Yesha Yadav, Chris Odinet, and Andrea Tosato on the Moneyness of Stablecoins

Yesha Yadav is a professor of law, the Milton R. Underwood Chair, the Associate Dean & Robert Belton Director of Culture & Community, and the Co-Faculty Director, Master of Laws (LL.M) Program at the Vanderbilt University Law School. Chris Odinet is a professor of law, Mosbacher Research Fellow, and Affiliate Professor of Finance at Texas A&M University School of Law. Andrea Tosato is professor of law at the Southern Methodist University Dedman School of Law. Yesha, Chris, and Andrea join the show to discuss their avenues into stablecoin regulation, their four-part definition of moneyness (nature of the claim, safety, discharge capacity, and negotiability), how Tether and Circle stack up to these definitions, the stablecoin bankruptcy conundrum, the progress the GENIUS Act made on closing legal loopholes, their prescriptions for policymakers, and much more.  

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This episode was recorded on May 20th, 2026

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]. 

David Beckworth: Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University, and I’m glad you decided to join us. 

Our guests today are Chris Odinet, Andrea Tosato, and Yesha Yadav. They have a new paper titled “The Moneyness of Stablecoins,” where they argue that the key distinction and question about stablecoins is not merely whether they are backed or technically efficient, but whether they are actually money-like in a legal and institutional sense.

The authors develop a framework they call moneyness, the degree to which an instrument functions like money. Their central claim is that moneyness is not just an economic property; it is fundamentally a legal and institutional construction. They argue that stablecoins currently fall short of true moneyness, even after the GENIUS Act, because there are still legal hurdles to be cleared. Welcome to the show, everyone.

Yesha Yadav: David, thank you for having us.

Andrea Tosato: Thank you.

Chris Odinet: Absolutely. Thank you for having us.

Beckworth: Well, it’s great to have you on. It was a great paper, very topical, and we need legal scholars like you working on this issue because it’s more than economics, right? It’s more than finance. That’s the key point of your paper. Before we get into it, why don’t you tell us a little bit more about yourself, starting with you, Chris?

Career Backgrounds of Chris, Yesha, and Andrea

Odinet: Sure, happy to. I’m delighted to be here. I’ve been a long-time fan of the podcast. My name’s Chris Odinet. I’m on the faculty at Texas A&M University’s law school. I teach property law, commercial finance, bankruptcy, and I teach a class called consumer banking.

Yadav: David, thanks so much for having us again. Just to echo Chris, huge fan of yours in the podcast for bringing so much insight to the world. Thank you for doing that. I am a market structure nerd across the board, so securities markets, digital assets, payments, and obviously, as we’ve discussed before, in the case of Treasuries.

Tosato: Again, I join my co-authors in being delighted to be here. Big fan of the pod. I’m Andrea Tosato. I’m a professor of law at SMU Dedman School of Law. I am fascinated by private law, commercial law, and, in particular, the legal framework for digital assets. From there, the road to stablecoins is short.

Beckworth: I should mention to the listeners and watchers of the video that Yesha and I are neighbors in Nashville.

Yadav: We are, but we haven’t had a tea yet.

Beckworth: We have not met up.

Yadav: We have to correct that.

Beckworth: Yes, but I’ve been down to Vanderbilt a few times. You’ve been on the podcast at least twice before, so check out the previousshows. Good discussions on the Treasury market.

Yadav: Absolutely.

Beckworth: Maybe we’ll come back because there’s a lot going on there right now.

Yadav: Tons.

Background on the Paper

Beckworth: Let’s talk about this paper. Tell me the journey into the paper. How did you guys get involved in discussing stablecoins and the moneyness issue in particular?

Odinet: Sure. I guess I’ll kick us off, but I’m sure my co-authors have probably a more elegant and insightful way of describing our partnership. It really started because Andrea and I, for the past several years, have been writing papers about the property law and the commercial law aspects of digital assets. We were both, to one degree or another, involved in amendments made to the Uniform Commercial Code, which is the principal body of commercial law in the United States, to accommodate, to deal with, to bring clarity to transactions involving digital assets.

In the course and scope of writing all of these papers, which actually culminated in a book coming out next month with Oxford University Press, just a little plug, we wrote a chapter on stablecoins. In fact, just as we were finishing the final chapter on stablecoins, the GENIUS Act was passed. We expanded that chapter to take an account of the GENIUS Act and finish the book, but we really felt like there was a financial regulation meets commercial law, meets property and private law dimension that needed more treatment.

We really needed a financial regulation superstar to join us in writing a serious and rigorous paper about moneyness from a new perspective, from a perspective that takes into account commercial law, private law, not just the public law, not just the economic perspectives. That road led us to Yesha Yadav.

Yadav: Eventually, after many digressions, I’m sure. I was the fourth person that they called.

Odinet: Oh, never.

Yadav: I think one thing that struck us from our very first conversation is that our disciplines haven’t really been talking to each other, even though they intersect so deeply. In the context of financial regulation, we talk a lot about safety and soundness. We talk about the institutional needs for what makes claims safe in the context of payments, but we’re not looking at that underlying plumbing, the legal plumbing that actually defines the private laws and obligations that really contribute to people using this stuff, feeling safe when they do so, and helping it to propagate and have the network effects across the payment system. We discovered very quickly that there’s a missing piece here and that we need to try and fill it.

Tosato: I think that, as Chris said, we were writing this book, Digital Commercial Law, and we spent a lot of time on stablecoins, and the GENIUS Act was passed. I think that Chris and I stepped back for a moment and said, “Okay, now that the GENIUS Act is here and that people have been talking about stablecoins, the stablecoins have been expanding pretty much for the past three, four years, there is a very central question. Everybody talks about using stablecoins as a payment instrument, as a form of money, but to what extent is this true? Are stablecoins money? What does it mean for an instrument to be money?”

We then thought, “Okay, but this is not a question that just we can answer on our own because we’re really private law people, commercial law people. We need to blend together the financial regulation analysis and the private law analysis because money comprises both these elements.” We said, “Who are we going to reach out to?” Yesha was the first person we reached out to.

Beckworth: It’s a great paper, and it’s part of a journey I’ve been on. The journey begins with Dan Awrey, his book Beyond Banks. It really forced me to think beyond what I would consider the textbook definition—

Yadav: That’s right.

Beckworth: —of money, medium of exchange, unit of account, store of value, which is what most people would tell you. You discuss this in your paper, but there’s so much more, maybe even more important than those. In fact, you said those are just features. They really don’t tell you how or why money comes about, what’s required for money. In his book, he really forced me to think about these legal structures behind it, but you guys really fleshed this out quite a bit. It was interesting to read how you even talked about it in the context of commodity money.

You take for granted, if I have a gold coin, I’m living 100 years ago, or silver coin. There’s actually architecture behind that. There’s rules behind that. It’s not just mint a coin. There’s a lot of things you have to do. Tell us about how, with commodity money, even behind that, there’s structure, and it’s just with fiat money, it becomes more explicit or more apparent.

