Original source: The GENIUS Stablecoin Play
Compiled and edited by Lenaxin and ChainCatcher
On August 15, 1971, President Nixon launched a series of economic policies: canceling the dollars peg to gold, freezing wages and prices, and imposing a 10% import tariff. I have instructed the Secretary of the Treasury to take the necessary measures to protect the dollar from speculators. This declaration to change the global monetary system, later known as the Nixon Shock, was more criticized than praised at the time.
This week, the U.S. Senate passed the GENIUS Stablecoin Act by an overwhelming vote of 68 to 30, marking a key step in the U.S.s first comprehensive regulatory framework for digital dollars. Unlike Nixons emergency measures to hastily abandon the gold standard, this legislation builds a prudent and careful monetary infrastructure for the digital age. According to Citigroups forecast, the current $250 billion stablecoin market could soar to $3.7 trillion by 2030 in a bull market scenario.
The bill is yet to be voted on by the House of Representatives and signed by the President. This in-depth report will analyze:
How does this bill reshape the financial system?
Why is Tether facing an existential crisis?
Is the United States truly reaching a watershed moment in its monetary system?
Digital Dollar Blueprint
The GENIUS Act draws clear boundaries for the digital currency sector. Unlike the fragmented cryptocurrency regulation in the past, the bill establishes clear standards:
The core requirements are concise and to the point: stablecoin issuers must maintain a 1:1 reserve of US dollars, short-term government bonds within 93 days or equivalent liquid assets, and must undergo mandatory public audits every month. Interest-bearing stablecoins are expressly prohibited.
Only three types of entities can issue payment stablecoins: subsidiaries of insured banks, federally qualified non-bank issuers approved by the Office of the Comptroller of the Currency, or state-level qualified issuers that meet federal standards. Foreign issuers are only given a three-year transition period, and those who fail to comply will be completely excluded from the U.S. market.
The bill transforms stablecoins from disorderly experiments to legal financial infrastructure by defining them as digital currencies rather than special crypto assets, and by requiring monthly reserve disclosure, criminal prosecution for false statements, and compliance with the Bank Secrecy Act. This move not only establishes the legal status of the digital dollar, but also systematically clears out non-compliant participants.
Intensified competition
For Tether, the worlds largest stablecoin issuer, the GENIUS Act is like a precisely worded three-year countdown ultimatum. USDT issuers, which currently account for 62% of the stablecoin market, may face the most severe impact - just proving the market law that a big tree attracts the wind.
Tethers current reserve structure does not meet the requirements of the bill. The official website shows that only 81.5% of USDT is supported by cash and short-term deposits, which does not meet the 1:1 high liquidity asset standard. Its Italian auditing agency BDO also does not meet the US PCAOB qualification requirements and needs to rebuild its audit system.
Although its CEO promised to launch compliant products, Tethers business model, which relies on high-yield investments, is in direct conflict with the bills prohibitions. During the three-year transition period, USDT will lose institutional support from banks, payment providers, and corporate finance, and its application scenarios will continue to shrink.
As the issuer of USDC, Circles stock price soared 35% after the bill was passed, and its market value reached 5 times the issue price. Its advantages in the United States, compliance reserves and bank cooperation network have taken regulatory dividends, and the recent access of Shopify to USDC payment has further demonstrated its expansion momentum.
The game between security and innovation
The most controversial provision of the GENIUS Act is the total ban on interest-bearing stablecoins, which reflects the profound lessons Congress has learned from the leveraged collapse of cryptocurrencies. Its core concept is that payment tools should not have investment attributes. When stablecoins generate income, their nature becomes closer to bank deposits or securities, and the traditional banking system manages such systemic risks through mechanisms such as deposit insurance and capital adequacy ratios.
This will have a direct impact on decentralized finance (DeFi) protocols that rely on interest-bearing stablecoins. The bill explicitly excludes securities issued by investment companies and deposits from regulation, meaning that users seeking returns can only turn to tokenized bank deposits or regulated investment products.
But controversy ensued. Although users bear the opportunity cost of holding non-interest-bearing assets, stablecoin issuers can still earn income by investing in interest-bearing instruments. This trade-off has brought institutional confidence that far exceeds the value of DeFis lost income: requirements such as monthly reserve transparency, mandatory anti-money laundering compliance, and transaction monitoring are transforming stablecoins from fringe experiments in the crypto space to formal financial infrastructure.
