Politics Meets Finance: How Trump Family's Stablecoin Is Shaking Up Legislative Battles?
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Politics Meets Finance: How Trump Family's Stablecoin Is Shaking Up Legislative Battles?
As banks and crypto firms vie to influence regulations, Trump has launched his own stablecoin, directly threatening the businesses of both industries.
Navigating Web3 tides with focused insightsBy: Yueqi Yang
Translation: Block unicorn
Congress is rapidly advancing new cryptocurrency legislation that could elevate stablecoins to a more central role in the financial system—putting banks on the defensive even before Donald Trump entered the fray.
Trump has stated he wants stablecoin regulation to be his administration’s first crypto legislative priority. Caught off guard, banks are intensifying lobbying efforts to push for significant changes to the rules—from who can issue stablecoins to how they are structured—in order to protect their position within the financial system.
As banks and crypto firms battle to shape the regulations, Trump has launched his own stablecoin, directly threatening the business models of both industries.
Unlike better-known crypto assets such as Bitcoin, stablecoins do not experience price fluctuations and are typically pegged to the U.S. dollar. They function similarly to money market funds, serving as cash storage vehicles and enabling seamless cross-border transactions. The current stablecoin market has surged to $230 billion, dominated by Tether and Circle's USDC, valued at $145 billion and $60 billion respectively.
The latest entrant is the Trump family. Last week, World Liberty Financial—a crypto project founded by Trump and his sons—announced the launch of its own stablecoin, USD1. This has raised concerns that Trump may push for legislation favorable to his own business interests.
Congress Advances Stablecoin Bill
Congress is accelerating work on stablecoin legislation. On Wednesday, the House Financial Services Committee plans to vote on a stablecoin bill to determine whether it will advance to a full House vote. A similar bill passed through the Senate Banking Committee earlier this month. Trump hopes the legislation can be enacted by August and has already secured support from some Democrats.
The proposed stablecoin regulation threatens banks’ role in the financial system. Customers might shift funds into stablecoins instead of bank deposits and conduct transactions without involving banks.
Stablecoins are deeply intertwined with the financial system because they are backed by cash and Treasury securities. Stablecoin issuers rely heavily on traditional banks to hold these reserve assets and facilitate customer trading. Regulators remain cautious, as any instability in stablecoins could spill over into the banking system and broader economy.
Regulators have long been tightening oversight of the crypto industry, so the sudden prioritization of stablecoin legislation caught banks off guard. "The banking industry faces a long-term threat—assets could flow out of the banking system," said Jackie Reses, CEO of Lead Bank, a Missouri-based community bank with partnerships in fintech.
The Trump Factor
Mike Belshe, co-founder and CEO of crypto custodian BitGo, said banks were "surprised" by the Trump administration’s push for crypto-friendly regulations. "Every bank is scrambling to figure out how to deal with digital asset companies and the extent of their involvement in digital assets."
Trump’s entry into the stablecoin market increases pressure on banks, as his coin is expected to gain traction—and the Trump family has made clear its intention to challenge the banking system.
"People will want to curry favor with the Trump administration by supporting Trump’s stablecoin," said Kevin Lehtiniitty, founder and CEO of Borderless.xyz, a stablecoin infrastructure company.
Donald Trump Jr., president of World Liberty Financial, openly expressed his ambition to disrupt banking. He said he came to appreciate cryptocurrencies after banks severed ties with his family due to their political stance.
"I realized the entire financial system and banking is actually a Ponzi scheme," he said during a virtual speech at the Blockchain Summit in Washington, D.C., discussing the Trump family’s crypto initiatives.
A spokesperson for World Liberty Financial said the company’s stablecoin targets "institutional clients, sovereign investors, and retail investors" for cross-border transactions and is planned for launch "in the near future."
Backed by Goldman Sachs, BitGo is one of the world’s largest crypto custodians. The firm said it will offer Trump’s USD1 stablecoin to its thousands of institutional clients and will use its banking partners to hold USD1’s reserve assets—such as cash and Treasuries—and provide dollar settlement services.
"Clearly, the World Liberty team has tremendous influence—not just in the U.S., but internationally," said Belshe, who hosted a fundraiser for J.D. Vance during last year’s campaign.
Several Democratic senators, including Elizabeth Warren, have asked banking regulators how they plan to address conflicts of interest posed by Trump’s stablecoin. In a letter, they questioned how the Federal Reserve and the Office of the Comptroller of the Currency would "maintain credibility and integrity, and mitigate the unprecedented risks to the financial system posed by Trump and his family’s stablecoin USD1."
Banks Lobby Back
Banks are lobbying to protect their deposit base. For example, they want to ban interest payments on stablecoins and prohibit non-financial companies from issuing them, to prevent tech giants like Elon Musk’s X from competing with banks. Banks also want to block stablecoin issuers from direct access to the Federal Reserve’s payment system, which is currently available only to banks. Circle has been advocating for such access so it can hold assets directly at the Fed and settle transactions independently, without relying on banks.
Banks also seek to ban U.S. residents from using offshore-issued stablecoins like Tether unless the issuer registers in the United States. Currently, Tether operates overseas and is not subject to U.S. regulatory oversight. This creates another layer of conflict of interest, as Howard Lutnick, the Commerce Secretary, previously founded Cantor Fitzgerald, the firm managing Tether’s assets.
Some banks, including Bank of America, are considering launching their own stablecoins for payments. Paxos, which helped companies like PayPal issue stablecoins, said it is in talks with banks and expects "several banks" to launch their own stablecoins in the future. PayPal’s stablecoin, launched less than two years ago, already has $800 million in circulation, while Fidelity Investments is also exploring a stablecoin launch.
Circle is pushing banks to adopt its USDC stablecoin for payments rather than issuing their own. Jeremy Allaire, CEO of Circle, said he hopes USDC’s user network will attract banks to partner with the company.
This means Circle may share interest income from its reserve assets with banks. Currently, Circle shares part of its revenue with Coinbase, which promotes USDC to its users. "We build commercial relationships where both partners make money," Allaire said.
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