The power of the GENIUS Stablecoin Act is seriously underestimated

Recently, the U.S. Senate passed the procedural motion of the GENIUS Stablecoin Act, which quickly triggered extensive discussions in the market. Many scholars from traditional fields have sharply criticized the bill, even with obvious irony. They likened this move to "trying all kinds of treatments when sick" and predicted that this would drag the United States into a new economic dilemma. In general, scholars' doubts are mainly concentrated on two key points:

1.The high returns of stablecoins essentially reflect the risk compensation of the crypto market and the demand for leverage in decentralized finance (DeFi). If the bubble of the crypto market is vigorously promoted in order to solve the debt problem, it is tantamount to drinking poison to quench thirst, which may eventually lead to a catastrophic financial crisis.

Second,Stablecoins do not come out of thin air, and their issuance will inevitably lead to the relocation of deposits in the banking system and money market funds. In this process, there may even be a decline in the broad money supply (M2) in the financial system. In comparison, encouraging banks and money market funds to increase their allocation to U.S. Treasuries may be a more sensible strategy.

However, it should be noted that stablecoins, as a medium of exchange in the crypto market, are only a small part of its future demand. The real potential of stablecoins mainly comes from their reconstruction of the existing financial system, especially in the field of inclusive finance, and the potential of their demand is still far from being released.

First,According to the World Bank, there are about 1 billion people in the world who have mobile phones but do not have bank accounts. Due to high fees,backward financial infrastructure and cumbersome procedures, people in these regions have long faced the problem of lack of basic financial services.However, once blockchain-based stablecoins become popular, this situation will change fundamentally - ordinary people can enjoy low-cost and efficient financial services as long as they have access to the Internet. This will not only significantly improve the quality of life of residents, but also promote regional trade and business development and optimize capital allocation efficiency.

Secondly,the traditional cross-border payment system has significant efficiency bottlenecks: not only is the settlement cycle long and the handling fee high, but it also relies on multiple intermediaries to complete the complex cross-border settlement process. In contrast, stablecoin payments can achieve three breakthrough advantages through a decentralized technical architecture: 1) bypassing the banking system and saving about 40-60% of intermediary costs; 2) 7×24 hours real-time settlement; 3) transaction confirmation time is shortened from 2-5 days in the traditional system to minutes. McKinsey research shows that the application of blockchain technology in B2B cross-border settlement can reduce the cost of a single transaction by more than 50%. This cost advantage is crucial for small and medium-sized cross-border traders - the meager profits that were originally squeezed by high fees can now be transformed into a significant improvement in competitiveness.

Finally, In underdeveloped regions, due to exchange rate controls, people lack effective ways to hedge against inflation, the most typical example is currency exchange. Taking many regions in Africa and Latin America as an example, many people lose more than 20% of their wealth every year due to currency depreciation. At the same time, they are unable to invest in assets with higher credibility and better cost-effectiveness, such as U.S. stocks and U.S. bonds. However, with the help of stablecoins, people in these regions can easily bypass exchange rate controls, exchange their weak currencies for currencies with higher credit ratings, and even use stablecoins to enter the RWA market and complete the allocation of assets such as US stocks, gold, and US bonds.

In the long run,the bull market in the crypto market is mainly due to the breaking circle effect of stablecoins. For example, the widespread promotion of stablecoins has transferred a large number of financial activities to the blockchain, thereby promoting the prosperity of the RWA market. In this process, some systemically important assets in the crypto market will inevitably undergo a revaluation, such as digital gold Bitcoin and Ethereum, the main infrastructure of stablecoins. This is in stark contrast to the view of many people that the GENIUS Stablecoin Act will solve the debt problem by stimulating the crypto market bubble to expand the demand for stablecoins.

About the second point,under the full collateral model of short-term US Treasury bonds + cash equivalents (assuming 80% US Treasury bonds + 20% cash), its monetary attributes are highly homogeneous with the US dollar and can fully cover the main circulation functions of the US dollar. This issuance mechanism essentially builds an automated channel for increasing US Treasury holdings: every issuance of $1 in stablecoins creates a demand for US Treasury allocation of $0.8. That is to say, in the process of stablecoin issuance, not only does the market's US dollar continue to increase, but the market's debt ceiling is also raised. This phenomenon is similar to the situation in economics where demand deposits increase significantly when banks invest and lend. In essence, it is credit expansion and liquidity creation. Therefore, in the process of stablecoin issuance, M2 will not only not decrease, but may increase.

In addition,many people ignore that the essence of USDT promotion is to levy seigniorage on US dollar users around the world - enjoying the convenience of the US dollar and accepting US debt with zero interest.Although the proceeds from the collateral fall into the pockets of stablecoin issuers, the US government is fully capable of levying high "compliance fees" on stablecoin issuers through market access, taxation, supervision and other means.

At present, many analyses still use the framework for evaluating Libra to interpret the GENIUS stablecoin bill, but the two are completely not of the same magnitude. The strategic value of the GENIUS Act far exceeds that of the Libra plan, which is mainly reflected in two aspects:First, the Act provides a clear legal basis for all PayFi projects, which helps to systematically reduce the compliance costs of innovative projects such as Libra; More importantly, unlike Libra, which is led by private enterprises, the GENIUS Act is promoted by the federal government, and its strategic goal is to ease the pressure of US debt and enhance the penetration of the US dollar in the offshore market through institutional arrangements.

Of course,Although the GENIUS stablecoin bill has made some progress in the Senate, it still faces many challenges before it is finally passed and becomes law, mainly including the improvement of the regulatory framework, the coordination of conflicts of interest and the unification of global compliance standards. Therefore, repeated games are inevitable, and any variables may cause violent market fluctuations

From the perspective of the route, after the motion is passed, the bill still needs to be voted on in the Senate (if it passes smoothly, it will be sent to the House of Representatives for deliberation). Next, the House of Representatives will conduct committee review, plenary debate and final vote. If the version passed by the House of Representatives is consistent with the Senate, it will enter the presidential signing procedure; if there are differences, it will need to be coordinated between the two houses. If everything goes well, the bill can be passed as early as August.

At present, at the funding level, the market is still highly optimistic about the GENIUS stablecoin bill. Although Bitcoin set a record of eight consecutive positive weekly lines, institutions have no fear of heights, and US capital is still running into the market. Even the president is personally "selling goods" - on May 26, Trump Media Technology Group announced plans to raise $3 billion to invest specifically in cryptocurrencies.