The Genius Act's Three Major Impacts on the Crypto Assets Industry in the Next Five Years

Written by: Alex Carchidi

Compilation: Vernacular Blockchain

On June 17, the U.S. Senate passed the "Guiding and Establishing the U.S. Stablecoin National Innovation Act" ( Genius Act ), which is the first comprehensive federal stablecoin regulatory framework that has overcome the biggest hurdle.

The bill has now been submitted to the House of Representatives, and the House Financial Services Committee is preparing its own text for the negotiation meeting, with a possible vote later this summer. If all goes well, the bill could be signed into law before autumn, which would greatly reshape the landscape of the cryptocurrency industry.

The strict reserve requirements and national licensing system of the bill will determine which blockchains are favored, which projects become important, and which tokens are used, thereby influencing the direction of the next wave of liquidity. Let's delve into the three major impacts the bill would have on the industry if it becomes law.

1. Payment-type tokens may disappear overnight.

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. Treasury securities, or overnight repos (repos) — issuers with a circulation exceeding $50 billion will need to be audited annually. This stands in stark contrast to the current "Wild West" system, which has virtually no substantive safeguards or reserve requirements.

This clear 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 cryptocurrency transfers, processing 1.5 million transactions daily, with most transaction amounts being under $10,000.

For daily payments, it is clearly more practical to have a stablecoin Token worth 1 dollar than most traditional payment-type Tokens, whose prices may fluctuate by 5% before lunch.

Once the stablecoins licensed by the United States can be legally circulated 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's bill does not pass in its current form, the trend is already clear. Long-term incentives will clearly favor USD-pegged payment channels instead of payment-type tokens.

2. The new compliance rules may actually determine new winners.

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

Ethereum (ETH 1.15%) currently holds approximately 130.3 billion USD in stablecoins, far exceeding any competitors. Its mature decentralized finance (DeFi) ecosystem means issuers can easily access lending pools, collateral lockers, and analytical tools. Additionally, they can piece together a set of compliance modules and best practices to attempt to meet regulatory requirements.

In contrast, XRP(XRP 0.22%) ledger (XRPL) is positioned as a compliance-first tokenized currency platform, including stablecoins.

In the past month, a fully supported stablecoin Token has been launched on the XRP ledger, with each Token featuring built-in account freezing, blacklisting, and identity screening tools. These functions align closely with the requirements of the Senate bill, which mandates that issuers maintain robust redemption and anti-money laundering controls.

The compliance system of Ethereum may cause issuers to violate this requirement, but it is currently difficult to determine how strict the requirements from regulatory agencies 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 compared to 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 the blockchain.

As each dollar stablecoin must hold reserves of cash-like assets of equal value, this bill quietly ties the liquidity of cryptocurrencies to U.S. short-term debt.

The market size of stablecoins has exceeded 251 billion dollars. If institutions continue to adopt and develop along the current path, it may reach 500 billion dollars by 2026. At this scale, stablecoin issuers will become one of the largest buyers of U.S. short-term government bonds, using the returns to support redemptions or customer rewards.

For blockchain, this connection has two aspects of significance. First, the increased demand for reserves means that more corporate balance sheets will hold government bonds while also 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 part of the government bond yield 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 an increase in currency sensitivity. If regulators adjust collateral eligibility or the Federal Reserve changes the supply of government bonds, stablecoin growth and cryptocurrency liquidity will fluctuate in tandem.

This is a noteworthy risk, but it also indicates that digital assets are gradually integrating into mainstream capital markets, rather than existing independently from them.