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

Recently, the U.S. Senate passed the "Guiding and Establishing the U.S. Stablecoin National Innovation Act", known 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, the bill could become law this fall, which would have a profound impact on the Crypto Assets industry.

The core content of the bill includes strict reserve requirements and a nationwide licensing system, which will determine which blockchain technologies and projects will be favored, thus affecting the liquidity trends of the future market. Here are three major impacts the bill may have on the industry if it becomes law:

1. Payment-type alternative Tokens may quickly decline

The new legislation will create a "licensed payment stablecoin issuer" license, requiring each Token to be backed 1:1 by cash, U.S. Treasury securities, or overnight repurchase agreements. Issuers with a circulation exceeding $50 billion will also need to undergo annual audits. This stands in stark contrast to the current situation, which lacks substantial guarantees and reserve requirements.

Currently, stablecoins have become the primary medium of exchange on the blockchain, accounting for about 60% of the transaction value of Crypto Assets in 2024, processing 1.5 million transactions daily. For everyday payments, value-stable Tokens are clearly more practical than traditional payment alternative Tokens, which are subject to greater price volatility.

Once the stablecoins licensed in the United States can be legally circulated across states, merchants that continue to accept volatile Tokens will find it difficult to justify the rationale for bearing additional risks. Therefore, 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 evident. In the long run, the market will clearly prefer payment channels linked to the US dollar rather than payment-based alternative Tokens.

2. New Compliance Rules May Reshape the Industry Landscape

The new regulations will not only provide legitimacy to 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 surpassing any competitors. Its mature decentralized finance ecosystem allows issuers to easily access a variety of financial tools and analytical resources. Additionally, they can combine a set of regulatory compliance modules and best practices to meet regulatory requirements.

In contrast, the XRP ledger is positioned as a compliance-first tokenized currency platform. Recently, fully-supported stablecoin tokens have been launched on the XRP ledger, with each token 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 strong redemption and anti-money laundering controls.

Although Ethereum offers greater flexibility, its technical implementation can be more complex. In contrast, XRP provides a simplified platform with top-down control. Currently, both of these blockchains seem to have advantages over chains that focus on privacy or speed, the latter of which may require expensive modifications to meet the same requirements.

3. Reserve rules may attract a large amount of institutional funds

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

The current market size of stablecoins has exceeded $251 billion, and if the current growth trend continues, it could reach $500 billion by 2026. At this scale, stablecoin issuers will become one of the major buyers of U.S. short-term Treasury bonds, using the returns to support redemptions or customer rewards.

This connection has two implications for blockchain: first, the demand for more reserves means that more corporate balance sheets will hold government bonds while holding native Tokens to pay for network fees, thereby driving organic demand for Tokens such as Ethereum and XRP. Secondly, the interest income from stablecoins may fund incentives for aggressive users, making the use of stablecoins instead of credit cards a rational choice for some investors, thereby accelerating on-chain payment volume and fee throughput.

However, this also means that the Crypto Assets market will be more susceptible to changes in monetary policy. If regulators adjust collateral eligibility or the Federal Reserve alters the supply of government bonds, the growth of stablecoins and the liquidity of Crypto Assets will fluctuate in tandem.

Although this brings new risks, it also indicates that digital assets are gradually integrating into the mainstream capital markets, rather than being independent of them.