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," known as the Genius Act, which is the first comprehensive federal regulatory framework for stablecoins. The bill has been submitted to the House of Representatives, and the House Financial Services Committee is preparing related texts for negotiation, with a possible vote later this summer. If all goes well, the bill is expected to officially become law before the fall, which will 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 will become important, and which tokens will be widely used, thereby influencing the future direction of liquidity. Here are three major impacts the bill could have on the industry if it becomes law:

1. Payment-type alternative tokens may disappear quickly

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 $50 billion will need to undergo annual audits. This stands in stark contrast to the current situation, which has almost no substantive guarantees or reserve requirements.

This regulation comes at a time when stablecoins are becoming 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 less than $10,000.

For everyday payments, a stable coin that consistently maintains a value of 1 dollar is clearly more practical than most traditional payment-type alternative tokens, whose prices may fluctuate significantly in a short period. 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 they take on. In the coming years, the practicality and investment value of these alternative tokens may decrease significantly unless they can successfully transform.

Even if the Senate bill does not pass in its current form, this trend has become evident. Long-term incentives will clearly favor payment channels pegged to the dollar rather than payment-type alternative tokens.

2. New compliance rules may determine new winners

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

A certain 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 lockers, and analytical tools. Furthermore, they can also piece together a set of regulatory compliance modules and best practices to attempt to meet regulatory requirements.

In contrast, another 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, 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.

Nevertheless, 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 remain broadly compliant. One blockchain offers flexibility, but the technical implementation is complex, while another blockchain provides a simplified platform and top-down control.

Currently, these two 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 bring an influx of institutional funds to blockchain

As each US dollar stablecoin must hold an equivalent amount of cash-like asset reserves, this legislation quietly ties the liquidity of Crypto Assets to US short-term debt. The market size of stablecoins has surpassed $251 billion. If institutions continue to evolve along the current path, it could reach $500 billion by 2026. At this scale, stablecoin issuers will become one of the largest buyers of US short-term Treasury bonds, using the returns to support redemptions or customer rewards.

For blockchain, this connection has two aspects of significance. First, 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 certain coins. Second, the interest income from stablecoins may provide funding for aggressive user incentives. If issuers return part of the government bond income to holders, using stablecoins instead of credit cards may become a rational choice for some investors, thus accelerating on-chain payment volumes and fee throughput.

Assuming the House retains the reserve clause, investors should also expect increased 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 notable risk, but it also indicates that digital assets are gradually integrating into mainstream capital markets rather than existing independently of them.