The Hidden Concerns of the GENIUS Act: Dollar Trap, Debt Risks, and Innovation Dilemma

Recently, the hottest topic in the Crypto Assets field is undoubtedly the newly signed GENIUS Act, which has become law. Many believe that this act opens the door to Compliance for Crypto Assets, especially stablecoins, and it seems we are on the eve of a massive market explosion. Supporters claim that this will solidify the global dominance of the dollar while providing consumers with unprecedented protection.

This sounds wonderful, but as someone who is accustomed to looking at problems from a dialectical perspective, I can't help but ask: Is this bill really as "brilliant" as it seems on the surface? Or, beneath those shiny clauses, are there hidden risks that we have yet to foresee?

Let's analyze in simple and easy-to-understand language the potential negative impacts that the "GENIUS Act" may bring.

As a participant in the blockchain world, I personally welcome the introduction of the "GENIUS Act." It has brought blockchain and encryption technology into the daily lives of the public, taking a critical step towards mass adoption and providing a safeguard for the precarious process of globalization. Therefore, the various shortcomings listed in this article can be seen as a warning for the future, or merely as a thought exercise. Readers might as well take it with a smile.

Dollar Trap: Will the Dream of Manufacturing Reshoring Be Crushed by Stablecoins?

One of the core objectives of the bill is to make the US dollar stablecoin the "hard currency" of the global digital economy, thereby maintaining the dominance of the US dollar. It requires all compliant stablecoin issuers to back their reserves 1:1 with high-quality liquid assets (, primarily short-term US Treasury securities ).

Imagine how massive the U.S. Treasury bonds need to be as reserves when the whole world uses the dollar stablecoin? This will create a huge and sustained demand for U.S. Treasury bonds. Global funds will flow into the U.S. to buy Treasury bonds, and the dollar will naturally become more "valuable"—what we often refer to as a "strong dollar."

This sounds like a tremendous benefit for the United States, but it hides a huge contradiction, especially regarding the "manufacturing reshoring" that some people are eager for, which is almost like pulling the rug out from under them.

A key reason for the "hollowing out" of American manufacturing is the long-standing trade deficit. The United States imports far more than it exports, leading to a large outflow of dollars into the world. What can other countries buy with these dollars? Since American manufacturing has long been hollowed out, there aren't many "Made in America" products available except for a few high-tech items. Therefore, the vast majority of this money is returned to purchase U.S. government bonds and financial products.

This creates a vicious cycle: foreign capital flows into Wall Street → driving up the dollar exchange rate → a strong dollar makes "Made in America" expensive overseas → exports become more difficult, while imported goods become cheaper → trade deficit further widens → the competitiveness of domestic manufacturing continues to weaken.

Now, the "GENIUS Act" has arrived. It is equivalent to adding a supercharger to this vicious cycle. The global proliferation of stablecoins means that the United States is issuing a "digital dollar" to the world, which will trigger an unprecedented demand for the dollar and U.S. Treasury bonds globally. What is the result? The value of the dollar will be pushed to an unprecedented high.

This is akin to adding fuel to the fire for the manufacturing industry in the United States. At the same time, it is also a heavy blow for those American multinational companies with a high proportion of overseas income, especially large technology and industrial giants. When the foreign currency profits they earn abroad are converted back into a strong dollar, the numbers on their financial statements will significantly shrink. This not only directly impacts the profitability of these companies, lowers stock valuations, but may also drag down the overall performance of major stock indices.

The so-called "manufacturing reshoring" is likely to become an even more distant and unrealistic dream in the face of such a strong dollar. The "GENIUS Act" may be consolidating the financial hegemony of the dollar at the expense of the domestic real economy.

The Paradox of Dollar Hegemony: The More You Try to Tighten Your Grip, the More You Accelerate "De-dollarization"?

The core economic argument of the "GENIUS Act" is to consolidate the global dominance of the dollar. However, in the long run, this excessive effort may actually accelerate the global centrifugal tendency away from the dollar.

Before the emergence of stablecoins, the US dollar had long been a tool for implementing economic sanctions and projecting geopolitical power. The "GENIUS Act" attempts to further concentrate the core of the digital currency ecosystem within the US dollar and its regulatory boundaries. However, "what goes up must come down" and "too much of a good thing can be bad"; it is precisely the fear of weaponizing the financial system that has become the main driving force for countries around the world to "start anew."

For example, everyone is optimistic about the huge potential of stablecoins in cross-border payments, and even envisions that they could replace certain payment systems. But when did this payment system become widely known to the public in our country? It was precisely during the Russia-Ukraine war, when the event of "expelling" Russia made many people in our country begin to be vigilant. If stablecoins were to replace this payment system and become the mainstream means of cross-border payments in the future, wouldn't that mean the dollar's hegemony is cutting off its own arm?

Therefore, the "GENIUS Act" actually sends a clear signal to competitors in the United States: while the old order represented by this payment system is facing disintegration, and the new order represented by stablecoins has not yet fully matured, the window of opportunity to establish alternatives has arrived before the new digital dollar system takes root.

Although it is almost impossible to shake the dominance of the US dollar in the short term, achieving "de-dollarization" in specific markets is entirely feasible. The "de-dollarization" wave, led by Russia and China, and responded to by BRICS countries such as India and Iran, as well as other emerging markets, is developing at an unprecedented speed. The measures taken by these countries include: shifting to local currency settlements in bilateral trade, increasing gold reserves to replace dollar assets, and actively developing and promoting non-dollar digital currency payment systems to bypass traditional payment systems.

