From Nixon Shock to GENIUS Act: Digital Evolution of Dollar Hegemony

Source:The GENIUS Stablecoin Play

Organize & compile: Lenaxin, ChainCatcher

On August 15, 1971, President Nixon introduced a series of economic policies: abolishing the US dollar and gold linkage, freezing wages and prices, and imposing 10% import tariffs. "I have instructed the Finance Minister to take necessary measures to protect the dollar from speculators' shocks." This statement, which changed the global monetary system, later called the "Nixon Shock", ruined more than hell at the time.

This week, the U.S. Senate passed the GENIUS Stablecoin Act with an overwhelming vote of 68 to 30, marking a key step in the United States' first comprehensive regulatory framework for digital dollars. Unlike Nixon's contingency measures that hastily abandoned the gold standard, this legislation has built a prudent and meticulous monetary infrastructure for the digital age. According to Citigroup, the current stablecoin market with a scale of US$250 billion may soar to US$3.7 trillion by 2030 under a bull market scenario.

The bill is yet to be voted by the House of Representatives and signed by the President. This in-depth report will be analyzed:

1. How does the bill reshape the financial system?
2. Why is Tether facing an existential crisis?
3. Is the United States truly ushering in a watershed moment in the monetary system?

Digital Dollar Blueprint​

The GENIUS Act sets clear boundaries for the digital currency field. Unlike past fragmented cryptocurrency regulations, the bill sets clear standards:

Its core requirement is concise. Stablecoin issuers must maintain a reserve of 1:1 USD, short-term Treasury bonds or equivalent current assets within 93 days, and must undergo a mandatory public audit every month. Interest-generating stablecoins are expressly prohibited.

Only three categories of entities can issue payment stablecoins: subsidiaries of the insured bank, federally qualified non-bank issuers approved by the Comptroller of the Currency, or state-level qualified issuers that meet federal standards . Foreign issuers only receive a three-year transition period, and those who fail to comply with the deadline will be completely excluded from the US market.

The bill transforms stablecoins from disorderly experiments to legal financial infrastructure by characterizing stablecoins as “digital currencies” rather than special crypto assets, using monthly reserve disclosures, false statements of criminal accountability and compliance requirements of the Bank Secrecy Act. While establishing the legal status of the digital dollar, this move systematically cleared out non-compliant participants.

Competition intensifies

For Tether, the world's largest stablecoin issuer, the GENIUS Act is like a precisely worded three-year countdown ultimatum. USDT issuers, which currently account for 62% of the stablecoin market, may face the most severe impact -just confirming the market law of "trees attracting wind".

Tether's existing reserve structure does not meet the requirements of the bill. The official website shows that only 81.5% USDT is supported by cash and short-term deposits, and does not meet the 1:1 high liquidity asset standard. Its Italian audit agency BDO does not meet the qualification requirements of the US PCAOB and needs to rebuild the audit system.

Although its CEO promised to launch compliant products, Tether's business model of relying on high-yield investments directly conflicts with the bill's ban. During the three-year transition period, USDT will lose institutional support from banks, payers and corporate finance, and the application scenarios will continue to shrink.

As the issuer of USDC, Circle's stock price soared by 35% after the bill was passed, with a market value of 5 times the issue price. Its domestic advantages, compliance reserves and bank cooperation network occupy regulatory dividends, and Shopify's recent access to USDC payments has shown its expansion momentum.

The game between security and innovation

The most controversial provision of the GENIUS Act is the complete ban on interest-bearing stablecoins, which reflects the profound lessons learned by Congress from the cryptocurrency leverage collapse. Its core concept is that payment tools should not have both investment attributes. When stablecoins generate returns, their nature is closer to bank deposits or securities, and the traditional banking system controls such systemic risks through mechanisms such as deposit insurance and capital adequacy ratio.

This will have a direct impact on the decentralized finance (DeFi) protocol that relies on interest-bearing stablecoins. The bill explicitly excludes "securities issued by investment companies" and "deposits" from regulatory scope, meaning that users pursuing returns can only turn to tokenized bank deposits or regulated investment products.

