Why a Regulated Stablecoin Can Be Both a Threat and a Tool
The event study established that investors marked down payment incumbents when the GENIUS Act made a regulated stablecoin framework more credible. This chapter explains the economic mechanism behind that judgment: the same payment rail can lower the barriers facing challengers and lower the cost of serving customers for incumbents. Tracing both channels helps explain why a negative average repricing does not mean that every payment firm is destined to lose.
The rail does more than move a token
A stablecoin matters to payment economics because it combines two functions that conventional payment systems often keep separate. It is a digital asset recorded on a cryptographically secured ledger, but it is designed for payment or settlement and is tied to an issuer's obligation to convert, redeem, or repurchase it for a fixed amount of monetary value. The user is not simply buying a volatile asset and hoping that another buyer will pay more. The payment proposition depends on the expectation that the issuer can honor the monetary claim.
The ledger changes how the claim can move. A public blockchain is an open-access record shared across a network, rather than a private database that each new provider must build or join through a succession of bilateral connections. That does not make every transfer instant, cheap, or legally available. It does mean that a payment company can imagine a different division of labor: the stable-value instrument and the shared ledger handle part of the movement and recordkeeping, while issuers, exchanges, custodians, banks, networks, and payout providers handle the points where money enters, exits, and becomes useful to a customer.
That division is the source of the competitive question. In a conventional payment chain, value can pass through several institutions that coordinate authorization, settlement, currency conversion, liquidity, compliance, and final payout. Some firms earn returns because they own a trusted network, some because they operate specialized infrastructure, and some because difficult handoffs create a margin. A stablecoin rail does not remove every responsibility, but it can change which responsibility is scarce.
The question for an incumbent is therefore not whether a token exists. It is whether the token and its surrounding infrastructure make one of the incumbent's valuable functions easier for another firm to perform, cheaper for a customer to buy, or cheaper for the incumbent itself to provide.
The first channel: lower entry and settlement friction
The IMF study's first channel is competition. Public blockchains are global, open-access ledgers, so a new entrant may need less up-front infrastructure to offer a payment service than it would have needed if it had to reproduce the entire conventional network. A firm can build a product around an existing settlement rail rather than assembling every account relationship and reconciliation process from scratch.
This possibility is especially important when the incumbent's return depends on controlling a difficult transfer rather than on owning an irreplaceable relationship. If a new provider can move a stable-value asset across a shared ledger, it may be able to compete on speed, availability, or the cost of settlement. Users may also make peer-to-peer payments without relying on the same sequence of intermediaries. The competitive pressure need not arrive as a direct copy of a card network or a bank transfer. It can appear as a new product that makes one part of the old chain less necessary.
The mechanism has three steps. First, a shared ledger reduces the amount of duplicated infrastructure a challenger needs to coordinate. Second, a stable-value payment asset makes the rail more suitable for settlement than an unbacked volatile cryptocurrency would be. Third, new providers can use the rail to offer services at scale, potentially eroding the rents earned by firms that previously supplied the coordination layer.
Each step has a boundary. Open infrastructure does not automatically solve customer acquisition, local regulation, fraud prevention, foreign exchange, liquidity, or the need to turn a digital balance into spendable money. It does not guarantee that a new entrant will achieve the volume required to operate efficiently. And an issuer's promise to redeem at a fixed value is only useful to a payment user if the issuer, its reserves, its custodians, and the distribution network are credible. The competitive channel is therefore a mechanism for changing the cost and structure of entry, not a claim that entry becomes effortless.
Still, even a partial reduction in entry friction can matter to a public company's valuation. Payment businesses often benefit from scale: more users can make a network more valuable, spread fixed costs across more transactions, or make liquidity easier to manage. If a shared rail lets a challenger reach useful scale without reproducing all of the incumbent's fixed investment, investors may revise the incumbent's expected margins before a challenger has visibly taken market share.
The second channel: the incumbent can use the same rail
The IMF framework identifies a countervailing possibility. Existing payment firms could use stablecoins to lower the marginal cost of providing their own services. If the competitive environment did not change, lower costs could raise profits through higher markups or expand demand by allowing the firm to offer a more useful product at a lower price.
“Use the same rail” can mean several different things. An incumbent might use a stablecoin for internal settlement between business units, for treasury movement, for payouts to partners, or for a cross-border product. It might connect a stablecoin capability to an existing customer interface, allowing the user to experience a familiar service while the underlying settlement process changes. It might partner with an issuer rather than issue a coin itself. These are different business decisions, but they share a logic: the firm keeps some control over distribution or the customer relationship while replacing an expensive back-end step.
