The potential impact of the Genius Act on the Crypto Assets industry

Recently, the U.S. Senate passed a landmark stablecoin regulatory bill that could have far-reaching effects on the Crypto Assets industry. The bill is currently under review in the House of Representatives, and if it passes smoothly and is signed into law, it will fundamentally reshape the Crypto Assets landscape. Let’s explore the three major impacts this bill may bring.

1. Payment-type substitute tokens may disappear

The new legislation will create a "licensed payment stablecoin issuer" license and require that each token must have an equivalent amount of cash, U.S. Treasury bonds, or overnight repurchase agreements as a 1:1 reserve. This stands in stark contrast to the current system, which has almost no substantial guarantees.

Considering that stablecoins have become the main medium of transaction on the blockchain, accounting for about 60% of the value of Crypto Assets transfers in 2024, processing 1.5 million transactions daily, with most transaction amounts being less than 10,000 dollars. For daily payments, stablecoins that maintain a value of 1 dollar are clearly more practical than traditional payment-type alternative tokens that have larger price fluctuations.

Once the stablecoins approved by the United States can legally circulate across states, merchants accepting volatile tokens will find it difficult to justify the reasonableness of 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 fails to pass in its current form, this trend has become evident. Long-term incentives will clearly favor payment channels pegged to the US dollar rather than payment-type alternative tokens.

2. Compliance rules may affect the blockchain landscape

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

Currently, Ethereum holds approximately $130.3 billion in stablecoins, far exceeding any competitors. Its mature decentralized finance ecosystem allows issuers to easily access lending pools, collateral lock-ups, and analytical tools. Additionally, they can also assemble 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. Over the past month, fully supported stablecoin tokens have been launched on the XRP ledger, each of which is 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 control measures.

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 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, which may require expensive modifications to meet the same demands.

3. Reserve rules may attract institutional funds

Due to the requirement that each unit of stablecoin must hold a reserve of cash-like assets of equivalent value, this bill links the liquidity of Crypto Assets to U.S. short-term debt. The market size of stablecoins has surpassed $251 billion, and 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. This has two implications for blockchain:

First, the increased 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 like Ethereum and XRP.

Secondly, the 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, thereby accelerating on-chain payment volume and fee throughput.

If the House retains the reserve clause, investors should 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.

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