over the past years it has fluctuated and it's could fluctuate in the future.” (06:30)

• Lack of Income Generation: Stablecoins do not yield interest or returns on holdings, contrasting traditional bank accounts or money market funds. They function solely as a stable store of value without generating profit for the holder (06:57–07:13).

  “They don't pay interest the way that your dollars do when you put them in a bank account or a money market fund.” (07:13)

• Issuer Transparency and Regulatory Oversight: Current stablecoin issuers, primarily Tether and Circle, operate with limited regulation and transparency. There is an absence of regular audits and full disclosures, raising concerns about the security and reliability of these digital assets (09:47–10:05).

Economic Impact and Revenue Models of Stablecoin Issuers

The episode highlights the substantial economic footprint of stablecoins, with transaction volumes surpassing $27 trillion last year—exceeding the combined volumes of Visa and MasterCard (07:26–07:45). Stablecoin issuers capitalize on this volume through:

1. Transaction Fees: Charging fees for buying and selling stablecoins on their platforms.

2. Investment of Holdings: Similar to banks investing deposits, issuers invest the fiat currency backing stablecoins in assets like U.S. Treasuries, pocketing the yields without compensating stablecoin holders (07:45–08:09).

Ma elaborates on this model, noting that the yield from investments such as Treasuries provides a lucrative income stream for issuers, making the stablecoin business highly profitable sans providing returns to investors (08:09–08:26).

Market Dominance and Barriers for New Entrants

The stablecoin market is predominantly controlled by major players like Tether and Circle, posing significant barriers for newcomers like World Liberty Financial (08:43–09:21). Yiming Ma points out that traditional financial competition, such as offering higher interest rates, is not applicable to stablecoins since they inherently do not provide returns (09:21–09:30).

Waylon Wong adds that while stablecoins are well-branded and recognized, their underlying risks often go unnoticed, making it challenging for new issuers to gain trust and market share (09:30–09:47).

Regulatory Prospects: The Stable Act

Looking ahead, the Stable Act seeks to impose stricter regulations on stablecoin issuers, aligning them more closely with traditional banking institutions. Proposed measures include:

• Enhanced Transparency: Mandating regular financial disclosures to ensure stablecoins maintain their peg to the dollar.

• Regulatory Compliance: Enforcing adherence to anti-money laundering (AML) regulations and other financial safeguards (10:05–10:38).

These regulations aim to mitigate risks associated with stablecoins, providing greater protection for users and instilling confidence in the market (10:05–10:38).

Concerns Over Conflict of Interest

The forthcoming regulation inevitably brings scrutiny to entities like World Liberty Financial, given their political connections. The potential for conflicts of interest, particularly involving figures connected to the former presidency, underscores the need for robust oversight and impartial enforcement of new laws (10:38–10:42).

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Conclusion

The Indicator from Planet Money effectively breaks down the intricate subject of stablecoins, balancing technical explanations with real-world implications. By comparing stablecoins to casino chips, the hosts make a complex financial instrument accessible to a broad audience. The episode underscores the dual-edged nature of stablecoins: offering innovative financial solutions and efficiencies, yet fraught with significant risks and regulatory challenges. As legislative bodies move to impose stricter controls through the Stable Act, the future landscape of stablecoins will likely undergo substantial transformation, shaping their role in the global economy.

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Notable Quotes:

• Waylon Wong (03:37): “Stablecoins 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.”

• Yiming Ma (03:51): “You do want any kind of trading in crypto markets, it's easier to first convert your dollars or any other fiat currency into a stablecoin and then use stablecoins basically as a means of payment to transact crypto or in different crypto markets.”

• Yiming Ma (06:30): “It is not like a deposit in a bank account in the US that is protected by deposit insurance. There is no promise that it's always at $1. And indeed over the past years it has fluctuated and it's could fluctuate in the future.”

• Yiming Ma (08:09): “On Treasuries, there's a coupon, there's a yield on deposits, there's a deposit rate. The issuer is essentially pocketing all that income, and there's nothing that they pay out to the holders of the stablecoin. Right. So it's an extremely profitable business to be in.”

• Yiming Ma (09:21): “But because stablecoins are not distributing any of that income to their investors, it's actually currently not possible to compete on the price dimension.”

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Production Credits:

This episode was produced by Cooper Katz McKim, engineered by Harry Paul, fact-checked by Sierra Juarez, and edited by Julia Ritchie. Kicking Cannon served as the show's editor, with production assistance from NPR's Indicators team.

Transcript

[NPR]

Npr.

[Paddy Hirsch]

This is the indicator from Planet Money. I'm Paddy Hirsch.

[Waylon Wong]

And I'm Waylon Wong. In an unusual show of bipartisanship, the House Financial Services Committee this month passed the stablecoin Transparency and Accountability for a Better Ledger Economy, or Stable Act. A similar bill also cleared a Senate Banking Committee in March.

