The GENIUS Act: A Trojan Horse for a CBDC
How History is Repeating Itself
For the last decade, stablecoins have quietly become crypto’s most important and profitable invention. Not NFTs, not DeFi, not even layer 1’s — but stablecoins. They’re the glue holding the digital asset economy together. And now, with the GENIUS Act passed, we’re entering a new era where banks can issue their own stablecoins under federal regulation. On the surface, this looks like a win for safety and innovation. But when you zoom out — way out — this moment looks eerily similar to a chapter of American history that ended with a single, unified, government-controlled currency. And the deeper we look into it, the more convinced we become that the GENIUS Act is the Trojan Horse for a U.S. Central Bank Digital Currency (CBDC). Not immediately, but slowly, methodically, and inevitably — the same way the U.S. consolidated the entire free-banking system in the 1800s. The parallels are too perfect to ignore. But before we get to that, let’s start by breaking down the three major types of stablecoins, the financial engine behind them, and why every institution in the world — including big banks — suddenly wants in.
The Three Types of Stablecoins Explained Simply
Today’s stablecoin universe is made of three main types:
1. Fiat-Backed Stablecoins (USDC, USDT)
These are issued by a central company. For every stablecoin that exists, there is supposed to be one real dollar (or dollar-equivalent asset) sitting in a bank account. Users trust the issuer to actually hold those assets. These are the biggest and most dominant stablecoins today.
2. Algorithmic Stablecoins (UST, the infamous fallen star)
These attempt to stay pegged using code, market incentives, and math — not cash reserves. As we’ve seen, fully algorithmic systems can work in good times and collapse catastrophically in bad times.
3. Over-Collateralized DeFi Stablecoins (DAI, GHO, etc.)
These are issued by decentralized protocols and backed by crypto collateral. You deposit assets like ETH, and the protocol lets you mint a smaller amount of stablecoin. It is decentralized, but inherently inefficient because you must over-collateralize your position.
What’s important is that fiat-backed stablecoins dominate in volume, adoption, trust, and real-world usage, and that is exactly why the U.S. government and banks want to take this market for themselves.
Pros and Cons for Banks and Users
For Banks (Pros):
1. Increased Revenue:
Stablecoins give banks access to the same cash machine USDT and USDC have been running for years. Issuing stablecoins keeps deposits inside the bank, earns yield on reserves, and allows banks to expand globally through blockchain rails.
2. Competitive Edge vs Fintech / Unregulated Stablecoins
Since only “permitted issuers” (banks, or licensed entities) can issue compliant stablecoins, banks gain a regulatory moat. It makes it harder for shady or less regulated issuers to operate freely.
3. Consumer Protections → Trust
Because the law mandates transparency (monthly reserve disclosures, annual audits for large issuers), safety of reserves, redemption obligations, etc., users might trust these bank-stablecoins more. That trust can translate to higher adoption.
For Banks (Cons):
1. Operational & Compliance Burden
These rules come with requirements: 100% reserves, audits, disclosures, risk management, AML/KYC, cybersecurity, etc. That means costs: building infrastructure, teams, legal, etc. It also forces transparency they aren’t used to. They must publicly report reserves and be open to scrutiny. Banks may hate the audit requirements, but they’ll tolerate them to get access to stablecoin profits.
2. No Yield / Interest Directly on Stablecoin (per Act Limitations)
The GENIUS Act prohibits issuing interest or yield on payment stablecoins directly. That means banks can’t use them like savings accounts or yield products. This limits how “attractive” the stablecoin is vs those that build yield via DeFi.
3. Liquidity & Redemption Risk
If many people redeem stablecoins all at once (a “run”), banks will need to have liquid reserves readily available. Holding Treasurys etc is good, but converting those without disrupting markets isn’t trivial.
4. Cybersecurity & Smart Contract Risks
Going digital + blockchain opens up new attack vectors. Smart contract bugs, wallet hacks, fraud, etc. Banks need strong risk management and code audits as they will all be rushing to release their stable coin to gain a competitive advantage which will likely lead to some banks cutting corners.
