GENIUS Act Analysis: Stablecoin Regulation Framework and Global Financial Impact

GENIUS Act: A Historic Breakthrough in U.S. Stablecoin Regulation

On June 17, 2025, the U.S. Senate passed the “GENIUS Stablecoin Act” with a decisive 68:30 vote, marking the first federal-level framework for stablecoin regulation in the U.S. Led by Republican Senator Bill Hagerty, the Act aims to eliminate the regulatory gray area surrounding stablecoins and establish a security standard based on 100% U.S. dollar asset reserves. On July 9, responding to the Trump administration’s demands, the House of Representatives announced it would abandon its own version and vote directly on the Senate version next week. If passed, it would become the most significant financial legislation since the 1933 Securities Act.

This Market Insight article explores how the GENIUS Act reshapes stablecoin regulation and its potential effects on dollar hegemony, the U.S. Treasury market, and the crypto ecosystem.

GENIUS Act Key Provisions: Tiered Oversight and Strengthened Dollar Dominance

Strict Reserve and Issuance Requirements

The GENIUS Act mandates that all stablecoins be backed 1:1 by cash and highly liquid assets such as short-term U.S. Treasuries. Algorithmic stablecoins and interest-bearing features (which could compete with bank deposits) are banned. Issuers are subject to a three-tiered regulatory regime:

• Issuers > $50B: Federally regulated, with mandatory monthly disclosures and annual audits

• Issuers $10B–$50B: Option for federal or state-level regulation

• Non-bank tech giants: Not banned, but subject to additional compliance (e.g., anti-tying provisions)

Holder Protections and Cross-Border Compliance

• Bankruptcy Protection: Stablecoin holders have priority claims on reserve assets over other creditors

• Foreign Issuers: Must establish a U.S. entity and have their home country’s regulatory regime deemed “comparable” by the U.S. Treasury

Political Trade-offs for Bipartisan Support

To gain Democratic support, a clause was added prohibiting members of Congress and executive officials from issuing stablecoins while in office—but it excludes the President. This loophole sparked Democratic outrage, as the Trump family holds $2.2 billion worth of USD1 stablecoins.

Global Financial Ripple Effects

Structural Expansion of Treasury Demand

Currently, stablecoins hold $120B in U.S. Treasuries (e.g., Tether holds 60%). Standard Chartered predicts that if passed, the stablecoin market could reach $2T by 2028, adding over $900B in new Treasury demand and potentially exacerbating yield curve inversion.

Digital Extension of Dollar Hegemony

Over 99% of global stablecoins are USD-pegged, far exceeding the dollar’s 50% share in global payments. If GENIUS ACT passed:

• Offshore stablecoins like Tether may need U.S. entities or face delisting risks

• In emerging markets (e.g., Argentina, Turkey), >30% of citizens use stablecoins instead of local currencies, deepening dollarization

Regulatory Rivalry: Hong Kong vs. EU

• Hong Kong’s Stablecoin Ordinance takes effect Aug 1, requiring HKD 25M capital and 1:1 reserves. Chinese tech firms like Ant and JD.com are rapidly applying for licenses

• EU’s MiCA framework boosted euro stablecoin volumes (reaching €800M in Nov 2024) but still <0.5% market share

Reshaping the Crypto Industry Landscape

Strategic Opportunities for Compliant Issuers

• Circle (issuer of USDC): With 80% of reserves in short-term Treasuries, its stock price surged 800% post-bill and saw a jump in institutional adoption

• Traditional banks: JPMorgan piloting tokenized deposits, positioning to compete with stablecoins

More GENIUS Act and stablecoin research available at the JuCoin Research Institute’s deep dive series.

Rising Tension Between DeFi and Regulation

The Act requires issuers to have the technical ability to freeze or burn specific tokens (e.g., for AML compliance), which directly conflicts with decentralization principles. Developers may shift toward privacy protocols or offshore structures to evade oversight.

Legislative Outlook and Potential Risks

Passage Probability and Timeline

• House Vote: Republican majority + Trump lobbying = >70% chance of passing

• Implementation: If passed in July, takes effect 180 days later (early 2026)

Systemic Risk Warning

• Unpegging Spiral: Large redemptions → Treasury sell-off → Rising yields → Depreciation expectations → More redemptions

• Fed Backstop Absent: Issuers lack access to Fed accounts, leaving no lender of last resort in crises

Long-Term Political Risk

Trump-linked crypto firms (e.g., World Liberty Financial) earned $57.4M in 2024. If USD1 stablecoin grows under the Act’s protection, it may spark constitutional concerns over presidential powers and financial compliance.

Stablecoin compliance is a step toward financial democratization, but the battle between politics and capital continues to redefine regulatory boundaries.