4E Labs｜A new era of US stablecoin regulation: the passage of GENIUS Act and its far-reaching impact

1. Definition and classification of stablecoins

As the "stable anchor" of the cryptocurrency market, stablecoins are usually pegged to fiat currency, commodities or algorithmic mechanisms. According to the type of mortgaged assets and operating model, it can be divided into four categories:

• Fiat currency collateralized stablecoin

1. Definition : such as Tether (USDT), USD Coin (USDC), supported by US dollars or other fiat currencies 1:1, and reserves are usually deposited in banks or trust institutions.
2. Mechanism : The issuer holds the equivalent fiat currency (such as USD) as a reserve, and the user can exchange stablecoins 1:1 at any time.
3. Advantages : - High stability, small value fluctuations, suitable for payments and transactions. - Easy to understand, widely used in centralized exchanges and DeFi platforms. - High regulatory transparency (such as regular audits of USDC reserves).
4. Disadvantages : - Relying on issuers' credit and operational transparency (such as Tether was questioned for reserve disputes). - Centralized management leads to single point of failure risk. - Strict regulatory requirements must be followed, and the compliance costs are high.
5. Case : USDT has a market value of over US$110 billion, and USDC has a market value of approximately US$55 billion (2025 data).

• Cryptocurrency collateralized stablecoin

1. Definition : DAI, such as MakerDAO, is generated by over-solidated cryptocurrencies such as Ethereum, and is usually run through smart contracts.
2. Mechanism : User deposits cryptocurrencies (such as ETH) as collateral to generate stablecoins, and the value remains stable through algorithms and excess collateral.
3. Advantages : - Decentralized, no need to trust a single issuer, strong censorship resistance. - Suitable for DeFi ecosystem, high flexibility. - High transparency, all transactions are recorded on the blockchain.
4. Disadvantages : - Fluctuations in the price of mortgaged assets may lead to liquidation risks. - Smart contract vulnerabilities may cause systemic risks. - High complexity, users need technical knowledge.
5. Case : DAI is widely used in DeFi, but the plunge in ETH price in 2022 has led to some liquidation events.

• Algorithmic stablecoin

1. Definition : For example, TerraUSD (UST, crash in 2022), dynamically adjusts supply through algorithms to maintain value stability without directly collateralizing assets.
2. Mechanism : Adjust supply and demand through arbitrage mechanism or token destruction/minting, such as UST balances value through Luna tokens.
3. Advantages : - No reserve assets required, low operating costs. - Completely decentralized, theoretically infinitely scalable. - Suitable for fast-growing crypto markets.
4. Disadvantages : - Poor stability, susceptible to market sentiment and runs (such as UST crashes resulting in tens of billions of dollars in losses). - The algorithm is complex and the market trust is low. - Regulation is difficult and may be regarded as a high-risk asset.
5. Case : UST's failure highlights the fragility of algorithmic stablecoins, which currently has a small market share.

• Hybrid stablecoins

1. Definition : Combining fiat currency or cryptocurrency mortgage and algorithmic mechanisms to try to balance stability and flexibility, it is still in the experimental stage.
2. Mechanism : For example, some reserves support adjustment in combination with algorithms, or dynamically adjust the mortgage ratio.
3. Advantages : It may balance stability and decentralization advantages, have great innovation potential, and can adapt to a variety of scenarios.
4. Disadvantages : - The technology is complex and the risks have not been fully verified. - Low market acceptance and limited application scenarios. - High regulatory uncertainty and may face dual compliance requirements.
5. Case : Frax Finance's FRAX tries to mix mode, but the market is smaller.

Stablecoins are widely used in cross-border remittances, DeFi, payment settlement and value storage due to their low cost, fast transactions and low volatility. The market size has reached US$232 billion in 2025. The scale expansion of stablecoins (30% of cross-border payments in 2025 were completed through stablecoins) and risk events (UST collapse and Tether reserves were opaque) forced the United States to take regulation.

2. GENIUS Act Main Terms

GENIUS Act regulates payment of stablecoins (defined as digital assets mainly used for payment and settlement and are pegged to fixed currency values) by establishing a federal and state hierarchical regulatory framework. The following are its main terms, based on public information integration:

The bill passed the Senate Banking Committee 18–6 and the Senate-wide 66–32, showing cross-party support.

