WhenElon Musk’s “department of government efficiency” (Doge) gainedaccess to treasury payment systemsin February,Democraticparty leadershippledged to protect government paymentsfromDonald Trump’s influence. Chuck Schumer and Hakeem Jeffries held a press conference announcing the Stop the Steal act that would prevent the takeover of critical government payment infrastructure. On thatvery same day, high-profile Democrats joined with Republicans to introduce legislation allowing for payments to be made in cryptocurrencies calledstablecoins. The bill paves the way for the US president to require that all payments to and from the government are made with cryptocurrencies, which could include the one he has a business interest in.
After making millions off a “memecoin”, the crypto-opportunist-in-chief recently entered the burgeoning crypto-payments market bylaunching a stablecoin. For the uninitiated, stablecoins are crypto products that allege to hold the value of a currency like the US dollar and are intended to be used as digital payments. In fact, stablecoins constantlyfail to hold their value, aren’t subject tofederal consumer protections, and aren’t backed by the full faith and credit of the government. If a consumer’s stablecoins are hacked, fraudulently or accidentally spent, or lost due to a misplaced password, stablecoin companieswill not reverse or reimbursethose payments like a credit card company would. If a stablecoin company fails, consumersare not protectedby anything like federal deposit insurance. Stablecoins have also become thepreferred cryptocurrencyfor illicit finance.
In an awkwardly playful nod to Trump’s crypto interests, bipartisan stablecoin bills have been introduced in the House and Senate entitled “Stable” and “Genius”, respectively, followingTrump’s 2018 assertionthat he is a “stable genius”. Sponsors of legislation claim their bills protect consumers, guarantee stability and curb their use in illicit finance.Manyacademicsandexpertsdisagreewith those assertions. As they point out, the bills give crypto businesses such as the president’s access to the same payment system that banks and credit card providers use while subjecting them to far weaker standards than their traditional counterparts.
Almost unbelievably, gutting consumer protections and privatizing the dollar may be the least concerning outcomes of stablecoin legislation. On 25 March, Trump issued anexecutive ordermandating adoption of digital payments to and from the US government. That may sound innocuous, but the government already makes95% of its disbursements electronically. The order doesn’t intend to modernize an already-modernized system. Musk exposed the order’s true intent when his Doge team took over the payment system, to the aforementioned alarm of congressional Democrats. He endorsed putting those payments “on the blockchain” – and in so doing, make public payments with private stablecoins.
It’s not a hypothetical. The administration hasalready floatedissuing$3.3bn in the housing department’s community development block grants via stablecoins. USAIDhas been instructedto make disbursements in stablecoins. And the treasury payments Musk was referring to? That’s$5.45tn in government paymentsfrom social security to veterans’ pay and pensions, federal employee salaries and income tax refunds. Americans might be forced to adopt cryptocurrencies whether they like it or not.
The president has demonstrated his willingness to use the power of his office to enrich his family and friends and to provide favors to crypto business partners. Under Trump, SEC lawsuits against his crypto business partnersJustin SunandBinancehave been halted. Just last week, Trump’s World Liberty Financial announced anopaque $2bn dealwith a firm in the United Arab Emirates that ischaired by the UAE’s national security adviser, who is the brother of the country’s president. It’s naive to think Trump would shy away from using his power to shovel profits to the politically influential crypto industry, and his own crypto venture in particular.
Crypto’s ascendant political influence may explain Democrats’ confusing pledge to stop Trump profiting from the presidency with one hand while pushing stablecoin legislation with the other. Conflicts of interest or not, the Democrats’ campaign arm continues courting crypto, though it doesn’t accept donations in cryptocurrencies. The Democratic Senatorial Campaign Committee chair, Kirsten Gillibrand, is a lead sponsor of the Genius bill. During the Senate banking committee consideration of Genius, news broke that Trump’s company was speaking with Binance about thelaunch of a stablecoin. It was as if the committee had called a recess for a word from its sponsor.Five Democratsstill voted in support.House Democrats have sought amendmentsthat would bar government officials from having a financial interest in such assets, but they’ve gotten little traction. This weekend, nine former Democratic supporters of the billthreatened to blockfurther consideration unless concerns over issues ranging from money laundering to national security were addressed. But theysaid they remained“eager to continue working with our colleagues to address these issues”.
The Democratic party has rightly pointed out that a sitting president’s conflicts of interest undermine the firmament of our democracy. Anyone, especially the president, who would use an office of public trust for personal benefit must be held accountable. Astoundingly,Democratsare poised to bless Trump’s crypto grift with the Genius act. If they do, it will be clear that, at least when it comes to crypto, they would rather endorse the president’s abuses than fight them.
Corey Frayer is the director of investor protection at the Consumer Federation of America and a senior adviser on crypto markets to the former SEC chair Gary Gensler