Don’t blame the GENIUS
Crypto politics versus crypto policy
Hello! I’m Veronica Irwin, a crypto regulation and policy journalist based in Brooklyn. You might know me from my scoops in Unchained, or my features in Forbes. Now, I’m writing a weekly column for the Brogan Law newsletter and publishing scoops in my own newsletter, Decrypting DC.
This week, I’m also excited to write for Project Glitch about something that’s been grinding my gears for a while: the disparity between the politics of the GENIUS Act and the policy itself. If you like what you read, keep up with my work on Twitter.
There’s plenty of unseemly behavior when it comes to Trump and crypto. The GENIUS Act is the wrong place to focus criticism
The fight over the GENIUS Act in the US Senate is a great illustration of how mainstream political arguments—and President Trump’s flamboyant foray into the crypto business—can get in the way of efforts to make useful policy.
The objective of the GENIUS Act—which stands for “Guiding and Establishing National Innovation for U.S. Stablecoins” and is a counterpart to the STABLE Act introduced in the House of Representatives—is to impose restrictions on stablecoin issuers that ensure their tokens maintain a stable value and can be safely used by American consumers and financial services companies.
It was first introduced in February with rare bipartisan backing. For a while it looked as though it would sail through, with 10 Democratic senators supporting it. But lately, Democratic senators led by the crypto industry’s political nemesis, Elizabeth Warren, have seized on the idea that passing GENIUS would also amount to a rubber stamp for President Donald Trump’s corrupt interests in cryptocurrency—and now even some of those who were once supportive have wavered. The bill could be voted on this week, and nobody on the Hill is confident in how it will go.
Democrats’ larger worry is understandable—World Liberty Financial, a company which has already made the Trump family hundreds of millions of dollars, launched a stablecoin called USD1 in late March just as Congress was considering the stablecoin bills. And we all know the story of $TRUMP, the cryptotoken that has become a donation box for people looking to hang out with the president or make their legal trouble go away.
But the GENIUS Act doesn’t have anything to do with memecoins, and it’s not true that the bill itself would enable any more presidential corruption than we’ve already seen.
In fact, some argue that the bill would be a significant improvement on the status quo, which allows stablecoins like USD1 to operate with little to no restrictions.
USD1, but Trump first
USD1, like most stablecoins, is advertised as a token worth one dollar that can be used for on-chain transactions. World Liberty says that users can trust the reserves backing USD1 to maintain their value because they are in relatively low-risk assets like short-term treasuries, dollar deposits, and “cash equivalents.”
Only, World Liberty doesn’t manage those reserves. The USD1 token is a white labeled product actually issued by crypto infrastructure company BitGo, according to a BitGo executive who spoke to Project Glitch on the condition of anonymity because they were not authorized to speak on the arrangement. (In marketing materials, World Liberty has played down BitGo’s role in USD1, saying it is only the custodian providing “support” to USD1.)
Payments denominated in USD1 are not pure profits for a Trump family business, if USD1 in fact operates like it says it does. Rather, the company profits from interest on its reserves, similar to the business model of a very conservative bank. US Treasuries accrue between 3.93% and 4.93% interest, according to Bloomberg, though some stablecoin advocates say the growth of the industry after legislation is passed, in aggregate, could boost demand for these assets. Cash and cash equivalent reserves earn lower yields. And BitGo ostensibly takes a cut.
Despite the slim margins, USD1 still earns World Liberty, and thus Trump and his family, a lot of money. An Abu Dhabi government-backed venture fund recently invested $2 billion in Binance via USD1, for example, effectively handing the Trump family business a “gift” in the form of interest that will accrue on USD1’s reserves.
World Liberty Financial didn’t respond to requests for comment.
GENIUS’s guardrails
So what’s in the GENIUS Act, and how would it affect USD1? Anything can change before a vote, but a draft that has been circulating for several weeks is probably close to a final bill text, according to five lobbyists on both sides of the aisle who spoke to Project Glitch.
A few pillars of the GENIUS Act have been in place since it was initially introduced, giving us a rough idea of how it would affect the Trump stablecoin business: it would enforce minimal changes to USD1 in its current form, but it would establish some guardrails that’d prevent USD1 from expanding into riskier practices.
