Written by: Xiao Za Legal Team

One of the hottest topics in the cryptocurrency world these days is probably that Trump has "stirred things up" again. Just three days ago, on July 18, Trump officially signed the "Guidance and Establishment of the United States Stable Nation Innovation Act" (also known as the "GENIUS Act") at the White House. This act marks the first formal establishment of a regulatory framework for digital stablecoins in the United States, with Bitcoin reserves and digital asset reserves officially becoming part of the federal strategy.

On the same day, David Sack, known as the "Crypto Tsar" and an AI and crypto advisor at the White House, emphasized two key federal legislative initiatives during a digital asset press conference: the "GENIUS Act" and the market structure regulatory framework. These two pieces of legislation will also be expedited. Although Trump is often labeled as "unreliable," this stablecoin legislation undoubtedly brings many positive factors to the cryptocurrency field. Today, the Xiao Za team will discuss the "GENIUS Act" and the related stablecoins, as well as the potential regulatory direction for future crypto assets.

01 With the introduction of the "GENIUS Act," is stablecoin investment more secure?

The Xiao Za team has found that there are two extremes in understanding stablecoins among our friends. The first extreme believes that stablecoins are entirely different from virtual currencies and will not be affected by virtual currency regulations, especially those in mainland China. Some even think that the notice prohibiting "token issuance" in mainland China does not apply to stablecoins. The other extreme believes that stablecoins can appreciate like Bitcoin and yield significant returns in a short time, viewing them as excellent investment tools.

Both of these views have significant issues. Regarding the belief that stablecoins are entirely different from virtual currencies and that stablecoin issuance in mainland China is unregulated, the Xiao Za team has previously written to refute this. We will not elaborate on that here. We mainly want to discuss the latter misconception: does the emergence of the "GENIUS Act" make stablecoins more suitable for investment? Or can stablecoins yield large profits like Bitcoin investments? The answer is undoubtedly no.

The key difference between stablecoins and virtual assets like Bitcoin is that stablecoins themselves do not appreciate; their value fluctuations entirely depend on the fiat currency they are pegged to. In fact, if we step outside the blockchain context, the Hong Kong dollar is a typical stablecoin because it is pegged to the US dollar, making it a "stablecoin" without blockchain backing. Would anyone say that the Hong Kong dollar is an investment tool? Generally speaking, such a statement is clearly inappropriate. In other words, holding stablecoins largely equates to holding the cash that stablecoins are pegged to. Therefore, neither the "GENIUS Act" nor any other stablecoin regulatory legislation will change the nature of stablecoins as a tool for preserving capital rather than as investment targets.

To put it more plainly, the emergence of the "GENIUS Act" may benefit the institutions and companies issuing stablecoins rather than the stablecoins themselves. Stablecoins are like shadows of the fiat currencies they are pegged to; the prospects of a stablecoin entirely depend on the fiat currency it is pegged to. This also reflects the definition of stablecoins in the "GENIUS Act" — "digital assets that maintain a fixed value supported by fiat currency or other secure reserves."

02 What impact does the "GENIUS Act" have on businesses and trade?

Friends have previously asked what qualifications are required to issue stablecoins in the US, Hong Kong, Singapore, and other places. What are the entry standards? Some friends are also concerned about what conveniences stablecoins can bring to trade and payments. In short, will the "GENIUS Act" affect general businesses?

The Xiao Za team will first answer the question of whether the "GENIUS Act" specifies the entry standards and qualifications for stablecoin issuers. The answer is certainly yes — Article 5 of the "GENIUS Act" stipulates the qualifications for payment stablecoin issuers. It states that only authorized payment stablecoin issuers can legally issue payment stablecoins. Specifically, the issuers of payment stablecoins must meet the following conditions: subsidiaries of insured depository institutions authorized to issue stablecoins (regulated by relevant federal banking agencies); federally qualified non-bank payment stablecoin issuers (non-FDIC insured institutions regulated by the Office of the Comptroller of the Currency ("OCC")); or state-qualified payment stablecoin issuers operating under federal standards or state standards that are essentially similar to federal standards (state-chartered entities regulated by state banking agencies). Additionally, the "GENIUS Act" stipulates that stablecoin issuers with a market capitalization exceeding $10 billion will be subject to appropriate federal banking agency oversight. These provisions essentially establish the qualifications and entry standards for institutions that can issue stablecoins.

Next, we address the second question: do stablecoins have a positive impact on cross-border trade between businesses? The answer is also affirmative. Previously, cross-border transfers from the US to Hong Kong could take five to six days and incur high fees. Stablecoins will significantly improve the efficiency of cross-border payments and reduce costs, making them a beneficial tool for cross-border trade. Of course, in the long term, there may also be negative impacts on general businesses. For example, the large-scale development of stablecoins could directly lead to a decrease in bank deposits, thereby affecting banks' lending capabilities. If a business's cash flow relies on bank loans rather than capital market financing, the large-scale development of stablecoins could significantly impact the operations of such businesses. However, these can only be considered "secondary disasters." In reality, the immense convenience brought by stablecoins for cross-border transfers is the most beneficial aspect for businesses engaged in cross-border trade.

03 In Conclusion

Finally, the Xiao Za team would like to discuss the potential for stablecoin development in mainland China. US dollar stablecoins can significantly help the US consolidate its position in the global diplomatic and financial system. For instance, the US dollar is effectively the circulating currency in many countries (such as the often-cited Argentina and Turkey). US dollar stablecoins may weaken the central banking functions of these countries, thereby reinforcing the position of the US dollar. At the same time, US dollar stablecoins seem likely to impact the current trend of non-dollar settlements, which are indeed challenges.

Lastly, the Xiao Za team wants to reiterate that stablecoins still fall under the category of virtual currencies and remain subject to strict regulatory influences in mainland China. Financial activities related to virtual currencies are illegal, and due to the lack of a systematic and independent regulatory framework for stablecoins, they may also encounter issues related to the red line of disguised public deposit absorption as stipulated in China's "Regulations on Preventing and Dealing with Illegal Fundraising." Engaging in stablecoin-related businesses may also touch upon restrictions on cross-border capital flows in foreign exchange management regulations. These are all red lines within red lines.

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