[Paddy Hirsch]

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 stablecoin called USD1.

[Waylon Wong]

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.

[Paddy Hirsch]

The US but what exactly is this stablecoin thing? On today's show, we'll explain how stablecoins work and how they make money and for whom.

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[Paddy Hirsch]

To a casino, or even if you've only ever seen a casino on tv, you already know the basics of how a stablecoin 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 100 single dollar chips. And you go into the casino and you play roulette and craps and whatever. And then you bring whatever chips 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.

[Waylon Wong]

Stablecoins 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.

[Paddy Hirsch]

It really is just like a poker chip.

[Waylon Wong]

Yiming Ma is an associate professor at Columbia Business School. She says there are several reasons why people buy stablecoins. The first is of course, so you can play in the crypto casino if.

[Yiming Ma]

You do want any kind of trading in crypto markets, it's easier to first convert your dollars or any other fiat currency into a stablecoin and then use stablecoins basically as a means of payment to transact crypto or in different crypto markets.

[Paddy Hirsch]

Now sure, you can use fiat currency like dollars or euros or yen in crypto world, but it's just less hassle to use a stablecoin that everyone accepts. Now the second reason that people buy stablecoins is to move money around outside of crypto world.

[Yiming Ma]

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.

[Paddy Hirsch]

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.

[Waylon Wong]

Stablecoins 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 stablecoin, send the coins to your friend in Argentina or wherever, and she converts them to dollars on her end. Shazam.

[Paddy Hirsch]

This all sounds good, but there are couple of problems here. Yiming says first, buying and selling these coins is not quite as straightforward as going to the cashier in a casino. Most buyers purchase stablecoins 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.

[Yiming Ma]

You are actually selling your stablecoin to someone else on the market. And the hope is that this price at which you're selling, 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.

[Waylon Wong]

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 stablecoin, then maybe its price won't be so stable after all. Its price fall.

[Paddy Hirsch]

This happens and sometimes we're talking about more than a few cents. In 2023, the value of a stablecoin called USDC dropped below 88 cents. And Yiming says there's no protection for people who buy these coins.

[Yiming Ma]

It is not like a deposit in a bank account in the US that is protected by deposit insurance. There is no promise that it's always at $1. And indeed over the past years it has fluctuated and it's could fluctuate in the future.

[Waylon Wong]

Okay, so maybe stablecoins 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.

[Paddy Hirsch]

Yeah, Stablecoins are not like Bitcoin or a meme coin or anything like that. They don't go up and down in value like those kinds of coins do. You know, stablecoins 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.

[Waylon Wong]

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.

[Paddy Hirsch]

And still, despite the fact that these stablecoins 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.

[Waylon Wong]

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 invests that money. So a stablecoin issuer takes the dollar you gave it for your stablecoin and goes out and buys assets, usually US Treasuries.

[Yiming Ma]

On Treasuries, there's a coupon, there's a yield on deposits, there's a deposit rate. The issuer is essentially pocketing all that income, and there's nothing that they pay out to the holders of the stablecoin. Right. So it's an extremely profitable business to be in.

[Paddy Hirsch]

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 stablecoin business. If he 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.

[Waylon Wong]

But even for an organization as politically connected as World Liberty Financial, succeeding as an issuer could be a challenge. A successful stablecoin requires a network of people to adopt and accept and use those coins. And building out those kinds of networks can take years.

[Paddy Hirsch]

Yeah, and then there's the fact that the stablecoin world is dominated by the biggest issuers, tether and circle. And there are only limited ways that a newcomer can compete. Yiming 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 stablecoin, because stablecoins, well, they don't pay interest, remember?

[Yiming Ma]

But because stablecoins are not distributing any of that income to their investors, it's actually currently not possible to compete on the price dimension.

[Waylon Wong]

One thing you have to say about stablecoins, they are very well branded. It's a stablecoin. The problem is, as we've already established, stablecoins are not always stable. In fact, compared to traditional investments, they look pretty risky once you look under the hood.

[Paddy Hirsch]

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.

[Waylon Wong]

But all of that might be about to change because Congress is on the case.

[Yiming Ma]

The current regulations put forward, both in the House and the Senate, they generally are trying to make things more transparent.

[Paddy Hirsch]

The Stable act, which we mentioned earlier, will make stablecoin issuers look a lot more like banks. If legislation passes both houses, stablecoin 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.

[Waylon Wong]

What about those potential conflicts of interest for the President and his family?

[Paddy Hirsch]

Well, Waylon, that's a whole other enchilada.

[Waylon Wong]

This episode was produced by Cooper Katz McKim. It was engineered by Harry Paul, it was fact checked by Sierra Juarez and edited by Julia Ritchie. Kicking Cannon is our show's editor and the indicators of production of NPR.

[NPR]

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