Stablecoins Made Simple
Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to assets like fiat currencies (e.g. USD or AUD) or commodities (e.g. gold). Unlike traditional cryptocurrencies known for volatile swings, stablecoins aim to offer predictable value – making them ideal for everyday transactions, payments, and use within blockchain-based financial services. However, the “stable” in stablecoin isn't guaranteed: their reliability depends on reserve backing, transparency, and market trust.
How Do Stablecoins Maintain Their Value?
Stablecoins follow various mechanisms to preserve stability:
- Fiat-collateralised: Backed 1:1 by fiat reserves held by custodians (e.g. USDT, USDC, TrueAUD).
- Crypto-collateralised: Secured with other cryptocurrencies and often over-collateralized to mitigate volatility (e.g., DAI).
- Algorithmic (non-collateralised): Use supply adjustments via code rather than actual reserves. These are high-risk and have seen significant collapses (e.g., TerraUSD).
Why Are Stablecoins Important?
Stablecoins serve as a critical “bridge asset” within the crypto ecosystem:
- Transactional convenience: Avoids pricing volatility issues (like using Bitcoin for everyday items).
- Liquidity and trading: Enables seamless conversion between assets without reverting to traditional money.
- Global remittances: Facilitates fast, low-cost cross-border value transfers.
- DeFi innovation: Powers lending, yield platforms, decentralised exchanges, and more.
For investors, including SMSF trustees, they offer stability but come with responsibilities around regulation, custody, compliance, and risk management.
Risks and Limitations
Stablecoins aren’t risk-free:
- Counterparty risk: Do issuers genuinely hold enough reserves?
- Regulatory risk: Policy changes could affect operations or legitimacy.
- Banking reliance: Fiat-backed coins depend on the stability of banking systems.
- Algorithmic vulnerability: Collapse of poorly-designed systems is a real threat.
The GENIUS Act: A Landmark Move for Stablecoins
On July 18, 2025, President Donald Trump signed the GENIUS Act – Guiding and Establishing National Innovation for U.S. Stablecoins – into law. This is the first comprehensive federal regulation in the U.S. focused on stablecoins.
Why It Matters:
-
For Stability and Consumer Confidence
By mandating direct reserve backing, audits, and oversight, the GENIUS Act helps ensure that stablecoins truly maintain their peg-boosting trust and reliability. -
Primes U.S. as a Crypto Leader
This Act enables domestic financial institutions to issue stablecoins under clear rules. The aim is to attract innovation and maintain the U.S. dollar’s status as a global reserve currency -
Strengthens Regulation and Security
The inclusion of AML safeguards and regulatory supervision enhances resilience against fraud, money laundering, and illicit crypto activity -
Aligns with Government and Industry Goals
INTENDED to make the U.S. the “crypto capital of the world,” the GENIUS Act is a cornerstone of a broader policy effort, including Digital Asset Market CLARITY legislation
The GENIUS Act marks a turning point for stablecoins – adding legal clarity, investor protection, and institutional legitimacy to an ecosystem that was once loosely regulated.
For investors, including SMSFs, it's a signal that the U.S. is embracing stablecoins under strong guardrails – and that those stablecoins are increasingly becoming more modelled after traditional financial instruments.
Thinking about investing in stablecoins?
They can be powerful tools for payments, trading, and DeFi – but only if you understand the risks. Learn how to secure your wallets, avoid common mistakes, and protect your assets with our Crypto Safe guides.
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