For Users (Pros):
1. Trust & Safety
These coins must be 100% backed by safe assets (cash and T-Bills). Monthly reserve disclosures + annual audit = less risk of rug pulls and shady issuers and U.S. banks are less likely to depeg and disappear overnight like random DeFi stablecoins.
2. Mainstream Adoption
Big banks issuing stablecoins will translate to easier integrations into apps, payment systems, payroll, etc. We believe this will accelerate crypto usage in daily life — shopping, remittances, even salary deposits.
3. On/Off Ramp Simplicity
Moving between bank accounts and bank-issued stablecoins will be instant and cheap, no more delays between fiat → stablecoin conversions.
4. Lucrative Incentives
Since banks will be competing to have their stablecoin adopted they will be offering incentives to save money in their coin by offering lower interest rates on loans, higher withdrawals at ATM’s, higher interest payments on their normal checking and savings accounts and more.
For Users (Cons):
1. Centralization & Control
Bank stablecoins can freeze, blacklist, track, and surveil transactions at any time. They will not be permissionless. Users must undergo full KYC as bank issued stablecoins will not be censorship-resistant like DAI or other DeFi stablecoins.
2. No Yield/Interest
The Genius Act prohibits these stablecoins from paying yield which means You won’t earn directly from holding them, unlike staking or DeFi stablecoin farms.
3. Loss Of Privacy
Every transaction is tied to a bank-issued digital token → more surveillance than decentralized stables making it feel like a CBDC prototype.
Yet even these pros and cons pale in comparison to the big picture — because this entire situation has happened before. And the ending wasn’t “bank competition.” It was government consolidation.
How Banks Issued Their Own Money in the 1800s
People forget that the United States once had hundreds of private forms of money. From the founding of the United States into much of the 1800s, banknotes in circulation were typically promissory notes issued by individual banks, not standardized federal paper money. During the Free Banking Era (1837–1863), individual banks issued their own banknotes. Each note promised redemption for gold or silver. In theory, this created competition and innovation, but in practice, it created chaos. Several states adopted liberal “free banking” laws: easy charter rules, low capitalization requirements, and permission to issue notes backed by certain bonds or collateral. That led to a boom of small banks issuing notes — plus instability.
Travelers needed guides to determine whether a banknote was real or counterfeit, trustworthy or worthless. Banks issued notes far beyond their reserves. Counterfeiting exploded. Different regions had different “dollars,” and liquidity varied wildly.
The Civil War changed everything. The government needed a stable, unified currency. So they passed the National Banking Acts (1863 and 1864). These acts standardized banknote issuance and required that notes be backed by U.S. government bonds. Then, in 1865, Congress imposed a 10% tax on state banknotes — effectively killing all private money overnight.
By 1900, the U.S. dollar was the sole legal tender. Private currencies faded into history. This transition was incremental and multi-faceted: congressional acts, wartime necessities, court rulings, banking acts, and later the creation of the Federal Reserve all played parts.
Short recap / timeline (key milestones)
1792 — Coinage Act: U.S. dollar created; federal coins minted (specie).
Early–mid 1800s — Thousands of state banknotes circulate; “free banking” era; wildcat banks; serious instability and counterfeiting.
1862 — Legal Tender Act: issuance of greenbacks (United States Notes) as legal tender (Civil War).
1863–1864 — National Banking Acts: creation of national banks and issuance of national bank notes backed by U.S. bonds.
1865 — Heavy tax on state bank notes to eliminate competing state currencies.
1870–1871 — Supreme Court litigation (Hepburn v. Griswold; then Knox v. Lee) — ultimately the Court upholds Congress’ legal tender power.
1884 — Julliard v. Greenman: Congress’ power to issue legal tender even in peacetime affirmed.
1913 — Federal Reserve Act: Federal Reserve Notes created; gradually become the dominant paper currency.
1934 — Gold Reserve Act & related changes reduce the dollar’s tie to gold domestically.
