A New Chapter in Stablecoin Regulation: A Major Turn in Crypto Assets

Stablecoins, as the core pillar of on-chain finance, are about to receive legal recognition from U.S. regulators. This is seen as a significant milestone for the crypto assets industry, marking the birth of the first crypto product with mainstream practicality and clear institutional recognition.

The "Guiding and Establishing the American Stablecoin National Innovation Act" (GENIUS Act) could become the most influential legislation in the history of Crypto Assets. This bipartisan bill establishes the first federal framework for payment stablecoins, aiming to inject confidence, clarity, and institutional legitimacy into a stablecoin market valued at over $260 billion.

Key Points of the Bill

1. Asset backing: The issuer must fully back the stablecoin with high-quality liquid assets at a 1:1 ratio. Allowed reserve assets are limited to US dollar cash, insured bank deposits, money market funds, or short-term government bonds.

2. Payment Only: The issuer shall not pay interest to stablecoin holders, ensuring that stablecoins are used solely as digital cash equivalents.

3. Bankruptcy Protection: In the event of the issuer's bankruptcy, stablecoin holders have a priority claim on the reserve assets.

4. Transparency and Auditing: Issuers are required to disclose reserve status monthly and undergo regular audits.

5. Anti-Money Laundering Compliance: The bill requires strict AML and KYC measures, and issuers must implement a compliance program in accordance with the Bank Secrecy Act.

6. Regulatory Structure: The bill authorizes federal and state regulators to oversee issuers, with the U.S. Department of the Treasury as the primary regulatory agency.

7. Issuer qualifications: Banks, fintech companies, and even large retailers can issue stablecoins, but publicly traded companies primarily engaged in technology, social media, or e-commerce are prohibited from issuing them.

Impact on USDC and USDT

Although the bill requires stablecoins to be backed 1:1 by dollar assets, this is not fatal for USDT. According to the bill, if offshore issuers wish to enter the US market, the Treasury can conduct compliance comparison tests. As long as their rules are consistent with US standards, USDT can continue to operate in the US market.

In the future, there may be a large number of stablecoin issuers, and competition will drive down issuance costs. The ultimate winners may prevail through services surrounding stablecoins, such as payroll payments and faster payment speeds.

In emerging markets, stablecoin holders do not need to earn a return, as holding stablecoins is valuable in itself. For example, in Argentina, stablecoins can protect holders from the effects of high inflation.

Impact on Fintech Companies

It is expected that in the coming years, every major fintech company will launch its own stablecoin. These companies have a large user base, global infrastructure, and strong balance sheets and banking partners. Stablecoins provide a global 24/7 payment channel, reducing costs for merchants and e-commerce customers while also bringing new sources of revenue.

Impact on American Banks

Banks face challenges of innovation stagnation and lack of motivation to issue stablecoins. Innovative banks and fintech companies will thrive, while slow-moving banks may face severe challenges in the coming years.

Impact on Payment Networks

Stablecoins can be settled almost instantly, supporting global peer-to-peer transactions at a low cost. This poses a significant threat to traditional card payment fees. Payment networks may need to transform into multi-track infrastructures, supporting stablecoins as settlement currencies and providing compliance services.

Impact on the Dominance of the US Dollar

Stablecoins are extremely beneficial for the United States and the dollar. The issuers of stablecoins have become important buyers of U.S. debt, expanding the global network effect of the dollar and diversifying the holding base of U.S. debt. It is expected that the relationship between stablecoin issuers and the U.S. government will become increasingly close.

Investment Advice

• ETH and SOL as the safest long-term stablecoin investment choices.
• Some trading platform stocks can be considered as alternative options, but attention should be paid to current valuations.
• High-risk/high-reward options include certain emerging stablecoin projects.

Overall, the supply of stablecoins, on-chain transaction speed, prices, and volatility are all on the rise, indicating that a new chapter in the Crypto Assets market is about to begin.