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

Compiled by Lenaxin, Source: The GENIUS Stablecoin Play

On August 15, 1971, President Nixon launched a series of economic policies: canceling the dollar's peg to gold, freezing wages and prices, and imposing a 10% import tariff. "I have instructed the Secretary of the Treasury to take the necessary measures to protect the dollar from speculators." This declaration to change the global monetary system, later known as the "Nixon Shock" speech, was more criticized than praised 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 the digital dollar. Unlike Nixon's emergency measures to hastily abandon the gold standard, this legislation builds a prudent and careful monetary infrastructure for the digital age. According to Citigroup, the current $250 billion stablecoin market could soar to $3.7 trillion by 2030 in a bull market scenario.

The bill is still pending a vote in the House of Representatives and the President's signature. This in-depth report will analyze:

• How does the bill reshape the financial system?

• Why is Tether facing an existential crisis?

• Is the United States truly ushering in a watershed moment for its monetary system?

Blueprint for a Digital Dollar

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

The core requirements are concise and to the point. Stablecoin issuers must maintain a 1:1 reserve of U.S. dollars, short-term Treasury bonds within 93 days, or equivalent liquid assets, and must undergo mandatory public audits every month. Interest-bearing stablecoins are expressly prohibited.

Only three types of entities can issue payment stablecoins: subsidiaries of insured banks, federal qualified non-bank issuers approved by the Office of the Comptroller of the Currency, or state-level qualified issuers that meet federal standards. Foreign issuers are only given a three-year transition period, and those who fail to comply will be completely excluded from the U.S. market.

The bill transforms stablecoins from disorderly experiments to legal financial infrastructure by characterizing them as "digital currencies" rather than special crypto assets, with monthly reserve disclosures, criminal prosecution for false statements, and compliance requirements of the Bank Secrecy Act. This move not only established the legal status of the digital dollar, but also systematically cleared out non-compliant participants.

Intensified competition

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 that "a big tree attracts the wind".

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

Although its CEO promised to launch compliant products, Tether's business model that relies on high-yield investments is in direct conflict with the bill's ban. During the three-year transition period, USDT will lose institutional support from banks, payment providers, and corporate finance, and its application scenarios will continue to shrink.

As the issuer of USDC, Circle's stock price soared 35% after the bill was passed, and its market value reached 5 times the issue price. Its local advantages in the United States, compliance reserves and bank cooperation network occupy regulatory dividends. The recent access of Shopify to USDC payment further demonstrates 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 collapse of cryptocurrency leverage. Its core concept is that payment tools should not have investment attributes. When stablecoins generate income, their nature approaches bank deposits or securities, and the traditional banking system controls such systemic risks through mechanisms such as deposit insurance and capital adequacy ratios.

This will have a direct impact on decentralized finance (DeFi) protocols that rely on interest-bearing stablecoins. The bill explicitly excludes "securities issued by investment companies" and "deposits" from the scope of regulation, which means that users seeking returns can only turn to tokenized bank deposits or regulated investment products.

But controversy ensued. Although users bear the opportunity cost of holding non-interest-bearing assets, stablecoin issuers can still earn income by investing in interest-bearing tools. This trade-off has brought institutional confidence that far exceeds the value of DeFi's lost income: requirements such as monthly reserve transparency, mandatory anti-money laundering compliance, and transaction monitoring are transforming stablecoins from fringe experiments in the crypto field to formal financial infrastructure.

Now, large banks can regard compliant stablecoins as real cash equivalents, corporate finance departments can hold them with confidence, and payment service providers can also connect to the system based on their bank-compliant characteristics. This institutional recognition may reshape the entire financial ecosystem.

Large-Scale Application Infrastructure

The GENIUS Act builds a regulatory foundation for the integration of stablecoins into mainstream finance through two pillars: custody protection and compliance clarity.

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

• For retail users, the Act retains the right of independent custody, while requiring 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 achieve programmable circulation, and fund management can break through holiday restrictions. Individual users can also enjoy fast cross-border transfers without high fees.

The bill also forces the evaluation of interoperability standards to ensure the cross-platform circulation of stablecoins and avoid regulatory fragmentation that hinders innovation.

Implementation challenges

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

1. Compliance costs will reshape the market landscape. The monthly audits, complex reserve management, and continuous regulatory reports required by the bill actually create a high compliance threshold. Large issuers can easily cope with it with their scale advantages, while small and medium-sized stablecoin companies may be forced to exit the market due to the sharp increase in operating costs.

2. Cross-border frictions hinder global applications. European companies using dollar-pegged stablecoins may face problems with "currency conversion" and "foreign exchange risk." Heiko Nix, global head of cash management and payments at German industrial giant Siemens, told Bloomberg that this is why the company chose to tokenize bank deposits.

3. The yield ban may force innovation to flow out. If other jurisdictions allow interest-bearing stablecoins, the United States may lose its technological dominance despite maintaining financial stability. DeFi protocols that rely on interest-bearing stablecoins will face a cliff-like impact if they cannot find compliant alternatives.

4. State and federal regulatory coordination adds new variables. The bill allows issuers with a market value of less than $10 billion to choose a state-level regulatory system, but they must prove that their standards are "substantially similar" to federal requirements. State regulators are required to proactively submit proof of compliance, and the Secretary of the Treasury has the power to veto certification, forcing reluctant issuers to move into a federal regulatory framework.

Token Dispatch Observation

The Republicans control the House of Representatives with 220-212 seats, and the passage of the bill is almost certain, but its implementation will test the United States' art of balancing innovation and regulation. This bill may reshape the monetary sovereignty structure in the digital age. Just as the "Nixon Shock" in 1971 ended the gold standard in controversy, the "GENIUS Act" may now usher in a new era of digital dollars. Its core mechanism is to force all compliant stablecoins to use US dollars/US bonds as reserves, so that global stablecoin demand is directly transformed into dependence on the US dollar system.

The bill has a unique "substantially similar" reciprocal clause: those who comply are allowed to enter the US market, and those who refuse are isolated from the market. It is quite dramatic that this technology, which was originally designed to circumvent centralized regulation, has become a tool to strengthen the hegemony of the US dollar. Crypto fundamentalists will have to face this institutional irony.

Traditional financial institutions see 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 realistic regulation, the market has cast a vote of confidence with real money.