U.S. Stablecoin Regulation: How the GENIUS Act Could Transform the Crypto Industry

This article analyzes the potential impact of the United States’ “GENIUS Act,” a regulatory framework for stable cryptocurrencies. If passed, the law is expected to establish a comprehensive framework for stablecoins and have a transformative effect on the crypto asset industry.

If the GENIUS Act—considered a stablecoin regulation bill—successfully passes into law in the U.S., its impact will be significant. Some even consider it one of the five most important legal developments in crypto history.

Although it is abbreviated as the GENIUS Act and seems to mean ‘Genius Act’, this law is actually defined as “Guiding and Establishing National Innovation for U.S. Stablecoins”, that is, theGuiding and Establishing National Innovation for U.S. Stablecoins for the United States Stablecoins.

The proposal is quite comprehensive. Here are some of its key provisions:

• Mandatory 1:1 reserve backing: Reserves must consist only of cash, demand deposits, and short-term U.S. Treasury bills. Misappropriation or rehypothecation is strictly prohibited.
• Regular disclosures: Issuers must publish reserve reports at least monthly and are encouraged to undergo independent audits.
• Licensing threshold: If the market capitalization of an issuer’s stablecoins exceeds 10 billion USD, it must fall under the federal regulatory regime and banking-level supervision.
• Custody requirements: Stablecoin reserves must be held only by regulated and qualified financial institutions.
• Clear definition as a payment instrument: Stablecoins will not be treated as securities or commodities, but as a new class of payment instrument.
• Transition period: Existing issuers will have up to 18 months to comply and obtain necessary licenses.

  The Beginning of a New Era

  Over the past 16 years, one of the most debated topics in the crypto industry has been real-world use cases. But now, with stablecoins, a regulation-based structure we can trust is emerging.

  The Age of Transparency Begins

  In the past, stablecoins were like a “black box” for most people. Every few months, FUDs about Tether’s reserves would surface, or Circle’s reserves would come under scrutiny. Yet today, these companies earn billions of dollars from interest income based solely on their reserves. Circle reported $1.7 billion in net income in 2023.

It is clear that these players are motivated more by compliance than by exploitation. These systems are now transparently managed, frequently audited, and integrated with U.S.-compliant custody solutions. The risk of misappropriation has nearly disappeared. This development represents a major confidence factor for crypto users.

Setting the Standard Means Winning the Future

At one time, stablecoins were under pressure from central bank digital currencies (CBDCs). Had CBDCs succeeded, stablecoins might have become marginalized, and blockchains would have played a far smaller role.

But now, the balance of power is shifting. With the new regulation, stablecoins are setting the standard. Everyone will have to learn the “blockchain + token” logic. The truth is that many Layer 1 (L1) chains today struggle to create meaningful use cases beyond stablecoin transfers. As seen with Aptos, the primary use case might simply be exchange transfers.

Once stablecoins are legalized, this will make blockchain infrastructure the default layer. Users will first need to learn how to use a wallet.

In this context, Ethereum’s contribution to account abstraction under EIP-7702 should be considered visionary. While other chains focus on meme tokens, Ethereum is concentrating on infrastructure that will transform user experience.

EIP-7702

EIP-7702 is a proposed account abstraction mechanism on Ethereum that can support the following applications:
Creating wallets linked to social media identity verification (social recovery wallets)
Paying gas fees using stable crypto assets
This feature has the potential to solve the “last-mile” problem for new users entering Web3 ecosystems. Especially with the widespread use of stablecoins, users may be able to make transactions without needing native assets like ETH in their wallets.

Deposits Enter a New Era

With stablecoins gaining a legal framework, on-ramp and off-ramp transactions will become more accessible. This could connect not only crypto users but also traditional investors directly to Web3 systems.
Imagine this: Before the law, stablecoins were positioned in a gray area — but once regulated and supported by banks and traditional financial institutions, the funds of U.S. stock investors could be converted into stablecoins within minutes and transferred directly to centralized exchanges in seconds. This development could completely redefine the transaction flow between Web3 and traditional finance.

Stablecoins: The Trojan Horse Effect and an Irreversible Future

Imagine another scenario: If the GENIUS Act is introduced to the House of Representatives and smoothly passes through the legislative process, we may then be faced with the following picture:

Due to the profitability of the stablecoin market, existing leaders and traditional financial giants would begin to heavily promote their stablecoin products. Through these marketing campaigns, external users would be encouraged to start using stablecoins. And one day, as these users fully utilize their wallets, they will realize they are directly interacting with other assets like Bitcoin stored within.

A stablecoin is like a grand Trojan horse. Once you start using these assets, you inadvertently step into the broader crypto economy.

Stable Assets and the U.S. Debt Market

Stablecoins, which serve as a key reserve support instrument for U.S. Treasury debt, cannot directly make debt repayments but contribute to the U.S. bond market by providing liquidity in secondary markets. This function is becoming increasingly significant, and stablecoins are gradually becoming an inseparable part of this market.

Once integrated into the U.S. regulatory system, it is no longer possible to reverse this model. And this irreversibility manifests not only in legal frameworks but also in user behavior. Individuals who use stablecoins find it difficult to return to traditional cash and banking systems.

The bill cannot be reversed; neither can the users. In the coming period, structural concerns will subside, regulatory standards will be adopted on a global scale, and an era of accelerated large-scale institutional participation will begin.

This article is quoted from X user Todd. For any copyright-related inquiries, please contact us.