The Potential Impact of the Genius Act on the Crypto Assets Industry

The U.S. Senate recently passed the "Guidance and Establishment of the United States Stablecoin National Innovation Act" ( Genius Act ), which is the first comprehensive federal regulatory framework for stablecoins. The bill has now been submitted to the House of Representatives for consideration, and if it passes smoothly, it could become law this fall, which will have a profound impact on the Crypto Assets industry.

1. Payment-type Crypto Assets may face elimination

The Genius Act will create a "licensed payment stablecoin issuer" license, requiring each stablecoin to be backed by a 1:1 ratio of cash, U.S. Treasury securities, or overnight repurchase agreements. This stands in stark contrast to the current situation, which lacks substantial backing.

As stablecoins become the main medium of exchange on the blockchain, they currently account for about 60% of the value of Crypto Assets transfers, processing 1.5 million transactions daily. Compared to the price volatility of traditional Crypto Assets, stablecoins have more advantages in everyday payments.

Once the stablecoins licensed by the United States can legally circulate across state lines, merchants continuing to accept volatile Crypto Assets will find it difficult to justify their rationale. In the coming years, the practicality and investment value of these traditional Crypto Assets may significantly decline unless they can successfully transform.

2. New Compliance Rules or Reshaping the Industry Landscape

If the Genius Act becomes law, it will guide stablecoins towards blockchains that can meet auditing and risk management requirements. Currently, Ethereum hosts approximately $130.3 billion in stablecoins, far surpassing other competitors. Its mature decentralized finance ecosystem provides issuers with a wealth of tools and best practices.

On the other hand, the XRP ledger is positioned as a compliance-first tokenized currency platform. Its recently launched stablecoin comes with built-in account freezing, blacklisting, and identity screening tools, which are highly aligned with the requirements of the Genius Act.

Although Ethereum offers greater flexibility, its technical implementation is more complex. In contrast, XRP provides a streamlined platform and top-down control. Currently, these two blockchains seem to have an advantage over competitors that focus more on privacy or speed.

3. Reserve rules may lead to institutional capital inflows

The Genius Act requires that every dollar stablecoin must hold an equivalent amount of cash-like asset reserves, which will link the liquidity of Crypto Assets to U.S. short-term debt. Currently, the stablecoin market size has exceeded $251 billion and is expected to reach $500 billion by 2026.

This connection has two implications for blockchain: First, the increased demand for more reserves means that more corporate balance sheets will hold government bonds and native coins, driving organic demand for tokens such as Ethereum and XRP. Secondly, the interest income from stablecoins may provide funding for user incentives, accelerating on-chain payment volumes and fee throughput.

However, this also means that the Crypto Assets market will be more susceptible to changes in monetary policy. If regulatory agencies adjust collateral eligibility or the Federal Reserve changes the supply of treasury bonds, the growth of stablecoins and the liquidity of Crypto Assets will fluctuate in sync.

Despite the risks, this development also indicates that digital assets are gradually integrating into the mainstream capital markets rather than remaining independent of them. With the progress of the Genius Act, the Crypto Assets industry may face significant changes, and investors and participants need to closely monitor policy trends and adjust their strategies in a timely manner.