The GENIUS Act requires companies to maintain reserves in US dollars, short-term treasuries, and equally liquid assets, for example. State-regulated issuers must additionally publish their reserves on their website and create mechanisms to freeze and seize transactions in the event of any suspicious behavior.
Such requirements are aimed primarily at systems like Tether, the world’s most popular stablecoin, with a $153 billion market cap. Tether has never commissioned a US-regulated firm to audit its reserves, and one of the remaining issues senators haven’t settled in the GENIUS Act is whether language should require them to—or if the standards set by overseas regulators will suffice so long as they comply with US law enforcement requests.
If BitGo and World Liberty’s public statements are true, USD1 already meets the legislation’s proposed requirements. World Liberty says it has already subjected itself to third-party audits as well. That would be above and beyond the minimal reporting requirements for stablecoins of its size under GENIUS, which only mandate public disclosure of the types of assets a given coin is backed by and its redemption procedures (it’s worth noting that World Liberty’s audits haven’t been made public).
Another thing GENIUS might do is discourage USD1 from growing beyond a $10 billion in market cap—relatively small in an industry featuring behemoths like Tether and Circle’s USDC ($61 billion). If USD1 gets bigger than $10 billion (its current cap is just over $2 billion) the company’s stablecoin issuance business would be regulated by the Office of the Comptroller of the Currency (OCC), a branch of Treasury.
The OCC has broad discretion to act against any firm under its purview that it sees as posing a risk to the American financial system. Entering OCC’s jurisdiction would effectively expose USD1 to scrutiny by whichever party holds the White House, says Austin Campbell, an adjunct professor at NYU and a former executive at Paxos, which white labels stablecoins similarly to BitGo. “With Trump as president, the OCC would be unlikely to completely go to war with USD1,” he says. “But under another president, they would totally go to war with USD1.”
Campbell’s view is that although the GENIUS Act only “marginally” adds oversight to a system like USD1, if the Democrats’ goal is to restrict shady dealing by stablecoin issuers, they should pass the bill.
The real money grab
There’s another reason that turning GENIUS into a political football may be a bad idea: it redirects attention from what appears to be layers of unethical, and possibly illegal, activity on the part of World Liberty. For example, the company markets USD1 as having a benefit other stablecoins do not: “access to the power of [decentralized finance] underpinned by the credibility and safeguards of the most respected names in traditional finance,” as co-founder Zach Witkoff put it.
It’s not clear who those “names” are, but Zach’s father is the billionaire Steve Witkoff, who President Trump appointed as Special Envoy to the Middle East earlier this year. World Liberty has also plastered its website with photos of the president, giving him the title “chief crypto advocate” for the firm. Using the presidential office in marketing materials this way is not only a violation of decades of ethical norms, but also likely a violation of the emoluments clause of the Constitution, which is designed to prevent profiteering.
Given the Republican majority, it is politically impossible to amend the GENIUS Act to prohibit presidents from having their own stablecoins. Not only would GENIUS lose too many Republican votes, Trump would veto it once it got to his desk. Besides, President Trump would just argue (as he already has) that he’s not personally involved.
Either way, the real money grabs for the Trump crypto businesses, at least for the moment, are his memecoin and other assets, like NFTs, which have been sold directly to users to the tune of several billion dollars. Today’s version of USD1 is really just a low-lift side project for the Trump crypto business. Legislation that serves to provide at least some consumer protections and reasonable business standards for the entire stablecoin industry is arguably needed to keep USD1 from becoming something more corrupt and risky.
Some Democrats are now focusing on the larger issue. The MEME Act, for example, introduced by Representative Sam Liccardo in the House and Senator Chris Murphy in the Senate, would prohibit senior executive branch officials and their families from issuing, sponsoring, or endorsing a variety of assets, including digital assets. Senator Jeff Merkley’s End Crypto Corruption Act extends similar prohibitions to Congress, while a version introduced by Representative Ritchie Torres in the House specifically names stablecoins.
Although these bills have no realistic chance of passing a Republican-controlled Congress, at least they focus on the root issue.
“I understand that people want to use the legislation to clarify that what [Trump’s] doing is wrong,” said one Congressional staffer who works for a Democrat currently opposing the GENIUS Act. On the other hand, he says, the bill “would put regulations on what [Trump] can do and would prevent some of the risks if he decides he’s not actually going to have reserves to back up the stablecoin and let it blow up, or run away with the money.” —Veronica Irwin
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