The signing of the GENIUS Act into law established the first comprehensive regulatory framework for US-issued stablecoins. Supporters argue it will enhance trust, drive mainstream adoption and bolster the dollar’s status as the global reserve currency.
With stablecoins now gaining traction in global finance, the GENIUS Act could also prove a boon for the developing world, attract institutional interest and drive a resurgence in decentralized finance (DeFi).
However, concerns remain over unresolved issues, such as the regulation of foreign issuers, doubts about the ban on yield-bearing stablecoins and the potential dominance of corporate and traditional finance players.
Industry experts surveyed by Cointelegraph agree that the GENIUS Act is a landmark event for the US blockchain and stablecoin sector, if not the global crypto industry.
“Banks, fintechs and even large retailers — essentially anyone with significant consumer or institutional distribution — will all be considering issuing their own stablecoin,” Christian Catalini, founder of the MIT Cryptoeconomics Lab, told Cointelegraph, adding that a stablecoin strategy will now be an integral part of all payments and financial services companies.
GENIUS Act’s foreign stablecoin “loophole”
A major weakness of the GENIUS Act is what the Atlantic Council calls the “Tether loophole.” The US think tank argued in a blog post that the US stablecoin law did not “adequately” regulate offshore stablecoin issuers.
The law aims to bring order to US stablecoins by imposing strict rules on reserves, financial disclosures and sanctions compliance. This could put local issuers at a competitive disadvantage and potentially encourage new issuers to incorporate in less-demanding jurisdictions offshore.
“The foreign issuer loophole was not sufficiently fixed,” Timothy Massad, a research fellow at the Kennedy School of Government at Harvard University and former chairman of the US Commodity Futures Trading Commission, told Cointelegraph. Massad is a co-author of the Atlantic Council blog.
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The GENIUS Act requires Tether and other foreign issuers to meet standards “comparable” to those of US issuers, but what qualifies as “comparable” isn’t clearly defined, Massad added.
But Christopher Perkins, president of CoinFund, said that regulated US stablecoins give end users confidence that their holdings are fully backed, paving the way for more companies to set up shop in the US.
“I think many investors will choose the onshore regulated version of stablecoins because of the incremental confidence they deliver.”
In a recent media interview, Tether CEO Paolo Ardoino said that the company’s “foreign stablecoin” USDt (USDT) will comply with the GENIUS Act. It is also planning to launch a domestic stablecoin under the new law.
Stablecoin issuance goes mainstream with GENIUS
The GENIUS Act opens doors for giant US commercial banks like Bank of America to issue their own stablecoins, while mega retailers like Walmart and Amazon are also reportedly exploring stablecoin issuance.
The prospect of regulated corporate stablecoin issuers raises questions about how crypto-native stablecoins like Tether and USDC (USDC) will be affected.
“Tether less so, as its lead offshore is substantial,” Catalini said. He added that most of the new competition will focus on the US market, which presents “a more significant challenge for USDC.”
Meanwhile, Keith Vander Leest, US general manager at London-based stablecoin infrastructure startup BVNK, said that new players won’t necessarily flood the market. Non-crypto native firms launching stablecoins will probably move cautiously, beginning with small-scale pilot programs to build comfort and competency.
“It is more likely for banks to move quicker into issuing than corporates,” Vander Leest told Cointelegraph. Many will be “use-case specific” stablecoins. The number of new stablecoins that “reach scale” will be limited, he said.
GENIUS and stablecoins increase US debt demand
The White House claims that the GENIUS Act will increase demand for US debt and cement the dollar’s status as the world’s reserve currency. Treasury Secretary Scott Bessent said that dollar-linked stablecoins could eventually reach at least $2 trillion in market capitalization, up from today’s market cap of about $267 billion.
Markus Hammer, a consultant and principal at HammerBlocks, said that because US-issued stablecoins must be 100% backed by US dollars or their equivalents, they will naturally drive up demand for US debt.
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“Emerging markets, in particular, may become significant users of US dollar stablecoins, as these offer more stability and efficiency compared to their often fragile local financial systems,” he told Cointelegraph.
But Hammer disagreed on the dollar’s renewed dominance, claiming that trust in US-based currencies is gradually eroding.
According to Massad, the act’s impact will depend on whether stablecoins become an important means of payment or remain a niche use case. Business-to-business payments make up the bulk of international payments, and it’s not clear whether there will be significant growth in the use of stablecoins for that purpose, he said.
GENIUS reshapes stablecoin utility
The GENIUS Act prohibits stablecoin issuers from paying “interest or yield” to individuals holding stablecoins. Could that put US-issued stablecoins at a competitive disadvantage?
“Without yield, stablecoins are a depreciating asset,” Perkins said. “And while many believe that payments are the killer use case for stablecoins, they also serve as an important store of value in the developing world. Holders will turn to DeFi to reconstitute yield.”
In time, it is possible that yield-bearing securities or tokens will become more accessible, continued Perkins. Until then, institutional investors, who have a fiduciary duty to earn interest on their holdings, may need to explore other ways to earn interest. They could offer compliant revenue-sharing agreements with issuers to gain yield exposure, for instance.
It almost seems counterintuitive, but the removal of yield on stablecoins could actually be good news for Ethereum-based DeFi as the main alternative for passive income generation.
Overall, “the signing of the Act is a significant milestone,” Massad said. “Stablecoins are the most useful application of blockchain technology to date, and even if they don’t become a major means of payment, they will generate useful competition into payments — we may see tokenized bank deposits soon.”
Catalini of MIT Cryptoeconomics Lab called stablecoins “the first tokenized assets to start its journey towards mainstream adoption.” He added that assets such as bonds and securities will soon follow.
The GENIUS Act sets a regulatory foundation for stablecoin issuance in the US and signals mainstream adoption is underway. Despite concerns over unresolved issues such as the vague language around foreign issuers, industry leaders view the law as a critical step for regulated dollar-backed tokens.
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