Podcast Summary: The Indicator from Planet Money

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

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).

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.

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.”

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.