Structure of Money

Yadav: We owe a deep debt of gratitude to Dan’s work in this context. I think we have to commend the enormous amount of lift that he’s done in terms of defining and talking through what makes good and bad payments work. In the context of money, I think one of the central distinctions that we have to think about is public money versus private money. When we have public money that is money that is essentially backed by the state, and in that context, we have money that is public money in the form of notes and coins, which is legal tender, the only form of money circulating in our plebby hands that qualifies as distinctly money because it is, in fact, classified by the law as legal tender. That is public money. That is money that’s backed by the state, fully default free.

Now, in the context of private money, this is money issued by private agents in the economy. This includes banks. It can include digital wallet providers. It can include credit card companies across the board. Now, this is money that comes with a slight bit of credit risk, depending on what the institutions are. We have a whole bunch of different laws and regulations, firstly, to think about how to make those institutions safer, so to put them under the microscope from a legal standpoint to say, “What makes you, bank, a safer form of institution, and therefore, the claims that you issue will become safer as a result?”

Then, underneath that, all the different private law mechanisms that make sure that the transfers of value made by those claims can, in fact, qualify as money. This is where the private law dimension comes in. I should let Andrea and Chris chime in on that. There’s a huge body of law that defines it from spanning from commodity money as well as, obviously, to the electronic digital world that we’re going to discuss today.

Tosato: You said even when money was commodity money, when it was just gold, was it really about the gold? Yes, to some extent, it was about the gold. Even going back then, when people started studying it, even in hindsight, it became clear that it was not just the worth of the metal. It was this infrastructure of rules that was around it. It was the mints, the assays, the rules that were made to have different type of gold coins, silver coins, interact with each other.

Even when the payment instrument was metal, there was already a body of rules around it. This body of rules was a body of public rules. Again, the sovereign, the state issuing that coins coming from that particular mint could be used in the land. It was also a body of private law rules. When I tender, when I deliver to you this coin, does this discharge the debt that I owe to you? When I give this gold coin to you, do you need to investigate where I got it from? Could it be that actually Chris has some kind of lead or some kind of right in that coin that you will be junior to, even though I’m delivering the coin to you? This has always been true.

As I said, even when we go back to gold coins, all these rules were there. When we then jump from commodity money, the gold, to fiat, really, we’re taking away just the veneer. We’re saying, “Look, money now is only about those rules.” The metal worth is not really what is important anymore. It’s that body of public and private law rules that are now essential. The intuition of the paper is therefore, well, to what extent stablecoins satisfy all of this? To what extent do stablecoins approximate fiat money, public money, the $5 bill in your wallet, or, if you want to be a little more sophisticated about it, the balances held by the Fed, right? That was the intuition. Everybody talks about stablecoins. Everybody says that stablecoins are money, but how true is that, and how are we going to assess it?

Yadav: I think one thing to add to that is that these are claims. They are essentially IOUs. The goal of money, almost throughout time, is to make that IOU as informationally insensitive as possible. We shouldn’t have to investigate a huge bunch of the provenance behind each and every claim. We should be able to take it at face value that this is, in fact, worth what it says it’s worth. The more you end up in a situation where that claim becomes more and more informationally sensitive, where it’s not clear, you have to do more investigation to figure out does that person have the credit risk? Does this rule discharge the debt? Is this commodity gold exactly what it’s supposed to be?

The less well it performs as money and the ability to really move and discharge debts across the economy. Trying to piece stablecoins into that informational sensitivity taxonomy as well is part of the inquiry that we’re trying to engage in. How much do you need to think about the underlying asset and the rules behind it to really take as face value that this digital dollar is, in fact, worth one token to one dollar?

Odinet: The only thing I’ll add—I totally agree with everything that Yesha and Andrea just mentioned—as we were thinking about stablecoins and digging into the literature, what we felt that we could add to, enrich—obviously, the concept of moneyness is not a new concept. The idea that the degree to which something has attributes that allow it to function as money is not new. To our mind, the economist explanation, the tripartite function was describing what money did. Then, when we looked to our colleagues in the legal academy, it seemed that much of the emphasis had really been, if I could go back to our four factors, which I’m sure we’ll get to, was on the safety side.

What sort of public infrastructure is there designed to make this thing safe? Prudential regulation, deposit insurance, lender of last resort, special resolution regimes. To the extent there has been some treatment of the private law side, it really resorts to a simple explanation of the contractual promises in the context of private money. To our thinking, there is a lot more here that we can add to enrich that description. As Yesha just mentioned, negotiability is such a core feature. The ability of certain instruments to discharge monetary obligations, rules relative to when payments settle, and can’t be unwound.

Those are things that we really don’t think about. They’re like the plumbing that we take for granted when we exchange things and buy goods and services in the real economy. Those things matter even if we don’t think about them, even if we can’t see them. When stablecoins came on the scene, we’re thinking about them. What can we say that really needs to be said in the inquiry about whether this thing can really achieve money, moneyness? That’s where the paper steps in.

Beckworth: If nothing else, stablecoins has forced us to think about these questions.

Yadav: Yes, big time.

Beckworth: Hopefully, it turns out to be something better than that, but at a minimum, we have that conversation. I like this point you make in the paper about the hierarchy of money. We often just treat any part of that hierarchy as money. When I use Venmo or Cash App, I’m just assuming it’s good; it’s going to be money. The younger people, I’m getting older now, younger people, it’s money, right? It’s good enough. When one crisis happens, they’re going to wake up and say, “Oh, this really isn’t money. There’s a delay. I can’t get my assets back.”

As you know, public money is good, right? Then there’s bank money, and then there’s private money built on top of that. That’s a great way to think about these issues, set the stage. Bank money, you had this list I loved. Why do we treat our bank money the same as a Federal Reserve liability? I never look at my bank’s balance sheet.

Yadav: Never.

Tosato: Sure.

Beckworth: Maybe pre-FDIC, some did. I just assume it’s always there. You gave these four reasons: deposit insurance, obvious one, central bank liquidity, the backstop there, potential supervision, then tailored resolution. We’ll come back to this. Our banks are going to go through traditional bankruptcy, so money will always be money at a bank. It’s effectively pretty close to carrying a physical dollar around.

Yadav: David, don’t forget Silicon Valley Bank when all those intuitions came undone.

Beckworth: Yes, good example.

Yadav: Essentially over the weekend, which is that the deposit insurance ceiling for $250,000 above, and folks like Circle were obviously implicated in that. Suddenly, there’s no insurance, and everyone’s like, “Holy crap, where’s the money?”

Beckworth: We already have that learning experience.

Yadav: Yes. We have that bracing experience where actually, these things are infused with credit risk. When those backstops disappear, then we start to question, “Is this money? How well is this going to work as such?”

