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Regulating the Train, Not the Track

The GENIUS Act is a major step forward. It sets out to create "good money" for the digital age by establishing clear rules for stablecoins—digital tokens pegged to the U.S. dollar. The law mandates that these tokens be fully backed by 1:1 reserves and redeemable on demand, creating a foundation of trust essential for widespread adoption. It’s an excellent plan for building powerful, reliable locomotives for our new financial system.

But here is its critical flaw: the Act is so intensely focused on the design of the train (the stablecoin) that it forgets to mandate the width of the track (interoperability across networks).

This failure to mandate interoperability is a dangerous oversight. In the digital economy, ultimate power lies not with the creator of the asset, but with whoever controls the last mile. The law’s provisions to curb the power of incumbents become toothless because a leading fintech doesn’t need to issue its own stablecoin to win. It can simply partner with an approved issuer or commoditize multiple stablecoins, and then leverage its vast user base and integrated experience to make its proprietary network and ecosystem the de facto standard gauge.

Once its rails are laid, it won't matter how many innovative stablecoins exist. They will either run on this dominant, closed network or be left stranded at a modern-day “break of gauge.” If that happens, the promise of competition dies. We will have simply replaced the old, slow rails of the banking system with a new, faster, but equally concentrated, private railroad.

...read more at lightspark.com