1971 — Nixon ends gold convertibility for foreign governments; dollar becomes fully fiat in international practice.
In short, America went from a wild ecosystem of bank-issued money → to government consolidation → to a single national currency. We are about to watch the same movie again — just with blockchains instead of paper.
The GENIUS Act Is History Rhyming — Again
The parallels are unmistakable:
In the 1800s, banks issued their own money.
In the 2020s, banks will issue their own digital dollars.
In the 1800s, it created fragmentation, confusion, and systemic risk.
In the 2020s, users will deal with dozens of different bank stablecoins unable to interoperate.
In the 1800s, the government stepped in with one unified currency.
In the 2030s, the government will likely step in with a CBDC.
The GENIUS Act looks like innovation and expanded choices. But long-term, it’s creating the exact conditions necessary for the public to voluntarily beg for a single federal digital currency.
Our Long-Term Outlook: The Slow Walk to a CBDC
This is our honest prediction based on everything we know:
Banks are all rushing to issue stablecoins because the business model is too profitable to ignore. But they’re moving too fast, cutting corners, and chasing yield. Some will get hacked. Some will mismanage collateral. Some will misprice
redemption. Some will collapse. People will lose money. Users will get confused. The market will fragment. And the government will position itself as the cleanup crew.
Public panic → government solution.
Unstable system → introduction of stability.
Fragmented private money → unified government money.
This is the same playbook that took 19th-century America from the chaos of Free Banking to a uniform national currency. The same playbook that took Europe from dozens of currencies to the Euro. And now the same playbook will take America from dozens of bank-issued stablecoins to one CBDC.
And when that happens, don’t be surprised if USDT, USDC, and decentralized stablecoins come under pressure — either legally, politically, or technologically — because they do not align with the long-term agenda of a single global, unified monetary standard.
We’re not saying this will happen next year, we’re just saying that this is the road we just stepped onto.
Short to Long-Term Outlook
In the short term, over the next five to ten years, we should expect an explosion of new issuers as every major bank—JPMorgan, Citi, Bank of America, Wells Fargo, and the big regionals—releases its own branded stablecoin. We’ll likely see names like “ChaseCoin” or “CitiUSD” become normal. Adoption will be fragmented as merchants and platforms choose preferred banking partners. Amazon might align with JPMorgan while Apple could lean toward Goldman, creating a patchwork of corporate-aligned digital dollars. These bank-backed coins will dominate the “safe and compliant” segment of the market, gradually squeezing out offshore issuers and putting pressure even on giants like USDC and USDT. The result will be two distinct stablecoin worlds: the heavily regulated, KYC-bound bank coins, and the permissionless, more experimental DeFi-native alternatives.
In the medium to long term, over the next ten to thirty years, this is most likely where history will truly begin to rhyme. As the landscape becomes crowded and chaotic, regulators will inevitably push toward consolidation, much like when state banknotes were effectively taxed out of existence to unify the country under a single national currency. If consumers grow tired of juggling multiple versions of private “digital dollars,” political and commercial pressure will build for a single neutral standard—likely a Fed-controlled or Fed-backed stablecoin functioning as a quasi-CBDC. DeFi stablecoins may still exist, but much like shadow banking after the Civil War, they could be marginalized through regulation, restricted access, or lack of institutional support. And while banks will fight to maintain their own stablecoins because they keep deposits locked inside their ecosystems, the federal government may ultimately decide that a unified digital dollar is far cleaner and more efficient for monetary policy, supervision, and systemic stability.
So Where Does That Leave Us?
This transition — from private stablecoins to bank coins to CBDCs — will not be smooth. And the average user is not prepared for any of this. People will need real education, guidance, risk management frameworks, and support networks to navigate what might become the biggest shift in money since 1913.
This is exactly where Knowit Owlz comes in.
We help people understand the truth behind the headlines, navigate the noise, avoid the traps, and position themselves and their portfolios most optimally for whatever the future holds.
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