What Makes Something Money? Stablecoins and the Architecture of 'Moneyness'

Money is a fact of life. We earn it, spend it, save it, and worry about it. Yet for all its omnipresence, money remains strangely elusive when we try to pin down exactly what it is. A child might describe it as something she saves in her piggy bank to buy something bigger later. An economist might recite the textbook triad: a medium of exchange, a unit of account, a store of value. These functional definitions tell us what money does. They do not tell us what money is, and they certainly do not explain how something becomes money in the first place.

These questions rarely surface in everyday commerce. They become unavoidable when a new instrument arrives claiming to be money. Stablecoins present precisely this challenge. From roughly $1 billion in circulation in 2019, dollar-pegged stablecoins are projected to reach $4 trillion by 2030. PayPal, Visa, Western Union, Fidelity, and Citi are all incorporating them into their product lines. In July 2025, Congress enacted the GENIUS Act, the first comprehensive federal framework for stablecoin issuance. Legislative action, however welcome, does not automatically produce viable private money.

In a new article forthcoming in the Yale Law Journal, we add to the literature by developing a public law/private law-oriented framework for assessing what we call the ‘moneyness’ of a financial instrument. We apply it to stablecoins before and after the effectiveness of the GENIUS Act, and we propose five targeted reforms. Our central claim is that the moneyness of an instrument depends not only on the public-law protections that make it safe but equally on the private-law infrastructure that defines the claim, dictates its discharge capacity, and imbues it with negotiability. Against this framework, stablecoins (even under the GENIUS Act) remain materially deficient.

A Legal Framework for Moneyness

Economists have long theorized moneyness as the degree to which an instrument reliably performs monetary functions. Financial regulation scholars have advanced this understanding by showing that the safety of private money is a legal construction, built through deposit insurance, lender-of-last-resort facilities, prudential supervision, and tailored resolution regimes. 

Yet, safety does not exhaust what makes an instrument function as money. A monetary instrument must also operate effectively within the domain of private law. It must ground a clearly defined claim, discharge obligations with legal finality, and circulate among holders free of competing claims. From this analysis, we identify four constitutive elements of moneyness: (1) the nature and substance of the claim, (2) its safety, (3) its discharge capacity, and (4) its negotiability. To be sure, the relationship among these elements is conjunctive, not additive. An instrument deficient in any one element cannot function reliably as money, regardless of how well it performs on the others.

Stablecoins in Practice: A Private-Law Diagnosis

Applied to stablecoins, this framework reveals a stark disconnect between aspiration and legal reality. Although Tether and Circle (the dominant stablecoin issuers in the US) promise that each token is redeemable 1:1 for US dollars, their contractual architectures say something very different. Direct contractual relationships bind these issuers only to a small cohort of institutional users (882 verified customers at Tether, approximately 1,834 at Circle), while millions who acquire tokens on secondary markets have no privity with the issuer and thus no direct redemption right. Terms of service transfer virtually all operational and market risk to holders while insulating issuers from liability across sweeping enumerated categories. Redemption itself is described contractually as a ‘revocable license’, subject to discretionary suspension, minimum thresholds, and fees. And holders possess no proprietary interest in the reserves that back their tokens. Indeed, if an issuer fails, most holders would stand as general unsecured creditors (assuming they have standing to file a claim at all).

The GENIUS Act: Genuine Progress, Critical Gaps

We find that the GENIUS Act brings some real improvements. It mandates 1:1 reserve backing with high-quality assets, it prohibits rehypothecation, it transforms redemption from a revocable privilege into a statutory obligation, and it excludes reserves from the debtor’s bankruptcy estate. Yet, at the same time, significant deficiencies persist.

For example, safety remains quite compromised. The Act declines to grant qualifying issuers access to Federal Reserve master accounts, thus requiring them to instead entrust reserve assets to third-party custodians. This replicates rather than eliminates the vulnerability that nearly destabilized USDC during the March 2023 collapse of Silicon Valley Bank (SVB). In that instance, Circle’s $3.3 billion in reserves at SVB became inaccessible over a weekend, and USDC traded as low as $0.88. Crypto runs 24/7, but banking does not. Prudent stablecoin holders must therefore assess the soundness of both the issuer and its reserve custodians (a burden that we think is quite incompatible with money’s basic function).

Relatedly, the Act’s bankruptcy provisions compound these problems. They are internally contradictory in a number of ways. Reserve assets are simultaneously excluded from the debtor’s bankruptcy estate yet are subjected to the automatic stay and judicial distribution. A ‘super-priority’ provision subordinates administrative expenses to stablecoin holder claims in ways that may make any reorganization operationally impossible. No trustee, professional, or DIP lender will service a case when their fees are junior to the entire outstanding token float.

Also, discharge capacity remains markedly deficient. Neither the GENIUS Act nor any other source of law establishes when a peer-to-peer stablecoin transfer extinguishes the payor’s debt. The problem grows more acute for intermediated transfers through platforms like Coinbase or Kraken, where no framework comparable to UCC Article 4A specifies when intermediaries become obligated or how the risk of their failure is allocated. And persistent ambiguity surrounds the redemption right itself. The Act does not state whether the obligation is statutory or contractual, to whom it runs, or whether it is embedded in the token under UCC Article 12.

Five Targeted Reforms

Should policymakers seek to enhance the moneyness of stablecoins, we propose five interventions. First, we suggest providing qualifying issuers a path to limited Federal Reserve master accounts, thus eliminating custodian credit risk. Second, we suggest establishing an industry-funded insurance mechanism to reduce the need for holder due diligence. Third, we suggest replacing the Act’s flawed bankruptcy provisions with a perfected security interest regime under UCC Article 9. This would integrate stablecoins into established commercial and bankruptcy infrastructure rather than retrofitting bespoke protections. Fourth, we suggest enacting finality rules for both direct and intermediated stablecoin transfers that specify when payment conclusively discharges the payor’s obligation. Fifth and last, we suggest expressly tokenizing the redemption right so that control of the digital asset carries with it the entitlement to demand redemption.

Underlying these proposals is a broader insight that extends well beyond stablecoins. Financial regulation too often proceeds without adequate attention to the private-law foundations on which regulated instruments rest. The GENIUS Act’s bankruptcy provisions fail precisely because Congress attempted to retrofit special protections onto a claim whose fundamental legal nature was never clearly defined. A more coherent approach would have determined what stablecoins actually are, what rights holders actually have, and then allowed regulatory treatment to flow as a consequence. As financial markets continue to evolve, the instruments they produce will demand regulatory responses that integrate public oversight with the private-law architecture governing the claims those instruments represent. Money, after all, works best when we don’t have to think about it. And that effortlessness is built, not found.

The authors' paper can be found here.

Christopher K. Odinet is a Professor of Law & Mosbacher Research Fellow at the Texas A&M University School of Law.

Andrea Tosato is a Professor of Law at the Southern Methodist University Dedman School of Law.

Yesha Yadav is a Professor of Law and Associate Dean at Vanderbilt Law School.