Odinet: I think we found the hierarchy idea to be very useful as we developed our test. This idea that at the apex is public money with the most moneyness, and then descending down the ladder through the ranks of private money, commercial bank money, all the way down to your Venmo, PayPal balances. In times of no market stress, we treat all of these as interchangeable substitutes. As you just said, you don’t really pay any attention to whether you’re paying one way or another way with a nonbank payment or a check, if anybody is using checks anymore.

In the academic literature, and I think it was Pistor’s work, she talks about the elasticity of money in good times and the rigidity of money in bad times. Everyone wants, in bad times, to convert up the chain ultimately to the public money, but the entire system is a chain, and it is all built on this intuition that you will be able to convert your Venmo, PayPal balance up to a commercial bank deposit, all the way up to actually just going and taking the money out as cash, public money at the top.

Beckworth: A great point. Let’s go back to the dash for cash. People holding Treasuries thought they could convert that into cash, to money, and they found that they couldn’t.

Yadav: Exactly.

Beckworth: Another great example. Let’s go to your list of what is money, your moneyness list. You have four criteria. Start with the first one, the nature and substance of the claim. Explain that.

Moneyness: Nature of the Claim

Tosato: I guess this is on me. Let’s go back for a moment to that hierarchy point that you were talking about because it’s really useful. I think that the flowers go to, who I think is also a friend of the pod and really writing a great paper about that. I think the trickiest thing about money is that we use so much of it in so many different forms that we take a lot of things for granted, and we forget a lot of differences. Public money is one thing. You’ve got the bank notes, you’ve got your Fed Reserve balances, but then there are all these other payment instruments. You’ve got your bank deposits, you’ve got Venmo, and then you’ve got other hybrid instruments, money market funds.

We all use them, or we use some of them. Some people use all of them. At some point, we stop caring about the differences. Here’s where the hierarchy point comes to mind because at the very top, you’ve got public money. Why is public money so good? Why is it at the top? Well, it’s at the top because it’s backed by the state. Unless you feel that sovereign bankruptcy is in play, but in the US, we don’t really fear that for now. You don’t fear that it will go insolvent; it’ll go bankrupt. You don’t fear that someone is not going to accept it when you tender it for payment. You don’t question whether you have actually made your payment when you tender the money. All these things, we take them for granted.

Then people take these things for granted as well when they’re using bank deposits or when they’re using their Venmo balance. The reality is that they shouldn’t take those things for granted because those are real questions. The fact that you take for granted that someone backs the US dollar is a completely different question as to whether someone is behind your bank balance. It’s a completely different question as to whether someone is behind your Venmo balance. We started saying, “Okay, what are the key questions here? What are the key elements?” As you said, we come down to four. The first is the nature of the claim.

Now, to some extent, all monetary instruments are promises. Someone promises to give you value of some sort. The mistake or the error that we sometimes make is to think that these promises are all the same. The promise that the bank makes to you that they’re going to give you back money when you ask it to, people think this is the same promise that PayPal is making to me, this is the same promise that anyone else is making. The point that we make in the paper is, no, these promises are not all the same. To say, “Oh, these are just contracts,” that’s a mistake.

When you look at a payment instrument, and there’s someone on the other side, the issuer, who promises to give you money, you should really query this promise. Are you going to give it to me on demand? Are you reserving not to give it to me if it’s raining? Are you reserving not to give it to me if you change your mind? Of course, we were asking these questions because eyes downfield, we knew that with stablecoins, this question is tricky.

When an entity issues a stablecoin, and this stablecoin is backed by reserves and the stablecoin embodies a redemption, that’s the promise. The promise is, the issuer promises to redeem the stablecoin, to give you back $1 when you show up with the token. That’s where the question really becomes salient. Okay, what about this promise? Are you going to do it regardless? Are you going to do it any day of the week? Are you going to do it when the market is in distress? Is this promise, this contract, full of caveats, full of, “We will do it, but maybe we won’t. We will do it, but we reserve to take one week before we actually—”

Yadav: “We’ll charge a fee.”

Tosato: “We will do it, but we’ll charge you an exorbitant fee.” The first point of the analysis was all payment instruments are claims, they are promises, but dig into the promise. What are the characteristics? What are the features? What is the essence of this promise? That’s element number one. Nature of the claim, look at the promise that the issuer owes you, investigate it, make sure that that promise is robust because not all promises are the same.

Beckworth: The stronger the claim, the more robust the moneyness of this instrument?

Tosato: Correct. The more unconditional the claim.

Beckworth: The more unconditional. Okay.

Odinet: I think it’s worth adding that these four attributes are conjunctive. In other words, you can’t score excellent in the legal nature without reaching some level of sufficiency in the others. There’s no way that a deficiency in negotiability can somehow be made up through discharge capacity. They’re not additive. They’re conjunctive. It’s not a scorecard, in other words.

Moneyness: Safety

Beckworth: They all tend to go hand-in-hand with each other. Let’s go to the second one, safety.

Yadav: Safety, I think, is something that we all recognize, David, which is that how strong is this promise? Coming to what Andrea is saying is that this is a promise. How much can you rely on the issuer of that promise to make good on it, to remain solvent, to be well governed, to make sure that they’re not running off for holidays in the Bahamas when they’re supposed to be giving you the money? Thinking about the rules and regulations, and this is really the public law aspect that I think all of us in FinReg are very comfortable transacting in, which is how safe and sound is the institution that is making you that promise?

Of course, the more that safety is credibly on offer, the deeper the moneyness of that claim. Obviously, we see with banks that are issuing private money claims, they’re supported with a whole host of paraphernalia in the context of deposit insurance, lender of last resort, resolution regimes, and other things, various tricks that ensure the safety of that claim to a far greater degree than various nonbanks that have just come into the field that maybe don’t have the capital base and other things that really promote that safety, solvency, and soundness.

Moneyness: Discharge Capacity

Beckworth: We’ll come back later and talk about Tether. Is Tether truly safe? Can it deliver on that dimension? All right, let’s go to discharge capacity. We’ve talked about it a little bit, but what is that?

Odinet: Sure, I’ll jump in and do discharge capacity. Discharge capacity actually has two dimensions to it. The instrument’s discharge capacity as a component is its ability to serve as a settlement asset. The second is its ability to discharge monetary obligations. We have rules, and they are a little different as you walk down or climb down the ladder or the hierarchy—I don’t know what the right metaphor is—to get to this idea that parties, as a default matter, unless they haven’t agreed otherwise, must accept money of its various kinds to satisfy some obligation that is monetary in nature, not a performance or service or something. That’s one component.

The other is settlement. And the best way, I think, to understand this is in the intermediated space with banks. If I am paying money to you, David, at what point—when I send an instruction to my bank to pay your bank, which will credit your account—at what point is my instruction now irrevocable? I’ve made the instruction, and I can’t call them now and say, “Actually, I’ve changed my mind.”

At this point, there’s an obligation of my bank to pay you. That has insolvency implications as well, relative to when your payment is now something that you can rely upon. An instrument having both clear settlement rules and having this ability to discharge monetary obligations is what we fit under discharge capacity. That is our third core element.