3. Legislative motivation: From financial security to digital dollar

hegemony

Financial security and system stability: regulation-based

• Consumer protection is imminent

1. In recent years, stablecoins have frequently experienced "deaning" events, especially the TerraUSD (UST) collapse in 2022, causing billions of dollars in retail assets to evaporate.
2. GENIUS Act requires that all payment stablecoins must undergo a monthly audit and hold 1:1 liquid reserve assets , and grant users priority claims when the issuer goes bankrupt, significantly improving user protection.

• Anti-money laundering and financial crime prevention and control

1. The widespread use of stablecoins in anonymous transactions has attracted the attention of law enforcement agencies.
2. Senator Elizabeth Warren noted that more than 40% of ransomware ransom payments are paid in stablecoins .
3. The bill forces issuers to implement KYC (identity verification), AML (anti-money laundering) and CFT (anti-terrorism financing) procedures, aiming to combat illegal capital flows.

Digital continuation of US dollar dominance: financial geostrategic

upgrade

• Digital US dollar demand binding: "cryptocurrency" anchored by US dollar

1. As of 2025, more than 99% of global stablecoins are denominated in US dollars , and the US dollar has become the core value anchor of global digital assets.
2. GENIUS Act clearly strengthens the basic position of the US dollar in the crypto financial system through regulatory means and ensures that the US dollar continues to dominate the global payment and reserve system.

• Reserve Asset Structure Design: Stablecoins "feed" the US Treasury Market

1. The bill requires issuers to concentrate reserve assets on U.S. Treasury bonds, bank deposits or in-kind cash .
2. Republican Senator Bill Hagerty pointed out that by 2030, stablecoin issuers may become one of the largest holders of U.S. bonds , thereby providing support for U.S. fiscal deficit financing.
3. The current scale of US Treasury bonds has reached US$36 trillion , and the stablecoin reserve mechanism is regarded as a "invisible debt purchase force."

• Curbing the expansion of currencies in other countries: Fighting against the digital rise of the RMB and the euro

1. The EU has introduced MiCA regulations, and China is also promoting the cross-border circulation of digital RMB.
2. GENIUS Act is an important means for the United States to seize the commanding heights of global digital currency sovereignty , aiming to prevent digital currencies from other countries from posing a threat to international settlement rights.

Technological and Political Check-ups: Confrontation of Interests Behind

Legislation

• The financialization trend of technology giants is hindered

1. Meta's Libra (later renamed Diem) stablecoin project proposed by Meta in 2019 was forced to terminate due to high regulatory pressure.
2. The GENIUS Act amendment expressly prohibits technology companies that have not obtained federal or state licenses from issuing stablecoins and puts higher requirements on their data privacy, financial risks and platform monopoly behavior.
3. Deutsche Bank analysis pointed out that this move is intended to prevent platform-based technology giants from using their "data + channel" advantages to monopolize financial infrastructure , thereby threatening the traditional banking system and US dollar dominance.

• Trump 's chain of interests has resurfaced

1. The bill's legislative process is questioned about the issue of "political interest exchange".
2. The Trump family-backed stablecoin project USD1 (issued by World Liberty Financial) was launched in March 2025 and has a market value of over US$2 billion by May, ranking among the top seven in the world.
3. Critics pointed out that the bill could create "compliance channels" for the project, which would facilitate funds to bypass the traditional banking system to specific politicians.
4. Democratic Senator Warren lashed out that the currency could become a "shadow banking tool for anonymous foreign funds to Trump."

• Foreign stablecoins (such as Tether) are facing inclusion

1. The new clause clearly states: Foreign issuers must register in the United States and accept equivalent supervision , otherwise they shall not be circulated in the US market.
2. Deutsche Bank commented that the move "blocked previous regulatory loopholes" and pulled offshore currencies such as Tether into a unified regulatory framework, which will help weaken its "gray settlement tool" attributes.

