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Yanis Is Wrong About Stablecoins
Not just on the tech—but on the deeper question of whether markets can work for people
Matt Flo
July 03, 2025
Yanis Varoufakis is a thinker I have long admired. Few public intellectuals match his blend of tenacity, contrarian flair, and gift for storytelling—talents that won him a global following. Though I disagree with him on nearly every issue, his arguments often challenge my thinking. But his latest critique—targeting stablecoins and the GENIUS Act—betrays a deep confusion about both the tech and the law. He claims these digital tokens carry five “supersized systemic risks.” They do not. The essay takes each charge in turn.
Risk of bank runs:
He claims stablecoin issuers might issue more tokens than they hold in reserves or invest in illiquid, high-yield assets, risking a bank-run-style collapse. But this is flatly incorrect. The bill requires strict 1:1 backing with high-quality liquid assets like cash and short-term Treasuries, along with robust disclosures and audits. These safeguards are far stricter than those applied to traditional fractional reserve banks, which also issue dollar claims on a ledger and promise convertibility.
Migrating Deposits:
His next critique is that as deposits shift from banks to stablecoins, demand for short-term Treasury bills (T-bills) rises, pushing their yields down. To stem the outflow, banks raise deposit rates, supposedly causing long-term interest rates to rise. This widening gap will steepen the yield curve and signal financial instability. But this logic doesn’t hold up:
Stablecoin reserves stay in the system – Under the GENIUS Act, stablecoins must be backed 1:1 with high-quality liquid assets (like cash and short-term Treasuries). The dollars don’t disappear—they simply change form, often staying within the banking system or in government securities.
Demand for short-term T-bills doesn’t steepen the curve – If markets expect stablecoin-driven demand to keep short-term yields low, this can actually put downward pressure on long-term yields. Persistent low short rates reduce expectations for future rates, which flattens the curve—not steepens it.
Banks don’t control long-term rates – They can raise short-term deposit rates, but long-term Treasury yields are driven by inflation expectations and Fed policy, not bank competition for deposits.
3. The Doom Loop between Stablecoins and Banks:
Yanis’ claim that stablecoins and banks are caught in a “doom loop,” based on Circle’s exposure to SVB’s 2023 collapse, misrepresents the incident and unfairly discredits stablecoins.
The SVB episode was not a fundamental failure of stablecoins—it was a classic banking failure. SVB mismanaged interest rate risk and suffered a traditional bank run. Circle, like many institutional clients, was affected because a portion of its USDC reserves were held at the bank. But this was a banking failure, not a stablecoin flaw.
Also, bank collapses disrupt the financial system in similar ways, whether deposits are held directly by customers or indirectly through stablecoin issuers. If anything, stablecoin issuers help mitigate this risk by increasingly choosing to custody reserves with regulated trust institutions—rather than with risk-exposed lenders like SVB.
The Doom Loop between Stablecoins and Securities:
This argument claims that as securities trading shifts to blockchains, dollar-backed stablecoins will become essential for settlement. It suggests that one stablecoin brand will ultimately dominate this space, concentrating settlement risk in a single private issuer. If that issuer were to face trouble, the stability of both the stock market and the $29 trillion Treasuries market could be put at risk.
He’s right that stablecoins are becoming essential for settlement—but he completely misses where the infrastructure is heading. While today’s stablecoin brands are not automatically interchangeable, that won’t last. End users don’t care about stablecoin logos. And many firms are already building the financial plumbing to make stablecoins interchangeable behind the scenes. This means we won’t end up with a single stablecoin issuer that the entire stock market depends on.
Global fragility:
The argument warns that if off-shore USD stablecoin issuers collapse, it could trigger global instability.
Yanis overlooks that the GENIUS Act prohibits the “offer or sale in the United States” of any stablecoin unless it’s issued by a permitted entity. Major economies are likely to adopt similar restrictions in their own legislation. As a result, the fallout from stablecoins issued in light-touch jurisdictions will be tightly contained.
Additional Thoughts
One additional claim is that the GENIUS Act prohibits the Fed from issuing stablecoins—but that’s simply false. (Although I share his disappointment that the Fed hasn’t yet launched a CBDC. However, unlike him, I think it should compete with private issuers, not 100% replace them with an enforced monopoly).
I’m glad he agrees that banning issuers from passing interest on to users is outrageous—and clearly serves only the interests of legacy banks. That said, Yanis may be relieved to know that stablecoin holders can still earn indirectly from the underlying T-bills, thanks to strategic partnerships between wallets and issuers.
Ultimately, Yanis is worried about the idea that money is being “privatised,” and he doesn’t believe this will benefit everyday users. But I’ve come to realise that nothing will convince him otherwise—because this isn’t really a debate about stablecoins. It’s a deeper disagreement about supply and demand, and whether private markets are efficient.
Stablecoins are heading toward commoditisation, where profits trend toward zero and end users benefit. But Yanis doesn’t share this belief in how competitive markets work.
What’s ironic is that blockchain could solve many of the problems rightly identified by left-wing economists. Markets weren’t efficient. Information wasn’t accessible. Financial intermediaries were able—almost destined—to extract outsized margins. That’s because the technological foundations simply didn’t allow the conditions required for efficient markets to exist.
But blockchain changes that. It brings transparency, accessibility, and real competition.
As the take rate for nearly every platform—banks, payment networks, financial services—shrinks, we’ll need to rethink the regulatory frameworks built for a world where finance ran on private servers and regulation served to enforce good behavior while entrenching incumbents.
It will be interesting to see whether economists like Yanis revise their views as this shift plays out.