The signing of the "GENIUS Act" marks the first establishment of a comprehensive domestic stablecoin regulatory framework in the United States. Supporters believe this will enhance public trust, drive mainstream adoption, and further solidify the dollar's status as the global reserve currency.
As stablecoins gain increasing importance in the global financial system, the "GENIUS Act" may also benefit developing countries, attract institutional investment interest, and promote the revival of decentralized finance (DeFi).
However, there are concerns about some unresolved issues, such as the regulation of foreign issuers, questions regarding the ban on yield-bearing stablecoins, and the risk that traditional finance and large corporations may dominate the market.
Several industry experts interviewed by Cointelegraph unanimously agree that the "GENIUS Act" is a milestone event for the blockchain and stablecoin sector in the United States, and it may even impact the global cryptocurrency industry.
Christian Catalini, founder of the MIT Cryptoeconomics Lab, stated, "Banks, fintech companies, and even large retailers—any business with a significant consumer or institutional distribution channel—will consider issuing their own stablecoins." He added that stablecoin strategies will now become a core component of all payment and financial services companies.
A significant weakness of the GENIUS Act is what the Atlantic Council refers to as the "Tether loophole." The U.S. think tank pointed out in a blog post that this U.S. stablecoin regulation does not "adequately" regulate offshore stablecoin issuers.
The law aims to regulate stablecoins within the U.S. by setting strict requirements for reserves, financial disclosures, and compliance with sanctions. However, this may put local issuers at a competitive disadvantage and could encourage new issuers to choose offshore jurisdictions with lower regulatory requirements.
"The loophole for foreign issuers has not been adequately addressed," Timothy Massad, a fellow at Harvard Kennedy School and former chairman of the U.S. Commodity Futures Trading Commission, said in an interview with Cointelegraph. Massad is a co-author of the Atlantic Council's blog post.
Massad added that the "GENIUS Act" requires Tether and other foreign issuers to meet standards "comparable" to U.S. issuers, but what "comparable" specifically refers to is not clearly defined.
However, Christopher Perkins, president of CoinFund, stated that regulated U.S. stablecoins can give end users confidence that their held assets are fully backed, paving the way for more companies to establish operations in the U.S.
In a recent media interview, Tether CEO Paolo Ardoino stated that the company's issued "foreign stablecoin" USDt (USDT) will comply with the "GENIUS Act." At the same time, the company also plans to launch a domestic stablecoin under the new regulations.
The passage of the "GENIUS Act" opens the door for large commercial banks in the U.S. (such as Bank of America) to issue stablecoins, while large retailers like Walmart and Amazon are reportedly exploring the possibility of issuing stablecoins.
The emergence of regulated corporate stablecoin issuers has raised questions about how crypto-native stablecoins like Tether and USDC (USDC) will be affected.
"The impact on Tether is minimal because it has a significant lead in the offshore market," said Christian Catalini, founder of the MIT Cryptoeconomics Lab. He added that most new competitors will focus on the U.S. market, which poses a "greater challenge" for USDC.
Meanwhile, Keith Vander Leest, U.S. general manager of London-based stablecoin infrastructure startup BVNK, stated that new entrants may not necessarily flood the market. Non-crypto-native companies may be more cautious when launching stablecoins, typically starting with small pilot projects to gradually build confidence and capability.
"Banks are more likely than corporations to be the first to enter the stablecoin issuance space," Vander Leest told Cointelegraph. Many stablecoins will be products "targeted at specific use cases." The number of new stablecoins that can ultimately "scale" will be limited.
The White House stated that the "GENIUS Act" will increase demand for U.S. Treasury bonds and solidify the dollar's status as the world's reserve currency. Treasury Secretary Scott Bessent noted that the market capitalization of dollar-pegged stablecoins could eventually reach at least $2 trillion, up from about $267 billion currently.
Markus Hammer, advisor and head of HammerBlocks, stated that since U.S.-issued stablecoins must be backed by 100% dollars or their equivalents, this will naturally drive up demand for U.S. Treasury bonds.
"Emerging markets, in particular, may become significant users of dollar stablecoins, as they offer greater stability and efficiency compared to often fragile domestic financial systems," he said in an interview with Cointelegraph.
However, Hammer holds a different view on the restoration of the dollar's dominance, believing that trust in the U.S. dominant currency is gradually weakening.
Former Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad stated that the impact of the act will depend on whether stablecoins can become a significant means of payment or remain in niche areas. He pointed out that most international payments are business-to-business (B2B) payments, and it is currently unclear whether the use of stablecoins in this area will grow significantly.
The "GENIUS Act" prohibits stablecoin issuers from paying "interest or yields" to individuals holding stablecoins. Will this put U.S.-issued stablecoins at a competitive disadvantage?
"A stablecoin without yield is a depreciating asset," said Perkins, president of CoinFund. "While many believe payments are the killer application for stablecoins, they also serve as an important store of value in developing countries. Holders will turn to DeFi to regain yields."
Perkins added that in the future, yield-bearing securities or tokens may become more accessible. Until then, institutional investors who must fulfill fiduciary duties and earn interest on their assets may need to explore other ways to achieve yields. For example, they could reach compliance-based revenue-sharing agreements with issuers to gain exposure to yields.
This may sound somewhat counterintuitive, but the removal of yield regulations for stablecoins could actually be a boon for DeFi on the Ethereum chain, as it is a primary alternative for passive income.
Overall, "the signing of this act is an important milestone," Massad stated. "Stablecoins are the most useful application of blockchain technology to date. Even if they do not ultimately become a primary means of payment, they will bring beneficial competition to the payment space—we may soon see tokenized bank deposits."
Catalini from the MIT Cryptoeconomics Lab described stablecoins as "the first class of tokenized assets to achieve mainstream adoption." He added that assets like bonds and securities will follow closely behind.
The "GENIUS Act" lays the regulatory foundation for U.S. stablecoin issuance and indicates that mainstream adoption is underway. Although there are still concerns about vague regulatory language regarding foreign products, the industry generally views this law as an important step toward achieving regulated dollar-backed tokens.
Related: Supply of yield-bearing stablecoins surged after the passage of the GENIUS Act
Original: “GENIUS establishes new stablecoin rules, but remains vague on foreign issuers”
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