Today, large banks can regard compliant stablecoins as real cash equivalents, corporate finance departments can hold them with confidence, and payment service providers can also connect to their systems based on their compliance with bank standards. This institutional recognition may reshape the entire financial ecosystem.
Scaled application infrastructure
The GENIUS Act establishes a regulatory foundation for the integration of stablecoins into mainstream finance through two pillars: custody protection and compliance clarity.
The custody framework requires qualified custodians to isolate customer assets, prohibit commingling of funds, and ensure bankruptcy liquidation priority, extending traditional financial protection to the field of digital assets.
For retail users, the bill reserves the right of autonomous custody, while requiring service providers to meet banking standards so that regulated stablecoin wallets enjoy the same protection as bank accounts.
In terms of enterprise applications, cross-border settlement can be shortened to minutes, supply chain payments can achieve programmable circulation, and fund management can break through holiday restrictions. Individual users can also enjoy fast cross-border transfers without high handling fees.
The bill also requires the assessment of interoperability standards to ensure that stablecoins can be circulated across platforms and to avoid regulatory fragmentation that hinders innovation.
Challenges of implementation
Although the GENIUS Act has bipartisan support, it still faces multiple challenges in its implementation:
1. Compliance costs will reshape the market landscape. The monthly audits, complex reserve management, and continuous regulatory reporting required by the bill actually create a high compliance threshold. Large issuers can easily cope with it with their scale advantages, while small and medium-sized stablecoin companies may be forced to exit the market due to the sharp increase in operating costs.
2. Cross-border frictions hinder global adoption. European companies using dollar-pegged stablecoins may face problems with currency conversion and foreign exchange risk. Heiko Nix, head of global cash management and payments at German industrial giant Siemens, told Bloomberg that this is exactly why the company chose tokenized bank deposits.
3. The yield ban may force innovation outflow. If other jurisdictions allow interest-bearing stablecoins, the United States may maintain financial stability but lose its technological dominance. DeFi protocols that rely on interest-bearing stablecoins will face a cliff-like impact if they cannot find compliant alternatives.
4. New variables are added to the coordination of state and federal regulation. The bill allows issuers with a market value of less than $10 billion to choose a state-level regulatory system, but they must prove that their standards are substantially similar to federal requirements. State regulators must proactively submit compliance certifications, and the Secretary of the Treasury has the power to veto certification, forcing reluctant issuers to switch to a federal regulatory framework.
Token Dispatch Observations
The Republicans control the House of Representatives with 220-212 seats, and the passage of the bill is almost certain, but its implementation will test the United States art of balancing innovation and regulation. This bill may reshape the monetary sovereignty structure in the digital age. Just as the Nixon Shock in 1971 ended the gold standard in controversy, the GENIUS Act may now usher in a new era of digital dollars. Its core mechanism is to force all compliant stablecoins to use US dollars/US bonds as reserves, so that the global demand for stablecoins is directly transformed into dependence on the US dollar system.
The bill creates a unique substantially similar reciprocal clause: those who comply with the regulations are allowed to enter the U.S. market, and those who refuse are isolated from the market. It is quite dramatic that this technology, which was originally designed to circumvent centralized supervision, has become a tool to strengthen the hegemony of the U.S. dollar. Crypto fundamentalists will have to face this institutional irony.
Traditional financial institutions see it as a turning point for digital assets to be integrated into mainstream finance, and the 35% surge in Circle’s stock price confirms the choice of capital: a clear regulatory framework is far more attractive than a wildly growing market. When technological idealism encounters realistic regulation, the market has cast a vote of confidence with real money.
Disclaimer
The content of this article does not represent the views of ChainCatcher. The views, data and conclusions in this article represent the personal positions of the original author or the interviewee. The compiler maintains a neutral attitude and does not endorse its accuracy. It does not constitute any advice or guidance in any professional field. Readers should use it prudently based on independent judgment. This compilation is limited to the purpose of knowledge sharing. Readers are requested to strictly abide by the laws and regulations of their region and not participate in any illegal financial activities.
