Yanis Varoufakis is a thinker I’ve long admired. Few public intellectuals match his mix of tenacity, contrarian flair, and gift for storytelling, talents that have earned him a global following. Though I disagree with him on nearly every issue, disagreeing with him is usually a workout for the mind. However, his latest piece criticising stablecoins and the GENIUS Act is just an exercise in confusion. His arguments betray a deep misunderstanding of both the technology and the legislisation. He claims stablecoins pose five “supersized systemic risks,” but each of those claims is simply wrong. This essay takes each charge in turn and explains why every one of his takes falls apart.
Claimed Systemic risk: A classic bank-run–style rush on issuers
Yanis argues that stablecoin issuers will overextend themselves, issuing more tokens than they hold in reserves and investing in illiquid, high yield assets, risking a bank run style collapse. I am amazed he is making this claim; it is clear he has not read the GENIUS Act (which makes me confused about how he had the confidence to write such a strongly worded opinion). He should know that GENIUS explicitly requires strict one to one backing with high quality liquid assets such as cash and short term Treasuries, along with robust disclosure and audit standards. These safeguards are far stricter than those applied to traditional fractional reserve banks, who also issue dollar claims and promise convertibility. His argument, in short, describes something that the law directly prohibits.
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 claims that stablecoins and banks are trapped in a “doom loop,” citing Circle’s exposure to the SVB collapse in 2023, misrepresents the event and unfairly undermines 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.
The Doom Loop between Stablecoins and Securities:
Yanis claims that as securities trading shifts to blockchains, dollar-backed stablecoins will become essential for settlement. He then suggests that one stablecoin brand will ultimately dominate, 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 would be put at risk.
He’s right that stablecoins will become essential for settlement, but he completely misses where the infrastructure is heading. The stablecoin issuance market is becoming increasingly fragmented, and the financial plumbing to make these tokens interchangeable is already being built. This means we will not end up with a single issuer that the entire market depends on. The risk, which is already minimal, will be distributed across many players.
Global fragility:
Yanis warns that if off-shore USD stablecoin issuers collapse, it could trigger global instability.
He 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 indirectly earn yield 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 end 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 the efficiency of markets.
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.