Beckworth: This has implications for the discussion of how fast payments go through, right? Instant payments that you can’t pull back because it’s settled?

Odinet: I think it depends on what you mean by instant payments. I’ll use settlement. Settlement—although we probably just as a lay person don’t think about it this way—is a legal concept. It’s not a matter of fact. It may be that the technological or the mechanical mechanism that moves value from one person to another can be completed very quickly, but the issue of whether or not the settlement is final is governed by a set of laws in the United States, by and large, for commercial bank money, for electronic funds transfers, which is largely how we transfer money. It’s Article 4A of the Uniform Commercial Code and a body of other consumer laws.

I think it’s important to make that distinction between technical settlement and legal settlement. You might say, “Well, why does that really make much of a difference?” It makes a difference in the bankruptcy of a party that is in this chain.

Beckworth: Okay.

Yadav: I think one point that you raised, David, is one that instant payment schemes around the world are confronting, which is that—

Beckworth: Yes, real-time payments.

Yadav: —real-time payments, it’s going to be very hard for whoever is involved in that payment scheme to detect errors in real time, to correct for fraud, to do those usual checks. It promises a great deal in terms of convenience, in terms of super fast, getting the payments from one person to the other. As we know, with instant payment schemes, there is that downside that checking for fraud and errors is a problem. Of course, in many of these schemes, you have RTGS, real-time gross settlement.

The rules underlying that make sure that once that payment hits that recipient, they’re final, they can’t be called back. You have to send a separate payment back or have a separate cause of action back in order to deal with instances of fraud and other things. That basically means that the administrators of those schemes have to take that risk, that once that payment goes through and actually something’s wrong with it, it’s a bit of a fishy payment, it’s settled, it’s final. In that case, the bank or the fintech or whoever else is part of that scheme will then sometimes pick up the tab because these things do come with an error rate.

Beckworth: There’s tradeoffs, right?

Yadav: There’s tradeoffs.

Beckworth: Greater speed, but greater chance for fraud and other challenges.

Tosato: Discharge capacity is another one of those where we’ve come to take it for granted. That’s what I mean when I say, let’s, for a moment, go back to public money, bank notes. How does discharge capacity work? I owe you a debt, and I want to discharge that debt. Now, if a debt is denominated in dollars and I want to discharge the debt by tendering you a $5 note, you just can’t say no to that because there’s a rule; there’s legal tender. That’s the first: whether you can refuse to accept that method of payment.

Now, of course, if I owe you $5 and I say, “Well, I’m going to pay you by making a Venmo transfer,” you’re actually not required to accept that. You could say, “No, I just want a $5 bill.” That’s the first question. Which instrument can I use to discharge my debt? The adjacent question is, when is the debt discharged? Let’s go easy mode. If I owe you $5 and I give you a $5 note, when is the debt discharged? When I’m holding it in my hand, and I’m about to give it to you, is it when the $5 note goes from my hand to your hand? Is it 10 seconds after it has been in your hand? Is it one day after it’s been in your hand?

This is easy mode because there are no intermediaries; it’s just me to you, and it’s just the $5 note. As Chris was saying, what if we’re doing it with intermediaries? I’m trying to discharge my debt to you, but I am giving an instruction to my bank, and then my bank is coming to some arrangement with your bank, and in turn changing whatever ledger, whatever entries you have in your account. Then the rules for the when that debt is discharged become way more complicated. Is it when I gave the instruction? Is it when my bank communicated with your bank? Is it when your bank updated your account? As Chris said, we have rules for that: UCC Article 4A. Again, we take all these things absolutely for granted.

Now, something like stablecoins come along, and people start saying, “Well, I want to pay using stablecoins. I want to use it as a monetary instrument.” All these simple things that we have come to take for granted, that are not simple at all, now they all need to be reconsidered. This is why we came to these four elements. Look, for something to serve as money, for a monetary instrument to actually work well, you need to have rules. You need to answer all these questions. That’s why discharge capacity is essential. Nobody thinks about it, but it’s actually essential to a payment instrument to actually serve as money.

Moneyness: Negotiability

Beckworth: This list is a great list. You have one more item on there. You talked about it already: negotiability.

Odinet: Sure. Negotiability is, I think, maybe one of the most intuitive ones when you explain it to someone, but they would have probably never heard of that term. That’s just simply the idea that when somebody pays you with some money, as long as you’re not in cahoots with a fraudster and you know that something is awry, that you take that money and it’s yours and you can use it to go buy things or pay other people. You don’t have to worry at all that, actually, that’s really someone else’s money; it was taken. There’s some other claim. There is a lien. There’s some legal claim to that money that you don’t know about that you must now contend with.

We usually articulate it in the US as you take the instrument free and clear, called take-free rules. Somebody pays you for whatever, you take the money, you don’t think anything to go buy yourself some coffee after.

Yadav: You don’t worry if it’s stolen or anything like that.

How Stablecoins Currently Hold Up in Moneyness

Beckworth: Okay. You have this list. Let’s take it as you do and apply it to stablecoins. In the paper, you look closely at Circle and at Tether, the two largest. Of course, Circle is in the US. It’s under the regulatory perimeter of the GENIUS Act. There’s logs. At least as the story’s told, this will turn this into the equivalent of a government money market fund. Of course, you guys raised questions about that in the paper. Then there’s Tether, which is outside the US. Help us understand where do these two stablecoins fall on that list of four items?

Yadav: I think the TLDR is that there’s a ton of work to be done to get to that full-scale moneyness. I think in terms of the nature of the claim, this is a private claim. It’s an entirely novel category of issuer that has just come about. The first thing to investigate is, what exactly is the nature of the claim here? Now, as Andrea and Chris have investigated and done a deep empirical work on this, they’ve looked at the contractual basis on which the stablecoins are issued, how those interactions are governed through a very delicate dance between the issuer and the holder. I’ll let them speak for that study.

The function of what they’re saying here is that there’s a lot of risk that is attaching to what the holder is actually taking on by way of the risk. Things like, firstly, the people who get to redeem—I’m giving away the punchline a little bit—the people who get to redeem are those in privity. It turns out that the number of those in privity are actually quite small. I have the numbers in my head, but I will let them give the punchline away.

Beckworth: You’re saying in my coin wallet, I hold some Tether, I may not be the first in line.

Odinet: No, no, no, no.

Yadav: No, you’re not going to, unless you’re one of the big institutions.

Beckworth: What! You’re crushing me here.

Yadav: There are also a whole host of other risks that the holders are bearing with respect to when and how they get paid, potential fees attaching to them. I’ll let them discuss the privity thing because this is one of the most important aspects as to who actually has the redemption right here and it’s those in privity. That is actually a very surprising finding that these guys have done.

Beckworth: Let’s hear it.