But the controversy ensued. Although users bear the opportunity cost of holding non-interest-generating assets, stablecoin issuers can still obtain profits through investing in interest-generating tools. This trade-off has brought about institutional confidence far exceeding the value of DeFi's revenue loss: requirements such as monthly reserve transparency, forced anti-money laundering compliance and transaction monitoring are transforming stablecoins from edge experiments in the crypto field to formal financial infrastructure .

Today, large banks can regard compliant stablecoins as real cash equivalents, corporate finance departments can hold them with confidence, and payment service providers can also conduct system docking based on their characteristics that comply with bank standards. This institutional recognition may reshape the entire financial ecology.

Large-scale application infrastructure

The GENIUS Act has passed two pillars of custody protection and compliance clarity , building a regulatory foundation for the integration of stablecoins into mainstream finance.

The custody framework requires qualified custodians to isolate customer assets, prohibit mixed funds, and ensure bankruptcy repayment priority, extending traditional financial protection to the digital asset field.

• For retail users, the bill reserves the right of self-custody, and requires service providers to meet bank-level standards, so that regulated stablecoin wallets enjoy the same protection as bank accounts.
• In terms of enterprise applications, cross-border settlement can be shortened to minutes, supply chain payments can be programmable, and fund management breaks through holiday restrictions. Individual users can also enjoy fast cross-border transfers and exempt high handling fees .

The bill also mandatory evaluation of interoperability standards to ensure cross-platform circulation of stablecoins and avoid regulatory severance hindering innovation.

Landing Challenge

Although the GENIUS Act has received bipartisan support, it still faces multiple challenges in its implementation:

1. Compliance costs will reshape the market structure . The monthly audits, complex reserve management and ongoing regulatory reports required by the bill actually build a high compliance threshold. Large issuers can easily deal with it with their size advantage, while small and medium-sized stablecoin companies may be forced to exit the market due to sharply increasing operating costs.

2. Cross-border friction hinders global application. European companies using dollar-anchored stablecoins may face problems of "currency conversion" and "foreign exchange risks". Heiko Nix, head of global cash management and payments at German industrial giant Siemens, revealed to Bloomberg that this is exactly why the company chose to tokenize bank deposits.

3. The yield ban may force innovation outflow. If other jurisdictions allow interest-generating stablecoins , the United States may lose its technological dominance, although it maintains financial stability . If the DeFi protocol that relies on interest-bearing stablecoins cannot find a compliant alternative, it will face a cliff-like impact.

4. State and federal regulation coordination adds new variables. The bill allows issuers with market capitalizations below $10 billion to choose state-level regulatory systems, but prove that their standards are "substantially similar" to federal requirements. State regulators need to take the initiative to submit compliance certificates, and the Treasury Secretary has the right to veto the certification, forcing reluctant issuers to transfer into the federal regulatory framework .

Token Dispatch Observation

The Republicans control the House of Representatives with 220-212 seats. There is little suspense to the passing of the bill, but implementation will test the art of balancing innovation and regulation in the United States. This bill may reshape the monetary sovereignty pattern in the digital age, just as the "Nixon Shock" in 1971 ended the gold standard in dispute, and now the GENIUS Act may open a new era of the digital dollar. Its core mechanism is to force all compliant stablecoins to use USD/US bonds as reserves, so that global stablecoins demand will be directly converted into dependence on the US dollar system.

The bill creates a “substantially similar” reciprocal clause: Compliants are allowed to enter the U.S. market, while rejecters are isolated. What is quite dramatic is that this technology, which was originally created to evade centralized supervision, has become a tool to strengthen the hegemony of the US dollar. Crypto fundamentalists will have to face this institutional irony.

Traditional financial institutions regard it as a turning point for digital assets to integrate into mainstream finance, and the 35% surge in Circle's stock price confirms the choice of capital: a clear regulatory framework is far more attractive than a wildly growing market . When technological idealism encounters real regulation, the market has cast a vote of confidence with real money.

Disclaimer

The content of this article does not represent the views of ChainCatcher. The views, data and conclusions in the article represent the personal positions of the original author or the interviewee. The compiler maintains a neutral attitude and does not endorse its accuracy. It does not constitute advice or guidance in any professional field and readers should use it carefully based on independent judgment. This compilation behavior is limited to knowledge sharing purposes only. Readers are requested to strictly abide by the laws and regulations of the region and not participate in any illegal financial behavior.