WSJ Opinion Questions Stablecoins
A Wall Street Journal Opinion piece asks, "Can Markets Trust Stablecoins?" The article, written by The Hoover Institution's Amit Seru, says, "Washington has again promised to reinvent money, this time with code. The political tailwind behind the newly passed Genius Act has given fresh life to a recurring fantasy that technology can finally banish the instability at the heart of finance. The promise is beguiling, but the reality is familiar: We can make money modern, but we're still plumbing it through 19th-century pipes." It explains, "This wishful thinking is fueled in part by the collapse of Silicon Valley Bank in 2023. That was no tale of subprime mortgages or exotic derivatives, but a rerun of the oldest story in banking: maturity mismatch. Depositors, in particular those uninsured, can withdraw on demand. Banks invest long-term. When interest rates jump and confidence cracks, withdrawals follow, assets are fire-sold, and the government steps in. Again. Regulators responded with tweaks -- raising capital buffers, fine-tuning liquidity rules -- and hoped the next run will be better managed. But the structure is unchanged. Banks hold high-leverage portfolios funded by short-term liabilities. Even 'safe' assets like Treasurys can unwind the system when hit by enough doubt." The piece adds, "The 'narrow bank' was once floated as a solution -- an institution that holds deposits in only cash or short-term Treasurys. Safe, yes. But sterile. No credit creation. No lending. No growth. Stablecoins are the tech era's remix of this idea: private digital tokens, pegged to the dollar, supposedly backed one-for-one with liquid reserves. Tether and USDC claim to offer programmable, borderless, run-proof deposits, minus the regulatory bulk of banks. And when faith falters, the plumbing freezes. TerraUSD, a stablecoin, collapsed in 2022 because it tried to maintain its dollar peg using code rather than real reserves. Its value hinged on being exchangeable for another token, Luna. But when confidence eroded, investors rushed to redeem TerraUSD, flooding the market with Luna. With no credible collateral and redemptions spiraling, both tokens crashed within days. Even 'fully backed' stablecoins have wobbled when markets questioned the reality behind the reserve claims."