Tosato: Let’s take a step back, for those who are not necessarily super familiar with stablecoins. Stablecoins are very diverse. There’s a lot of stablecoins out there not all working the same way. The two largest ones, Tether and Circle, have a similar structure. It’s a very simple proposition. The proposition is someone goes to either Tether or Circle—I’m going to simplify it a little bit—with $1. They give $1 to either Tether or Circle. In return, Tether or Circle gives them a token, a digital asset. Together with this token, they also make them a promise. They say, “If you come back to me with this token, I promise to give you back $1.”

At their core, this is what centralized, reserve-backed stablecoins are. By the way, this is not a particularly novel invention. Certain banks in Europe were doing this in the 17th century, in the 18th century. It’s a simple promise. You give me $1, we take it in, we give you a token. You come back at a later point in time with that token, we will return the $1 to you. We promise to keep that $1 in a safe place and to always keep it here. That’s the promise. The promise is we promise to redeem the token when you show up and give you $1 in return.

As we said, the minus four elements, nature of the claim, let’s investigate this promise. When you start investigating, you find out that both Tether and Circle make this promise to a very few select number of clients. Tether promises to redeem only to 800 clients. They say this openly.

Beckworth: That is shocking.

Tosato: Again, we’re not giving away anything. This is not a secret.

Yadav: This is public.

Tosato: In their publicly disclosed documents, Tether says, “We have 800 customers with whom we are in privity of contract. If any one of these 800 shows up with our tokens, yes, indeed, we will redeem.” If that Tether token finds its way from one of these 800 to you and you show up at Tether’s door and you even reach their minimum size threshold, which by the way is 100,000, so it’s not the smallest, but even if you have collected 100,000 of those tokens and you show up and you say, “Okay, redeem,” they will look at you and say, “Excuse me, who are you again? We’re not in privity of contract. We don’t owe this promise to you. No, we will not redeem.”

This is why, again, when we were investigating moneyness, we said, “Look, the nature of the promise is super important. To whom is it owed, and what is the perimeter? What are the characteristics of this promise?” The first thing that we discovered during this empirical analysis was that both Tether and Circle are in privity of contract with relatively few customers. Even though the stablecoins circulate very broadly and hundreds of thousands of people hold them, millions of people hold them, those who can redeem are very, very few, which means that if you have 100, 1,000, 100,000 stablecoins in your wallet, either your noncustodial wallet or your wallet with one of the big platforms, you will be able to redeem it. That is, transform it into paper dollars.

Again, what we talked about earlier about moving your way up that hierarchy, you will be able to do that only if you are in privity of contract with either Tether or Circle. If you’re not, you’ll have to find someone who is, and they will decide whether they want to interact with you or not. Again, if I am one of Tether’s customers and I can redeem, this does not mean that when you show up to me and say, “Please, will you help me redeem?” I don’t have to do that.

Beckworth: Just to be clear, you’re saying that the short list of clients can, on demand, legally redeem. But on an ordinary day, can someone else come up and redeem, or no? 

Tosato: They cannot.

Yadav: In many payment schemes, they can be closed-loop schemes. In other words, if you are in a Venmo network, then we all understand that you have to be in the same network to send each other payments. The issue here is the disconnect that the folks who are in direct privity are a select few, 800, and I think it’s around 1,600 in the case of Circle. The circulation and the ability of those tokens, those money claims, to essentially be available and around is disconnected from that loop. What you have is that you have this closed loop of the people to whom the promises are definitively owed, but these claims are circulating far, far more broadly. In fact, for most of us, we, the plebs, we’re going to have to acquire these in the secondary market, and we’re going to have to find third parties to then off-ramp us if we do want to convert them.

Beckworth: That’s my question. You said definitively there’s a short list, but the average person can still sell their stablecoin to someone else and get the public money back.

Odinet: If someone will buy it from you. I think it’s worth even just putting a little icing on that cake that Andrea just cooked up—

Beckworth: It’s a big cake.

Odinet: —if I can kill that metaphor. While only these pre-approved institutional clients have the privity necessary for Tether or Circle to say, “Yes, we have a redemption obligation owed to you,” but even then it is not an unqualified obligation. The terms of service that govern this relationship between the select number of individuals and Tether and Circle is highly caveated and, for a number of reasons, Tether and Circle can say no to redemption, including, quizzically, the moment in time when redemption would be most desired, which is in times of liquidity constraint.

Yadav: GENIUS has improved that.

Tosato: This is where it’s important to start drawing a distinction between how this landscape was before GENIUS and after GENIUS, and this is what we do in the paper. After having laid out what we believe are these four elements of moneyness, we do this empirical analysis of the terms of service of Tether and Circle to figure out how they operate.

We basically say, “Okay, this is the degree of moneyness that they had before.” Then we look at how GENIUS affects this, and GENIUS improves a little bit this picture in the sense that GENIUS comes in and says, “Well, this promise for redemption, you cannot caveat it.” You cannot make it conditional however you like. You can’t suspend it at will. If you place fees on the redemption, these fees have to be public. If you change the fees, you have to make this very transparently. When someone redeems, you have to actually give them fiat money.

Unfortunately, where GENIUS is not clear is on this point as to whether the redemption right runs only to those with whom these issuers are in privity of contract, or whether, and this is the argument that we make in the paper, we advance the view that if one interprets GENIUS in a certain way, after GENIUS, that redemption promise is no longer confined to privity of contract. Rather, it runs with the token.

The argument that we advance is, and we say if this interpretation is accepted, the moneyness of stablecoins comes up, it’s a little higher. The idea would be that for the sole fact that you hold the stablecoin, now the issuer is obligated to redeem it. The idea would be that the promise, that redemption promise, runs with the token itself.

Unfortunately, though, this is the argument that we advance in the paper, that what we believe is a better interpretation of GENIUS would provide for this. Unfortunately, GENIUS is not completely clear on this point. It is a matter for interpretation. What is certain is that pre-GENIUS, that promise did not run with the token, and that promise, the redemption, was only available to those who were directly in privity with the issuers.

Yadav: One last thing, just to highlight, and I think it’s a logistical point more than anything else, and a compliance issue, is that some of the issuers here make the point that they cannot honor all the promises to everybody because they have AML/KYC obligations, and so they would have to engage in those obligations. Therefore, they’re making the argument that, in fact, it’s better not for them to be universally obliged because then they have to engage in AML/KYC analysis.

That has been one way in which they’ve pushed back against the argument to say that there should be some kind of universal redemption obligation attaching to these tokens. That being said, our analysis here is that one can make that argument, but it does reduce the intensity of that moneyness. That’s the usability issue and the legal issue that’s diminished.

Tosato: Also, many providers of financial services manage to cope with KYC and AML compliance when dealing with tens of thousands of customers. Why issuers of stablecoins claim to be unable to do so, that’s not as clear. It’s particularly interesting because when doing a bit of comparative assessment, there is regulation for stablecoins in Europe. It’s called the MiCAR regulation. In that framework, they say, “No, stablecoin issuers must redeem to whomever presents them with one of their tokens.” This privity point goes out of the window. Yes, of course, before they actually give the paper money, before they do redeem, they can say, “Now I need to find out who you are. I need to carry out the AML, the KYC,” but this doesn’t take away the fact that they are still obliged to redeem to whomever shows up with a token, and we feel that that’s a problem.

