Alexander Lorenzo explains how banks could issue stablecoins backed by government debt. Under the "Genius Act," a bank like JP Morgan would credit stablecoins to your wallet while investing your deposits in U.S. Treasury bonds, earning risk-free yield on the spread.
They're allowed to take your $100,000 and put it into government debt. The bank gets the yield profit, not even their money. They're getting yield on your money. There was a law. It was called the Genius Act. The Genius Act made it legal for banks to create their own stablecoin. But when you give them $100,000, they're legally allowed to take your $100 grand and invest it into something called government debt. But you can go right now to the United States government and say, hey, I'm going to give you $50,000. And the government will guarantee that they will give you the money back plus interest. It's basically an IOU from the American government itself. The only way you can lose is if America gets conquered or something like that, because it can't go bankrupt because they have the Federal Reserve that just prints money when they need the interest payments. So essentially, a lot of people consider it the world's safest investment. So JP Morgan gives you $100,000 of basically created out of thin air stablecoins. It's just code. So they code $100,000, they put it in your wallet, but they're allowed to take your $100,000 and put it into government debt getting a yield. So 2 things happen. The government gets $100 grand, which that's what they want. It gives more money in the system for them to do stuff. And not only that, but the bank gets now the yield profit risk-free. It's risk-free because if you want to redeem it, they'll just go back, take the money out, and give you the money back. So it's not even their money. They're getting yield on your money.
