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

Recently, the U.S. Senate passed the "Guidance and Establishment of the U.S. Stablecoin National Innovation Act" (Genius Act), which is the first comprehensive federal regulatory framework for stablecoins. The bill has been submitted to the House of Representatives and may officially become law before this fall, which will greatly reshape the landscape of the Crypto Assets industry.

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

1. Payment-based alternative tokens may quickly decline

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 be audited annually. This stands in stark contrast to the current system, which has virtually no substantive guarantees or reserve requirements.

Currently, stablecoins have become the main medium of exchange on the blockchain. In 2024, stablecoins accounted for about 60% of the value of Crypto Assets transfers, processing 1.5 million transactions daily, with most transaction amounts below 10,000 USD.

For daily payments, it is obviously more practical to use a stablecoin Token that maintains a value of 1 dollar than to use traditional payment alternative Tokens that have larger price fluctuations. Once U.S.-licensed stablecoins can legally circulate across states, 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 payment channels linked to the dollar, rather than payment-type alternative Tokens.

2. New compliance rules may reshape the competitive landscape

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.

Ethereum currently hosts approximately $130.3 billion in stablecoins, far surpassing 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 piece together a set of regulatory compliance modules and best practices to try 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 with built-in account freeze, blacklist, and identity screening tools. These features align closely with the requirements of the Senate bill, which stipulates that issuers must maintain strong redemption and anti-money laundering control measures.

The compliance system of Ethereum may cause issuers to violate this requirement, but it is currently difficult to determine how strict the regulatory requirements are in this regard. 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 roughly compliant. 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 over 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 a flood of institutional funds to blockchain

As each dollar-pegged 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 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 holding native Tokens to pay network fees, thus driving organic demand for Tokens such as Ethereum and XRP.

Secondly, the interest income from stablecoins may provide funding for incentives for aggressive users. If issuers return a portion of 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 increased 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 sync.

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