IV. Stakeholder impact analysis

• Compliance centralized exchange (CEX)

1. Improved compliance requirements : Non-compliant currencies need to be removed, and audit/KYC costs need to be increased
2. Rising competition for licensed stablecoins : banks and technology companies may issue their own stablecoins, and CEX needs to strengthen user stickiness
3. Reduced stable currency types : conducive to simplification of operations, but reduce asset diversity
4. Fund flows may be more compliant/transparent , helping to attract institutional investors

• Ordinary users

For ordinary users, the impact of GENIUS Act is mainly reflected in the following aspects:

1. Consumer Protection Enhanced : The bill requires stablecoin issuers to hold 1:1 reserve assets and ensure that currency holders enjoy priority claims when insolvency occurs. This reduces the risk of stablecoins deaning or issuer bankruptcy, for example, if one issuer goes bankrupt, the stablecoins held by the user will be repaid before other creditors. This has enhanced users' trust in stablecoins, especially in past events such as TerraUSD (UST) crashes, where users suffered heavy losses.
2. Expand the use scenarios of stablecoin : The establishment of a regulatory framework may prompt more traditional financial institutions and enterprises to accept stablecoins as payment tools and expand their application scenarios. For example, users may use stablecoins in e-commerce platforms, cross-border payments, or DeFi applications to improve their convenience. Research shows that stablecoins have been widely used for cross-border remittances due to their low-cost and fast transaction characteristics, and GENIUS Act may further drive this trend.
3. Potential restrictions and uncertainty : While the bill is designed to protect consumers, strict regulation may also limit the use of certain stablecoins. For example, if some stablecoins fail to comply with new regulations, compliant CEX may stop supporting these currencies, reducing user choice. Additionally, users may need to adapt to new KYC/AML requirements, such as providing more authentication information before transactions, which may increase the threshold for use.

• Stablecoin issuer

1. Large issuers (such as Circle, Tether): They may benefit from the legality and market recognition brought by the bill, but they also have to bear higher compliance costs. For example, Circle may attract more institutional users due to the enhanced compliance of USDC, but it requires regular disclosure of reserves and auditing.
2. Small Issuers: They may exit the market due to high capital and liquidity requirements, resulting in market concentration. For example, issuers with market capitalization of less than $10 billion can be regulated by states, but still meet certain criteria, which may pose a challenge to small startups.

• Regulatory agencies

GENIUS Act provides regulators with clear authorizations to allow them to more effectively monitor the stablecoin market and reduce systemic risks and illegal activities. For example, the Federal Reserve (Fed) and the Commodity Futures Trading Commission (CFTC) may gain greater regulatory powers.

• Traditional financial institutions

Banks and financial companies may see opportunities to enter the stablecoin market. For example, institutions such as JPMorgan or Visa may issue their own stablecoins to expand their business scope. Critics warn that the bill could allow big tech companies such as Amazon, Walmart or Meta to enter the banking space, lacking enough restrictions.

V. Criticism and Controversy

Despite the support of GENIUS Act, there are controversies:

1. Federal Relief Risk : Adam Levitin pointed out that the bill may mislead the public to believe that stablecoins are safe, but does not modify the bankruptcy law, and users may be damaged during bankruptcy or require federal assistance.
2. Conflict of interest : Trump's crypto businesses such as World Liberty Financial may benefit, raising conflict of interest concerns.
3. AML/KYC Insufficient : Senator Warren criticized the bill for not adequately addressing money laundering, and that Tether and others may exploit loopholes.
4. Innovation suppression : High compliance costs may squeeze out small issuers and hinder innovation.
5. Regulatory loophole : Decentralized financial terms may allow non-compliant stablecoins to flow into the market.

These criticisms reflect the bill’s tensions between consumer protection and market freedom.

6. Summary and Outlook

The adoption of GENIUS Act is an important milestone in the regulation of stablecoins in the United States. It provides a clear framework for the payment stablecoin market through reserve requirements, consumer protection and AML compliance measures. This not only consolidates the hegemony of the US dollar, but also lays the foundation for the global promotion and application of stablecoins.

However, the bill still needs to balance consumer protection and innovative development, and avoid excessive suppression of small issuers and decentralized ecology while preventing systemic risks. In the future, its implementation effect will depend on regulatory details, industry adaptability and international regulatory coordination.

As an important tool of digital finance, stablecoins will have a profound impact on GENIUS Act and deserve continuous attention.