Key Takeaways
- Several US Democratic Party Senators have raised concerns about Trump family crypto entities and their ties to the upcoming USD1 stablecoin.
- The Senators opine that the project’s reported ties to the First family could allow him to influence federal regulators, including the Fed and OCC, to benefit the asset.
- The concerned Senators have requested the Federal Reserve and OCC clarify how they will manage such risks, especially since the GENIUS Act lacks safeguards.
There’s fear within the ranks of the US Congress, especially among members of The Democratic Party, that the Trump family crypto entities could jeopardize bi-partisan support for The Republican Party, also known as the Grand Old Party (GOP) effort to lightly regulate the digital assets industry.
According to a report in Reuters, Democratic Senator Elizabeth Warren and four others are seeking answers regarding the Donald Trump-supported World Liberty Financial crypto project, warning that financial regulators would soon confront “an extraordinary conflict of interest” overseeing any of the Trump family crypto entities. The letter was sent early Friday, March 28, 2025, to the Federal Reserve’s vice chair of bank supervision, Michelle Bowman, and the acting comptroller of the currency, Rodney Hood.
USD1 Throws Spanner in the Works
Congress is already pursuing a legislative effort through the GENIUS Act to create a regulatory framework for stablecoins. These coins would function as digital dollars to pay for purchases for other cryptocurrencies or store cash. If passed into law, the FED and the Office of the Comptroller of the Currency would oversee companies and create specific rules on reserves and customer protections.
While the Republicans are the majority, they would still need several Democratic votes before they can actualize the long-promised crypto regulation and send it to President Donald Trump’s desk. Nonetheless, a company started by the President’s eldest son threw a spanner into the works last week when it announced it was launching a new stablecoin, the stablecoin USD1, a move that now threatens to jeopardize the ability to have Democrats on board.
Lawmakers had Already Warmed up the GENIUS Act
Immediately following his inauguration, President Donald Trump signed an executive order requiring federal agencies and financial regulators to submit their rules and actions to the White House for approval. The fear among Democratic legislators surrounds the new World Liberty Financial’s stablecoin USD1. This US dollar-pegged token would directly enable Trump family members to profit from the GOP-led legislation, thereby legitimizing the assets to enact industry-friendly rules for how regulators oversee them.
According to several sources with information about the goings-on, several Democrats in both chambers had already warmed up to the GOP-led stablecoin bills, but the issue surrounding Trump family crypto entities is poised to become a hitch. However, sources now indicate that some lawmakers are expected to oppose the GENIUS Act during the committee vote later this week unless it includes language that would block Trump and Elon Musk from issuing stablecoins.
Commenting on the issue, Jim Himes, a senior Connecticut Democrat on the House Financial Services Committee who has backed stablecoin legislation in the past and said he hopes to do so again this week, said:
“I can’t think of anything more damaging to bipartisanship than that happening.”
USD1 Launch could become an Obstacle
Besides illustrating the challenge the Trump administration faces in achieving bipartisanship even in issues that lawmakers from both parties seem to support, the concerns surrounding the Trump family crypto entities highlight the difficulty the President’s involvement in digital assets could put Republican lawmakers working to legislate on the issue into. At the moment, even some of the crypto space’s most ardent supporters in Congress acknowledge that World Liberty’s latest move could become an obstacle in talks with Democrats. Cynthia Lummis, a Wyoming Republican who has played a leading role in crafting the legislation aimed at boosting the crypto sector, said:
“It shouldn’t make life harder, but it might.”
Conclusion
In September 2024, World Liberty Financial was among the Trump family’s crypto entities, as announced by the President, his three sons, and Steve Witkoff, an influential real estate businessman now Trump’s Middle East envoy. While Trump’s aides insist that he handed over his business ventures, including the crypto-related entities, lawmakers continue to express concerns over conflict of interest issues. The latest announcement that World Liberty Financial would launch a stablecoin, USD1, that will be fully backed by US Treasuries, dollars, and other cash equivalents and is designed to keep a value of $1 creates additional intrigue to an already tricky situation.
Frequently Asked Questions (FAQs)
How are stablecoins regulated in the US?
The proposed GENIUS Act lays out a licensing framework for payment stablecoin issuers. The law requires them to be either federally approved or regulated by state authorities, provided that the state’s regulatory framework meets federally defined standards.
Are the regulatory risks associated with stablecoins?
Though stablecoins offer potential benefits in areas such as payments and settlement, potential risks such as credit, market, liquidity, operational, and reputational risks require robust risk management frameworks and compliance with evolving regulatory standards.
Are all stablecoins pegged to USD?
Not all stablecoins are pegged to a currency like the US dollar; others are pegged to the price of a commodity such as gold since they pursue price stability by maintaining reserve assets as collateral or through algorithmic formulas that are supposed to control supply.