Beckworth: Because it’s a technical issue, it should be fixable, solvable. I’ve heard there’s blockchain issues, more of a logistic issue, but markets, innovation, that should all at some point be fixed. There’s not a legal constraint to it.

Tosato: Ostensibly.

Yadav: In many ways, we’re in an interesting world here because stablecoins are being thought of as a way to propagate dollarization globally. Where they’re really coming into their own, and this is more or less fairly unique to the US dollar in particular, is that they’re being held by those outside of the country and outside of the US. When you look at the EU, the EU has a whole bunch of restrictions on size of issuance and where this can go and how the reserves should be held, whereas we don’t necessarily have that same kind of geographical issue. In that context, what we are dealing with is a potential for a much more internationally focused holding.

At the same time, of course, financial institutions are in the business of international money management. That’s what they do. At some point, potentially with, say, digital identifiers and blockchains and other things, maybe this problem goes away. Right now, the issuers are offering this thing, which is we can’t AML/KYC, especially not for USD-pegged stablecoins. They’re super global, but there’s a cost to that.

Tosato: The bottom line is on this first parameter, so the nature of the claim, unfortunately, stablecoins don’t have a lot of moneyness, so they don’t score so well, so to speak, on this first parameter of the nature of the claim. The argument that we advance in the paper is that post-GENIUS, it’s a little better.

Beckworth: For Circle.

Tosato: No, but if you take this view that post-GENIUS, to operate in the US, the issuer has an obligation to redeem to whomever shows up, then you could say, “Listen, within the GENIUS Act perimeter, those who are licensed in the US, for this first point of the nature of the claim, things are much better after GENIUS, but you have to accept the interpretation that we give of the act.” Unfortunately, it’s an interpretation. It’s not super clear.

Beckworth: All the legal scholars listening out there, please take note and adopt and incorporate because we like the moneyness. I guess my point was Tether is not bound by GENIUS. This moneyness won’t apply to it as much as it would to Circle and other US-based—although Tether is issuing its own US-based coin, whatever that is. I’m not sure if it means anything. Let’s go on to the next few elements. How do those two stablecoins, how do they come out? With discharge, negotiability, safety?

Yadav: I think the safety is the big issue here, which is the GENIUS Act is doing a ton of work to ensure that stablecoin issuers are seen as incredibly safe. The main tool, the main mechanism here, is looking at reserve assets, so making sure that each and every claim is backed one-to-one by super high-quality assets. This is going to be cash and Treasuries. Now, this is wonderful, cash and Treasuries in general, super high-quality liquid assets. This should really create a lot of confidence in their safety. At the same time, of course, we have to think about where are these cash and Treasuries being held and who’s holding them?

At least until now, nonbank stablecoin issuers, they have had to rely on custodians in order to be able to hold this cash and other assets. This would mean relying on private banks in order to be able to enter the payment system, as well as, obviously, on financial services custodians that can hold the Treasuries and then interact and transact in those Treasuries for the stablecoin issuers themselves. In other words, to put the point more simply, stablecoin issuers don’t have Federal Reserve master accounts, and they’re not being offered master accounts, the skinny master, that’s the innovation that’s coming up that would pay them interest to hold money with the Fed.

In that context, what that means is that this money, the assets, the reserve assets, that there is credit risk attached here. This credit risk is not insignificant, nor is it theoretical. Now, we just discussed it. Silicon Valley Bank is the obvious example. Circle is forced to put money with Silicon Valley Bank, $3 billion worth, is uninsured. Crisis happens over the weekend, and so the feeling is Circle is potentially undercapitalized by $3 billion over a weekend when nobody can get their money out. That is not helpful if one wants to put moneyness as the embossing footprint of this claim, that they are continuously having to deal with the core safety mechanism being tainted by credit risk.

Odinet: There’s another component of the safety analysis that I think we’ve just become extremely fascinated by. I think particularly Andrea and I because we both have written and teach in bankruptcy, but these are the bankruptcy dimensions to what the Genius Act does. I think, probably for bankruptcy scholars, one of the most egregious things that the GENIUS Act does is it actually amends the Bankruptcy Code itself to give special rules to parties relative to stablecoin issuers, as opposed to plugging into bankruptcy in the normal way that commercial firms do.

It does it in a bunch of ways that don’t make any sense. To boil it down, the reserve assets, which are meant to allow issuers to make good on the promise, are deemed in a bankruptcy to be outside the debtor’s estate, which is to say that in the administration of the bankruptcy, these assets are not to be considered the property of the issuer. The claims to them exclusively belong to the customers. You’re thinking, “Okay, that sounds good. They’re outside the bankruptcy estate.”

At the same time, the stay that goes into effect when one files for bankruptcy, which essentially halts all third parties from being able to demand their money or otherwise sue or make claims against the debtor, those all have to stop. The stay also applies to the reserves. That’s very unusual because the reserves are said to not be part of the estate. Also, the bankruptcy judge is charged with managing the redemption using the reserves, even though they’re outside the bankruptcy estate.

There’s a lot of contradictions and things that don’t quite make any sense. Aside from that, those who hold stablecoins and are making a claim against the insolvent issuer; they are given, in bankruptcy parlance, what is known as a super priority claim. The idea behind that is if the reserves are insufficient, there’s not enough, to make good on all of those promises.

Essentially, let’s just imagine all of the customers holding these tokens are still owed money, even after all the reserves are liquidated. They have a claim against the issuer. That claim against the issuer for the shortfall is above and beyond, it is over, it is superior to every other type of claim that anyone else may make against the issuer. The under-the-hood bankruptcy tea there is that that’s extremely unusual because the persons who typically have a super priority claim are the professionals that make the bankruptcy happen.

Yadav: The lawyers.

Odinet: The lawyers, the professionals, debtor-in-possession lenders. In practical terms, what that means is if there is a large shortfall so that there are a bunch of claims that get this super priority, no lawyer or debt lender or trustee—

Yadav: We’re going to have to have pro bono help for this one.

Beckworth: You guys might, you love stablecoins, right? 

Odinet: I think even more problematic, and this is something that has sort of come to light since we wrote the paper, is it seems through talking to individuals who are very close to this space, the principal vehicle that issuers seem to be interested in in entering into this GENIUS Act compliance is uninsured national trust banks. Those types of financial institutions under the Bankruptcy Code do not have the ability to file for bankruptcy. They don’t have access to the bankruptcy courts. How do their insolvencies get managed?

