Tampa Bay Times: Bracing for the impact of stablecoins. Three ways regulators can get ready
As some countries use cryptocurrencies to evade sanctions, could the United States instead use them to enforce sanctions? Among policymakers, the idea of leveraging stablecoins for this purpose is gaining traction, and we have drawn a roadmap to guide the way.
Stablecoins, pegged to assets such as the U.S. dollar and backed by reserves in banks or Treasury bills, were originally designed to reduce crypto’s volatility, but they have now become part of the sanctions debate. The logic of tying stablecoin regulation to national-security leverage helps explain the GENIUS Act, Congress’ latest attempt to craft a regulatory framework for stablecoins that are used as payment. The hope is that bringing these issuers under a U.S. supervisory umbrella will not only safeguard consumers but also give the Treasury and its Office of Foreign Assets Control, which enforces economic and trade sanctions, a new look into global crypto flows.
The argument is persuasive in theory. Because stablecoin issuers such as Circle and Tether hold their reserves in U.S. dollars and Treasury securities, they provide the U.S. with a legal foothold over at least part of the crypto ecosystem. In 2022, when the Office of Foreign Assets Control blacklisted Tornado Cash, a so-called crypto mixer that makes transactions harder to trace, both Circle and Tether froze the addresses linked to it.
Circle, as a U.S.-based firm, was legally required to comply. Tether, incorporated overseas, was not unless its activities touch U.S. markets — but it still voluntarily blocked those wallets. Episodes like these show that stablecoins can, in some circumstances, be effective points of enforcement. When a digital asset is tied to U.S.-denominated reserves or banking channels, U.S. reach expands: Every U.S. dollar in the backing pool creates a legal and operational link back to U.S. jurisdiction.