The Potential Impact of the Genius Act on the Crypto Assets Industry

The U.S. Senate recently passed the "Guidance and Establishment of the American Stablecoin National Innovation Act," abbreviated as the Genius Act. This is the first comprehensive federal regulatory framework for stablecoins, which has now been submitted to the House of Representatives for review. If passed smoothly, this bill could become law this fall, which would have a profound impact on the Crypto Assets industry.

The bill proposes strict reserve requirements and a national licensing system, which will largely determine which blockchain technologies will be favored, which projects become important, and which tokens are widely used. Let's explore the three major impacts that the industry will face if the bill becomes law.

1. Payment-type alternative tokens may face elimination

The bill will create a new "licensed payment stablecoin issuer" license and require each token to be backed on a 1:1 basis by cash, U.S. Treasury securities, or overnight repurchase agreements. Issuers with a circulation exceeding $50 billion will also be required to undergo an annual audit. This stands in stark contrast to the current situation, which has virtually no substantive guarantees or reserve requirements.

Stablecoins have become the main 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 being below $10,000.

For daily payments, it is obviously more practical to maintain a stable coin worth 1 dollar than to use traditional payment alternative tokens that have greater price volatility. Once U.S.-licensed stable coins can be legally circulated across states, merchants that continue to accept volatile tokens will find it difficult to justify the additional risk. 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, this trend has already become apparent. Long-term incentives will clearly favor dollar-pegged payment channels rather than payment-type alternative tokens.

2. New compliance regulations may reshape the industry landscape

The new regulations will not only provide legitimacy for stablecoins but will also effectively guide these stablecoins towards blockchains that can meet auditing and risk management requirements.

Ethereum currently hosts approximately $130.3 billion in stablecoins, far exceeding any competitors. Its mature decentralized finance ecosystem means that issuers can easily access lending pools, collateral lockers, and analytical tools. In addition, they can also assemble a set of compliance modules and best practices to attempt to meet regulatory requirements.

In contrast, the XRP ledger is positioned as a compliance-first tokenized currency platform, including stablecoins. In the past month, fully supported stablecoin tokens have been launched on the XRP ledger, each equipped with account freezing, blacklisting, and identity screening tools. These features align closely with the requirements of the Senate bill, which mandates that issuers maintain robust redemption and anti-money laundering controls.

The compliance system of Ethereum may cause issuers to violate this requirement, but it is currently difficult to determine how strict the regulatory authorities' requirements are in this regard. If the bill becomes law in its current form, large issuers will need real-time verification and plug-and-play "know your customer" ( KYC ) mechanisms to maintain general compliance. Ethereum offers flexibility, but the technical implementation is complex, while XRP provides a simplified platform and top-down control.

Currently, these two 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 requirements.

3. Reserve rules may bring institutional funds to the blockchain

Since every dollar stablecoin must hold an equivalent amount of cash-like asset reserves, this bill quietly links the liquidity of Crypto Assets to U.S. short-term debt.

The market size of stablecoins 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 holding native coins to pay network fees, thereby driving organic demand for tokens such as Ethereum and XRP.

Secondly, the interest income from stablecoins may provide funding for aggressive user incentives. If the issuer returns part of the government bond yield 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.

Assuming 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 government bonds, the growth of stablecoins and the liquidity of Crypto Assets will fluctuate in sync.

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