Senator Elizabeth Warren is pressing the U.S. Treasury Department to tighten regulation of stablecoins, asserting a recently enacted law is insufficient and could open doors to conflicts of interest, including those involving former President Donald Trump’s associates.
The Massachusetts Democrat delivered a letter to Treasury Secretary Scott Bessent, characterizing the new Guiding and Establishing Innovation for U.S. Stablecoins (GENIUS) Act as an overly permissive framework for cryptocurrency banks. She urged strict enforcement to prevent serious risks to financial stability, consumers, taxpayers, and national security.
Democrats have voiced particular concern over the involvement of former President Trump and his family in the digital asset sector. Warren specifically highlighted the growth of World Liberty Financial USD, a stablecoin reportedly linked to Trump’s circle, which financial data provider Bankrate identifies as one of the world’s largest.
Warren demanded the Treasury outline specific steps to prevent corruption in the GENIUS Act’s implementation. She also requested an explanation of how the rules would be shielded from potential conflicts of interest. The senator further called on the government to propose stronger legislative solutions as Congress continues to debate a broader crypto market structure.
The GENIUS Act, signed into law in July after congressional approval, mandates that stablecoins be fully backed by U.S. dollars or equivalent liquid assets. It also requires annual audits for issuers with over $50 billion in market capitalization and provides guidelines for foreign issuance.
Despite these provisions, Warren contends the law contains significant regulatory gaps, arguing it offers too much flexibility to crypto banks without adequate federal oversight. She warned that the current framework might not prevent stablecoins from triggering a financial system collapse.
To illustrate operational risks, Warren cited a recent incident involving Paxos. The company mistakenly minted $3 trillion worth of its PYUSD stablecoin due to a technical glitch. Warren stated this incident demonstrates the serious dangers technical errors pose to issuers, market integrity, and financial stability.
Federal Reserve Governor Michael Barr has echoed Warren’s concerns, acknowledging the GENIUS Act leaves regulatory gaps. Barr has called for coordinated efforts among regulators to bolster financial stability.
The debate intensifies as lawmakers and crypto industry executives prepare for separate meetings scheduled for Wednesday, at 11:30 a.m. and 2:00 p.m. Eastern Time, to discuss a comprehensive regulatory framework for digital assets. The discussions underscore the ongoing tension between fostering financial innovation and implementing robust government oversight.