US President Donald Trump has signed the much-contested Genius Act into law, making it a landmark piece of legislation for the stablecoin industry. From being a favourite of only niche marketplaces, dollar-pegged stablecoins can now get into mainstream financial transactions, explains Anvitii Rai
What is the Genius Act?
The Guiding and Establishing National Innovation for U.S. Stablecoins Act (Genius Act) primarily aims to create a comprehensive regulatory framework for “payment stablecoins” in the US. According to a factsheet released by the White House, the Act has several goals—making the US the leader in digital assets, protecting consumers in the digital market, ensuring the dollar’s global reserve currency status, combatting illegal activity in the digital assets space, and stepping towards making the US the crypto capital of the world. The Act, per the White House factsheet, “creates the first-ever Federal regulatory system for stablecoins, ensuring their stability and trust through strong reserve requirements.” This will be done by mandating 100% reserve backing with liquid assets such as the dollar or US Treasury Bills, as well as monthly public disclosures of the composition of reserves. It also requires stablecoin issuers to comply with strict marketing rules, forbidding them from making misleading claims such as stablecoins being government-backed. It also streamlines state and federal regulation, and brings issuers under the ambit of the Bank Secrecy Act.
Stablecoins vs cryptocurrency
A cryptocurrency uses cryptography for security and operates on a decentralised network known as a blockchain, which is independent of a central bank or government; however, it is subject to volatility as it can be affected by supply and demand, news, market sentiment, etc., and their value is based on the utility of their networks. On the other hand, stablecoins are cryptocurrencies designed to, as the name suggests, be stable in value, by pegging them to a real asset such as a fiat currency. Issuers thus aim to keep the stablecoin’s value close to the chosen real asset, resulting in low volatility. If a cryptocurrency is like a designer bag, which can come in many shapes and forms with different values, a stablecoin can be understood as being akin to a briefcase—not as flashy, but useful for transporting belongings reliably.
Can stablecoin go mainstream?
The act has given stablecoins a legitimacy boost, lifting the total global crypto market cap past $4 trillion for a while. To put that in context, that number is higher than India’s GDP. Additionally, with regulatory clarity, “stablecoin summer’, as analysts put it, has taken off. It is also speculated that with this legitimacy boost, many private players that are crypto-friendly such as Meta, Amazon, Visa, Walmart, etc., will join the stablecoin race. As these cryptocurrencies are meant as alternative modes of payment, they have the potential for broader adoption when tied to well-known retail brands, and this could signal a pivotal shift towards mainstream adoption of dollar-backed cryptocurrency in the US. Reportedly, traditional payments firms like Visa and Mastercard are looking to embrace stablecoins as complementary, rather than competitive, tools, which means that the industry could diversify with the legitimisation of stablecoins. With more trust in stablecoins, more companies might look to pay in crypto – a decision likely to attract the younger workforce crypto payroll options.
Concerns about surveillance
Expert opinion is divided on the Genius Act. While some say that this legislation will herald a new age for crypto, others remain wary. Andrew Forson, president of Toronto-based DeFi Technologies, told BNN Bloomberg, “It gives clarity, simplicity and lets everybody understand what the rules of the playing field are…The US is without a doubt the largest capital market in the world, and whenever they provide a degree of regulatory clarity, it makes it easier for everybody worldwide.” On the other side, many opposing voices have also emerged within and outside Capitol Hill, and concerns pertain to the issuance of a shadow Central Bank Digital Currency (CBDC). Prominent Trump supporter Marjorie Taylor Greene condemned the Act and stated that stablecoins under state control may function like a surveillance tool, criticising the absence of a clause in the legislation banning CBDCs, and even some crypto advocates echoed her concerns. Meanwhile, the Anti-CBDC Surveillance State Act—aimed at blocking a US CBDC —is now before the Senate.
The possible effect on India & the world
Legitimisation of Stablecoins does make it easier for people to buy dollars, especially if the stablecoins are issued by private players with a global footprint such as Amazon—such an occurrence could even mean that dollar-backed stablecoins could compete with local currencies. Talking to CNBC TV-18, Cornell University professor Eswar Prasad said while Indian regulations could forestall this from happening, it would be “difficult to manage” stablecoin usage, and the only way to do so would be innovations in payment efficiency. India already has an ace up its sleeve in the form of its United Payments Interface (UPI) system, which means that domestic payments will not be disrupted, but cross-border payments could be. But a ban is not a solution. Instead, he said, governments would do well to “beef up” their payment systems.