The Genius Act's Potential Significant Impact on the Crypto Assets Industry

The U.S. Senate recently passed the first comprehensive federal regulatory framework for stablecoins, which has now been submitted to the House of Representatives for consideration. If passed smoothly and signed into law, it will significantly reshape the landscape of the Crypto Assets industry. The bill's strict reserve requirements and nationwide licensing system will determine the direction of blockchain development, the importance of projects, and the use of tokens, thus affecting the flow of liquidity in the next wave. Let us delve into the three major impacts this bill could have on the industry if it becomes law.

1. Payment-type Crypto Assets may quickly decline

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 need to undergo annual audits. This stands in stark contrast to the current system, which has almost no substantive guarantees or reserve requirements.

Stablecoins have become the primary medium of exchange on the blockchain. In 2024, stablecoins account for approximately 60% of the value of crypto asset transfers, processing 1.5 million transactions daily, with most transaction amounts being less than $10,000. For everyday payments, it is clearly more practical to use stablecoins that consistently maintain a value of $1 compared to traditional payment-type encryption coins that can fluctuate significantly in price over a short period.

Once stablecoins licensed by the US can be legally circulated across states, merchants still accepting volatile tokens will find it difficult to justify the additional risks. In the coming years, the practicality and investment value of these Crypto Assets may significantly decline unless they can successfully transform. Even if the bill does not pass in its current form, this trend has already become evident. Long-term incentives will clearly favor dollar-pegged payment channels over the more volatile Crypto Assets.

2. New compliance rules 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. Currently, Ethereum 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. Moreover, they can also assemble 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. Over the past month, fully supported stablecoin tokens have been launched on the XRP ledger, each of which comes with built-in account freezing, blacklisting, and identity screening tools. These features align closely with the requirements of the bill, which mandates that issuers maintain strong redemption and anti-money laundering control measures.

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 compliant. Ethereum offers flexibility, but the technical implementation is complex, while XRP provides a simplified platform and 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 overhauls to meet the same requirements.

3. Reserve rules may bring institutional funds to blockchain

As each US dollar stablecoin must hold an equivalent amount of cash-like asset reserves, this bill ties the liquidity of Crypto Assets to US short-term debt. The stablecoin market size has exceeded $251 billion, and if it continues 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 US short-term Treasury securities.

This connection has two implications for blockchain. First, the increased demand for reserves means that more corporate balance sheets will hold government bonds while also holding native coins to pay network fees, thereby driving organic demand for tokens such as Ethereum and XRP. Second, interest income from stablecoins could fund 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, accelerating on-chain payment volume 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 being independent of them.