For these particular, corner of the world, very idiosyncratic firms, there’s a very old Office of the Comptroller of the Currency receivership regime that was kind of updated and better articulated in a rule from 2016 that really does not, in any way, provide a robust framework comparable to bankruptcy, and is largely informed by very ill-defined common law sort of receivership bankruptcy that has not been very well fleshed out, but certainly does not contemplate all of the bells and whistles that the GENIUS Act has incorporated into the Bankruptcy Code.

We’re going to have to see what is done about what probably will be the insolvency regime that governs any issuer insolvencies, because that seems to be the place that they are interested in getting their license for.

Yadav: Holders don’t have property rights in reserves. That’s another thing to just flag out there.

Tosato: Let’s keep the score. We’re trying to assess the moneyness of stablecoins, and we’re doing it pre-GENIUS Act and after GENIUS Act. We’re going to say David has his stablecoin, he’s looking at it and saying, “How good of a payment instrument, how good of money is this?” The first question that you were asking yourself is, “Will I be able to redeem it? Will I be able to transform the token into a paper dollar?” We said, before GENIUS Act, you had to be in privity of contract with one of the issuers. After GENIUS Act, if one accepts all of you, the fact that you hold the token, that’s sufficient to go to the issuers and say, “Okay, give me $1.”

The second question you’re asking yourself, again, when you’re looking at the stablecoin and asking yourself, “How good of money is this?” The second question was, “If I try to redeem it, if I try and go ask the issuer to give me $1 in return, what’s the likelihood that they will?” That’s the safety point. Pre-GENIUS Act, it was looking pretty dicey. Why? Because there were no rules as to what the issuers should do with the reserves.

They could invest the reserves in Argentina tango bonds. They could invest the reserves in lollipops. They could do whatever they want. The GENIUS Act comes in and says, “No, the reserves have to be held in a short list of asset classes,” so predominantly short-dated Treasuries, which are going to be safe. As Yesha said, it’s not perfect because where are these assets going to be held? That’s the custodial risk.

The second element of safety is, but if things go wrong, despite the fact that you were holding the good assets, you go bankrupt nonetheless. Again, it’s you looking at your stablecoin, “What are my chances of recovery in bankruptcy?” Pre-GENIUS Act, you were really in a horrible, horrible spot. We wrote a paper about this. It’s called “The Private Law of Stablecoins” with our friend Kara Bruce.

Pre-GENIUS Act, we were showing that if your issuer went bankrupt, you had zero recourse. You’d be an unsecured creditor. You get nothing. GENIUS tries to fix this. They tried, but as Chris explained, they kind of didn’t do it so well. This goes back to the point that we, again, make in the paper, because insufficient attention was paid to this private law dimension.

The moment where you step back, and you say, “Wait, let me think about these bankruptcy problems. Let me go look at the bankruptcy rules. Let me take a look at what is the nature of the claim. What is this promise? Let me make sure that in bankruptcy this promise will be treated right.” That analysis was not done. I’m now going to have this image of you, David, looking at your stablecoin. Even after GENIUS, you look at it and say, “If the issuer goes bankrupt, how’s it going to look for me?” It looks better, but maybe not perfect.

Beckworth: It’s a very dire outlook there that you’ve just shared with me.

Yadav: But improving.

Beckworth: Improving, yes, but as you said, I’m looking at my coin, and it’s still wanting. It’s still a lot of room for improvement. Glass is half full. I’ll take that. The last two items—discharge capacity, negotiability—where do stablecoins stand on that?

Odinet: Sure. I’ll jump in on discharge capacity. This is extremely easy because the GENIUS Act doesn’t do anything for either of the two dimensions of discharge capacity. It doesn’t make it legal tender, and it doesn’t adopt or mention or treat in any way the issue of settlement finality, even though the GENIUS Act does mention in one particular place that part of the animating idea behind stablecoins is not only to serve as a payment device, but to also serve as a means of settlement, but no settlement rules are enacted or even hinted at.

Beckworth: Negotiability.

Tosato: To go back to you, so it’s you holding the token and saying, “Okay, I want to use it to pay for a coffee.” You’re looking at it, and you’re like, “I don’t know whether they will accept it for a coffee.” You’re looking at the coin and saying, “I owe Chris some money. Can I use this to discharge that debt? If I use it, when is the debt going to be discharged?” Before GENIUS, you didn’t have many answers to this, and unfortunately, after GENIUS, you don’t have answers either, because GENIUS didn’t go into that.

Recommendations to Policymakers

Beckworth: All right. You come up with a list of recommendations you want policymakers to pay close attention. Do that, policymakers who are following the show. Let’s begin with your first one, which deals with a master account.

Yadav: Good times, because it looks like somebody’s been reading our paper, as you mentioned.

Beckworth: What an impact your paper has had already. 

Yadav: Obviously, there’s an executive order that came out today—

Beckworth: May 20th.

Yadav: —May 20th, that has tasked the Fed with trying to consider ways in which to make it simplified and standardized for fintechs and crypto companies to gain access to the master account. We are basically advocating for the major stablecoin issuers to gain access to master accounts in ways that actually encourage them to hold their cash and assets at the Fed. We think there’s several advantages to this. Firstly, you get zero credit risk. You also have monitoring from the Fed. The Fed’s actually acting as a monitor, providing that oversight, which I think is super important. In addition, of course, you have that certainty as a customer that you don’t have to worry about the informational sensitivity surrounding custodianship.

Master account access, we think, is important. The Bank of England is already going down that road to say stablecoin issuers over a certain threshold that they get master account access at the Bank of England. We don’t think it’s anything super radical here. If Congress wants this to really be a money claim, then reducing credit risk and increasing safety should be a priority.

Odinet: I think to that very last point that Yesha mentioned, and I will say this is a point upon which we have gotten questioned every time we’ve presented the paper, and that is whether or not we are advocates of these recommendations at the end of the paper. That’s really not what the paper is trying to do. It’s not a paper about why stablecoins are good or bad, or that we should normatively change the law to meet their moneyness deficiencies. We’re interested in the question of moneyness as legal academics.

The question of whether or not stablecoins are good or bad, that’s really, to our mind, a policy question. It’s largely a political question. I think certainly there’s a place for legal scholars to weigh in on that, as there are economists and others who study the monetary system. That’s not really what our paper is about.

However, because we go through this analysis, we say, but if one were to make the decision, one being whomever the decisionmakers are, Congress, whomever, that stablecoins should be something that people can use as a monetary instrument, they should have more moneyness. Here are the things that you would need to do to give them more moneyness. As Yesha mentioned, the first thing you need to do is deal with that custodial dependency problem and master account access.

Tosato: Make them even safer. Make sure that David is not asking himself, “Is there going to be someone and something on the other side of this promise?”

Beckworth: Since I got three legal scholars here, let me ask this question. The way currently around this issue is to get an OCC trust charter, which makes you a federal bank of sorts, and then potentially go get a skinny Fed master account. They haven’t been released yet, but I think in the fall will be available. Some people said that really is just you’re doing legal gymnastics. Should Congress actually change the Federal Reserve Act to make it easier to issue these master accounts? Would that be a better solution?