That possibility changes the meaning of an open ledger. A shared infrastructure layer can be a threat when it lets another firm enter, but an input when an incumbent can incorporate it faster than a challenger can recreate the incumbent's trust and reach. A card network, processor, bank service, or cross-border specialist may have assets that are not stored on the ledger: merchant relationships, compliance systems, fraud controls, liquidity arrangements, brand recognition, and the ability to resolve disputes. If those assets remain valuable, lower settlement costs can strengthen the incumbent's position even as the underlying rail becomes more accessible.
The two channels can also operate inside one firm at the same time. A company may lose a margin on a transfer because a stablecoin makes that transfer easier to replicate, while gaining from higher volume or a cheaper treasury process. A cross-border provider may face a new stablecoin-native rival but use stablecoin settlement to improve local payout economics. A network operator may preserve the user interface and acceptance relationships while allowing the settlement layer to become more open.
That is why a negative average reaction can coexist with positive firm-level opportunities. The market does not need to believe that every incumbent will be displaced. It only needs to believe that, across the group, the competition channel will reduce expected cash flows more than the cost-saving channel will increase them. The later question is which firms sit on which side of that balance.
Why credibility determines whether either channel gets traction
Both channels depend on users believing that the stablecoin will function as a payment instrument rather than as a fragile speculative claim. A payment user cares about more than the ability to transfer a digital record. They care whether the record can be redeemed for the promised monetary value, whether a merchant or payout partner will accept it, and whether a failure will leave someone else bearing the loss.
The GENIUS Act is economically relevant because it addresses that credibility problem through a legal framework. It defines a payment stablecoin around payment use, stable value, and an issuer's redemption obligation. It requires permitted issuers to maintain identifiable reserves on at least a one-to-one basis in specified liquid assets. It also requires redemption-policy disclosures, monthly publication of reserve composition and outstanding supply, and monthly examination and executive certification of information. Those provisions are not a guarantee that every operational risk disappears. They are an attempt to make the payment promise legible to customers, counterparties, and regulators.
The framework also determines who can participate. Issuance is not treated as an unregulated activity that any software project can perform in the United States. The law creates permitted issuer categories and places boundaries around service providers that offer or sell payment stablecoins. That can restrict supply, but it can also reduce uncertainty for firms deciding whether they can build products around the rail. Regulation can therefore have two effects that appear contradictory: it can add compliance costs and make participation more credible.
This is why legal architecture belongs inside the economic explanation rather than in a separate appendix. If customers doubt redemption, the stablecoin may not be useful enough to support either new competition or incumbent integration. If the rules are clear enough for regulated firms to plan around, the rail may become more investable even before final operating evidence exists. The market reaction captured that change in expectations; it did not settle how well the credibility mechanisms would work in practice.
The relevant unit is a future cash flow
The most useful way to compare the two channels is to ask what each firm is paid to do and who bears the risk when the rail changes. An incumbent that earns mainly from coordinating a slow transfer may face direct pressure if a stablecoin makes that coordination easier to bypass. An incumbent that earns from a broad network may retain value because users and merchants still need a trusted place to connect. An incumbent that owns compliance and payout capabilities may turn those capabilities into a service around the new rail.
The cash-flow question has several dimensions. A new rail can alter the number of transactions a firm handles, the cost of each transaction, the price it can charge, and the fixed investment required to compete. It can also change where risk sits. Some operational and settlement risks may move to issuers and custodians; fraud, sanctions, customer-protection, and local-payout risks do not vanish simply because the ledger is shared. An incumbent that integrates stablecoins may gain efficiency but take on new technology, liquidity, custody, and compliance responsibilities.
This makes “disruption” too blunt a label. The important shift is from a closed or costly coordination process toward a rail in which some functions are more open and programmable. Openness can pressure a firm whose rent depends on controlling that function. It can strengthen a firm whose rent depends on connecting many participants, managing risk, or presenting a reliable interface. The same legislation can therefore be negative for the average incumbent while improving the strategic position of a particular incumbent.
The event study cannot identify every one of these mechanisms on its own. It tells us that investors expected the competition channel to dominate for the average payment firm at the moment of the vote. The economic model explains why that expectation was plausible and why it should vary across firms. The legal details determine whether the rail is credible and who can access it. Together, those pieces point toward a more precise question than “Will stablecoins win?”
The question is which future cash flows remain controllable after the rail becomes more open. A firm can be threatened where a challenger can reproduce its service, protected where customers value its network or trust, and advantaged where it can use the rail to reduce cost without surrendering distribution. The next step is to examine how the GENIUS Act turns those economic possibilities into rules about issuance, reserves, access, foreign participation, and implementation timing.