The Genius Act May Have Three Major Impacts on the Crypto Assets Industry in the Next Five Years

Recently, the U.S. Senate passed the "Guiding and Establishing the United States Stablecoin National Innovation Act," abbreviated as the Genius Act. This is the first comprehensive federal regulatory framework for stablecoins and has overcome the largest obstacles. The bill has now been submitted to the House of Representatives, where the House Financial Services Committee is preparing the corresponding text for negotiation. A vote is expected to take place by the end of this summer, and if all goes well, the bill is likely to officially become law before autumn. This will greatly reshape the Crypto Assets industry landscape.

The strict reserve requirements and national licensing system of this bill will determine which blockchains are favored, which projects become important, and which tokens are used, thereby influencing the direction of the next wave of liquidity. Let’s delve into the three major impacts that the bill would have on the industry if it becomes law.

1. Payment-type alternative tokens may quickly lose market

The Senate bill will create a new "licensed payment stablecoin issuer" license and require each Token to be backed 1:1 by cash, U.S. Treasuries, or overnight repurchase agreements. Issuers with a circulation exceeding $5 billion will be subject to annual audits. This stands in stark contrast to the current system, which has virtually no substantive guarantees or reserve requirements.

This clear regulation comes at a time when stablecoins are becoming the primary medium of exchange on the blockchain. In 2024, stablecoins account for about 60% of the value of Crypto Assets transfers, processing 1.5 million transactions daily, with most transaction amounts below $10,000.

For daily payments, it is clear that a stablecoin Token maintaining a value of 1 dollar is more practical than most traditional payment-type alternative Tokens, whose prices may fluctuate significantly in a short period.

Once the stablecoins licensed in the U.S. can legally circulate across state lines, merchants that still accept volatile Tokens will find it difficult to justify the additional risks. In the coming years, the practicality and investment value of these alternative Tokens may significantly decline unless they can successfully transform.

Even if the Senate bill does not pass in its current form, the trend is already evident. Long-term incentives will clearly favor dollar-pegged payment channels rather than payment-type alternative Tokens.

2. The new compliance rules may actually determine new winners

The new regulations will not only provide legitimacy for stablecoins; if the bill becomes law, it will ultimately effectively guide these stablecoins towards blockchains that can meet auditing and risk management requirements.

A certain mainstream blockchain currently holds approximately $130.3 billion in stablecoins, far exceeding any competitors. Its mature decentralized finance ecosystem means that issuers can easily access lending pools, collateral lockup mechanisms, and analytical tools. In addition, they can also piece together a set of regulatory compliance modules and best practices in an attempt to meet regulatory requirements.

In comparison, a certain blockchain is positioning itself as a compliance-first tokenized currency platform, including stablecoins. Over the past month, fully supported stablecoin tokens have been launched on this blockchain, with each token incorporating account freeze, blacklist, and identity screening tools. These features align closely with the requirements of the Senate bill, which stipulates that issuers must maintain robust redemption and anti-money laundering control measures.

The compliance system of a certain mainstream blockchain may cause issuers to violate this requirement, but it is currently difficult to determine how strict the requirements of regulatory agencies are in this regard.

Nevertheless, if the bill becomes law in its current form, large issuers will need to implement real-time verification and plug-and-play "Know Your Customer" ( KYC ) mechanisms to remain broadly compliant. One mainstream blockchain offers flexibility, but the technical implementation is complex, while another blockchain provides a simplified platform and top-down control.

Currently, both of these blockchains seem to have advantages compared to chains that focus on privacy or speed, the latter of which may require expensive modifications to meet the same demands.

3. Reserve rules may bring an influx of institutional funds to blockchain.

As every dollar stablecoin must hold an equivalent reserve of cash-like assets, this bill quietly links the liquidity of Crypto Assets to U.S. short-term debt.

The stablecoin market size has exceeded $251 billion. If institutions continue to develop along the current path, it could reach $500 billion by 2026. At this scale, stablecoin issuers will become one of the largest buyers of U.S. Treasury bills, using the returns to support redemptions or customer rewards.

For blockchain, this connection has two aspects of significance. Firstly, the demand for more reserves means that more corporate balance sheets will hold government bonds while also holding native Tokens to pay for network fees, thereby driving organic demand for certain mainstream Tokens.

Secondly, the interest income from stablecoins may provide funding for incentives for aggressive users. If issuers return part of the government bond yields to holders, using stablecoins instead of credit cards may become a rational choice for some investors, thereby accelerating on-chain payment volume and fee throughput.

If the House retains the reserve clause, investors should also expect an increase in currency sensitivity. If regulators adjust collateral eligibility or the Federal Reserve changes the supply of Treasury bonds, the growth of stablecoins and the liquidity of Crypto Assets will fluctuate in tandem.

This is a noteworthy risk, but it also indicates that digital assets are gradually integrating into mainstream capital markets, rather than existing independently from them.