Yadav: Look, I think whatever gets us there. The skinny master feels like it’s falling between two stools. You have this product on offer. The question is who’s actually going to use it? If there’s no interest being paid on it, but Treasuries are going to pay out like 5% at some point, why would you want to stick it in a skinny master and earn nothing? That’s just Treasuries, which should be super safe. The point is that there have to be real incentives to use it. There has to be not a two-tier mentality of like, “We’re in the skinny category, and therefore we look bad.” We should be in the full category because we’re part of the payment and financial system.

Beckworth: They should get interest on reserves, potentially? Oh, interesting.

Yadav: TBC, I think. Worth discussing.

Beckworth: All right. Let’s go on to the second one because I could spend a lot of time on this, but for the sake of time, let’s move on to the second one. Private insurance fund.

Yadav: I think if there is no skinny master account, then I think private insurance becomes something that the industry has to really pay attention to. That custodial risk is not going away. That run risk attaches if there’s informational sensitivities that arise for various reasons. Particularly if there’s no skinny master, then having a separate lever to pull on the context of insurance becomes super important. As a general matter, to shore up the moneyness, having industry contribute to an insurance fund to make sure that that informational sensitivities that could arise from any deficiencies are patched up. Let’s think about it.

Beckworth: This would be like an FDIC equivalent—

Yadav: Private.

Beckworth: —but private version from the custodial banks. Better insolvency framework. We touched on this a lot, but how do we do that?

Odinet: I think that the ideal way would be to essentially plug issuers into the existing bankruptcy scheme, to the extent they are going to be eligible for bankruptcy. I know this is a point in which legal academics contest. I know Dan Awrey, for instance, would very much prefer a more bespoke resolution regime for issuers. Since it seems to be that the preferred vehicle for issuers is going to be the uninsured national trust bank, they do have their own incredibly ill defined and really old and crusty receivership regime.

That undeniably, if that is the place where issuers are going to settle, and they won’t find themselves in a vehicle that can access bankruptcy, even with all these really poor changes to the Bankruptcy Code, that is something that on the horizon will need to be dealt with. Whatever Congress had in mind to protect customers in the bankruptcy sort of context, it’s not going to apply to these national trust banks anyway. To the extent we were going to clean that up, we would advocate to give customers who hold stablecoins a lien on those reserves, which would plug into the existing way in which we treat preferred creditors in bankruptcy.

Beckworth: Okay. Finality rules.

Tosato: This is about those final two elements of discharge capacity and negotiability. This is where basically we say if the political will is to make stablecoins have greater moneyness, then you need to bring in a legal framework for these things so that if people want to use them to discharge their monetary obligations, they know that they can, so that when they tender the stablecoin, the moment someone receives control of it, that’s when the obligation is discharged.

The point that we’re making is you can’t leave these things unspecified in a state of limbo or wait for courts to decide. If there is a political will for stablecoins to have greater moneyness and be more public money, then these issues need to be taken care of, and equally, negotiability is the same thing. If someone comes to me and tries to pay me in a stablecoin, I need to be certain that once I receive it, I don’t have to question whether that person stole it or whether three hops up the chain someone was a thief, and therefore, at some point, someone is going to come to me and say, “You have to return that stablecoin to me.”

All those things that we, again, take for granted with public money, with cash, those rules need to be placed on stablecoins if indeed the desire is to make them have greater moneyness and serve socially as a payment instrument more efficaciously than they do right now.

Beckworth: All right. Final recommendation: explicit tokenization of redemption rights.

Odinet: This would be to answer that question about whether or not the right to redeem travels with the token or whether it’s still something that is separated, whether or not you can have the token, but if you haven’t been pre-approved by the issuer, then they don’t have to redeem. The idea would be to make explicit what we offer as the better interpretation.

Earlier in our chat, we said we think the best interpretation of the GENIUS Act, although we think it is a little fuzzy, is that they’re now merged together. We would make explicit that holding the token gives you the right to redemption, and so the rules that govern transferring the token, they govern transferring the redemption right as well. One asset, one set of rules.

Beckworth: Those are the recommendations and the paper will be linked to in the transcript. One last comment and question for you guys. I know you don’t try to be normative in this, but in my view, the horse is out of the barn. It’s the real world, and technology innovation is moving ahead. How to make the best of it? You have a nice analytical list of tools for us to use. Thank you for your hard work. That’s my comment.

My question is this: If we go back in history, there’s these moments where legislation occurred that really fundamentally changed money or the trajectory of money. Do you see GENIUS as really a fork in the road? Is it putting us on a very different path than otherwise would have been the case?

Yadav: I can start. I would say yes. I think it has opened the door to an extremely innovative payment system to become normalized and mainstreamed, and one that has enormous international implications for not just setting up a dollar-based system, but also potentially having other countries copy GENIUS to set up their own potential digital currency peg systems. That has a huge amount of implications for potential currency competition, potential tension with dollar dominance over time.

Thinking about the ways in which a new currency competition is building through the efficacy of the payment system itself, I think that is something that GENIUS has really opened the door to, in addition to ushering in a real way for us to engage with what makes money money, which is what it’s done. Also, really thinking about bringing in this very hyperglobal, super programmable, fast, and interesting payment system.

Tosato: I think that it is. I’m not sure whether it’s really a fork in the road, but as you said, the horse was out of the barn. Stablecoins have already reached a point of critical mass, and so some intervention at a regulatory level was necessary. I would say that intervention at private law level is equally necessary. From this respect, I think that it is very important that GENIUS happened in the same way, to which it’s really important that in the EU they did something. Not acting would have been much, much worse.

The hope is that the GENIUS Act is not the point of arrival, but rather it is the beginning, and that through now regulation and follow-on interventions, if there is a political desire, and it appears that there is, that this framework will be improved. Again, the point that we make in the paper, and I’m going to state it again, hopefully these interventions will not be just purely from a public law financial regulation perspective, but will be a good wedding, a good marriage of financial regulation and private law, because both elements exist and are required for moneyness.

Odinet: At the very least, it has given us lots to write about.

Yadav: Oh, and it’s got us on Macro Musings. We’re really happy about that.

Odinet: Yes, we love that.

Yadav: Yes. 

Beckworth: Very good. That’s probably the most important fork in the road.

Tosato: We get the mugs.

Yadav: We get the mugs.

Odinet: We get the mugs. 

Beckworth: Okay. In closing, tell the listeners where they can find you online. Chris?

Odinet: I am on Twitter, or X, I suppose, @ChrisOdinet. You can find me on Texas A&M’s law school website as well.

Yadav: The website, I unfortunately am too dorky for any social media.

Tosato: All major social media, the SMU website, and I also have my own personal website that was made by Claude Code. If it doesn’t work, then it’s Claude’s fault.

Beckworth: Thank you all.

Yesha Yadav and Odinet: Thank you, David.

Tosato: Thank you, David.

Yadav: So much fun.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth, and follow the show @Macro_Musings.