Debt and Credibility: The Government's "Little Treasury" and "Household Affairs"

First is the "money bag" - an inescapable debt trap

As mentioned earlier, stablecoins have created enormous demand for U.S. Treasury bonds. What does this mean for the U.S. government? It means that borrowing money has become easier than ever!

Under normal circumstances, if a government excessively borrows, the market will demand higher interest rates as a risk compensation due to concerns about its repayment ability, which serves as a natural "brake" mechanism. However, the existence of the stablecoin issuers, this "hardcore buyer" group, is equivalent to the entire world's population becoming buyers of U.S. Treasury bonds, artificially lowering borrowing costs. The government can borrow more money more easily and cheaply, significantly weakening the constraints of fiscal discipline, making borrowing even more addictive.

This can be seen in economics as a variant of "debt monetization." Although it is not the central bank directly printing money for the government to spend, the effects are highly similar: private companies issue "digital dollars" ( stablecoin ), and then use public funds to purchase government bonds, essentially financing the government's deficit by expanding the money supply. The end result is likely inflation, and this "invisible tax" silently transfers wealth from our pockets.

More dangerously, it may transform inflation risks from a periodic policy choice into a structural feature of the financial system. Traditionally, large-scale debt monetization is an unconventional, temporary tool that central banks deploy only in response to severe crises like the 2008 financial crisis or the COVID-19 pandemic (. However, the GENIUS Act creates a permanent source of government debt demand that is decoupled from the economic cycle. This means that debt monetization will no longer be a crisis response measure but will be "embedded" in the daily operations of the financial system. This will implant a potential and persistent inflationary pressure within the economic system, making the Federal Reserve's future task of controlling inflation exceptionally challenging.

)# Next is "Iron Chains Connecting Boats" - a new mechanism for transmitting financial instability.

In this round of stablecoin frenzy, various forces have entered the arena, and the myriad of stablecoin symbols can be dazzling. People even jokingly say that the 26 letters are not enough for all the suffixes that can follow "USD".

But after the "GENIUS Act", no matter what suffix follows your "USD", if you want to operate in compliance in the United States, the largest capital market in the world, you must treat U.S. Treasury bonds as core reserve assets. This is the origin of the title of this section "Iron Lock and Connected Boats": different stablecoins are the "boats", but they are tightly linked together by the "U.S. Treasury bonds" chain. What are the consequences of "Iron Lock and Connected Boats"? Americans may not be familiar with it, but Chinese people are all too familiar.

The "GENIUS Act" thus creates a brand new transmission path for financial instability. It tightly binds the fate of the digital currency market to the health of the U.S. Treasury market in an unprecedented way.

On one hand, if a major stablecoin experiences a crisis of confidence, it could trigger a massive wave of redemptions, forcing its issuer to sell off a large amount of U.S. Treasury bonds in a short period of time. This kind of "fire sale" is sufficient to disrupt the U.S. Treasury bond market, which serves as the cornerstone of the global financial system, potentially leading to soaring interest rates and broader financial panic.

On the other hand, if a crisis occurs in the U.S. sovereign debt market itself, such as a debt ceiling impasse or a downgrade in sovereign credit ratings, it will directly jeopardize the security of the reserves of all major stablecoins and may trigger a systemic "run" on the entire digital dollar ecosystem.

The bill thus creates a bidirectional contagion channel that can amplify risks. Moreover, as a new concept, the public's understanding of stablecoins is still shallow, and any panic triggered by minor disturbances could be sharply amplified within this risk transmission chain.

Finally, it's about "face" - the reputation risk that cannot be ignored.

The recent "GENIUS Act" had significant disagreements between the two parties during the voting process. One major point of controversy directly points to the issue of the president's conflict of interest. The bill includes a provision that prohibits congressional members and their families from profiting from stablecoin businesses — which is good to avoid conflict of interest. However, it is puzzling that this ban does not extend to the president and his family.

Why is this point so sensitive? Because it is well known that a certain political figure's family is deeply involved in the encryption industry. The company in which their family holds shares has issued a stablecoin and rapidly risen in a short period of time. The political figure themselves reported in financial disclosures that they received tens of millions of dollars in income from this company.

If you search for that company, you will see its official website prominently displaying a slogan related to a certain political figure. A head of state endorsing a Crypto Asset, this kind of "using public power for private gain" is quite pronounced. On one hand, the president is vigorously promoting Compliance for stablecoins, while on the other hand, their own stablecoin business is thriving. This not only casts a shadow of "benefit transfer" over the bill itself but also damages the reputation of the entire Web3 and Crypto Assets industry, as if it has become a tool for political elites to profit.

The deeper risk lies in a bill that is clearly colored by party and personal interests, and its stability is bound to be concerning. Although it was passed under the leadership of a certain party this time, the criticism from the opposition party has been incessant. Who can guarantee that one day, after a change of power, the new government won't "settle scores" with the current president? At that time, will they choose to "throw out the bathwater along with the baby" due to their disdain for the interests entangled behind the bill, directly abolishing or overturning the entire stablecoin framework? This political uncertainty is undoubtedly a ticking time bomb for an industry that desperately needs long-term stable expectations.

( Game of Thrones: Is it an "Innovation Paradise" or a "Giant's Backyard"?

The bill claims to "promote innovation," but if we closely examine its rules, we may arrive at a completely opposite conclusion.

The bill sets a set of stringent regulatory standards for stablecoin issuers that are comparable to those for banks: Anti-Money Laundering ) AML ###, Know Your Customer ### KYC (, frequent audits, bank-level security systems... All of this translates to extremely high compliance costs. Research shows that as many as 93% of fintech companies are struggling to meet compliance requirements.