Recently, the hottest topic in our circle is the "GENIUS Act" that has just been signed into law. For a time, cheers were heard everywhere, and many people felt that the United States had finally opened the door to compliance for cryptocurrencies, especially stablecoins. We seem to be standing on the eve of a trillion-dollar market explosion. Supporters claim that this move will consolidate the dollar's global dominance while providing consumers with unprecedented strong protection.

Does it sound wonderful?

But as a person who has been educated in materialistic dialectics since childhood, I firmly believe that "There is no free lunch in the world", and God has already secretly marked the price of every gift. Is this bill really as "genius" as it looks on the surface? Or, are there risks hidden under those glamorous clauses that we have not yet foreseen?

Today, let us use the most easy-to-understand language to thoroughly dismantle the possible negative impacts of the "GENIUS Act".

However, I must first state that as an active participant in the Crypto world, I personally welcome the introduction of the "GENIUS Act". After all, it has pushed blockchain and encryption technology into the daily lives of the public, taking a key step towards "Massive Adoption",andadding a safety beltto the shaky process of globalization. Therefore, the various shortcomings listed in this article are, at best, "words of caution in prosperous times", and at worst, just a thought exercise of mine. Dear readers, just listen to them and laugh it off. Dollar Trap: Will the dream of manufacturing repatriation be crushed by stablecoins? Let's start with the economy. One of the core goals of the bill is to make the dollar stablecoin the "hard currency" of the global digital economy, thereby defending the hegemony of the dollar. The logic is simple: the bill requires all compliant stablecoin issuers to use high-quality liquid assets (mainly short-term U.S. Treasury bonds) for 1:1 collateral reserves.

Imagine, when the whole world is using the dollar stablecoin, how much US Treasury bonds will be needed as reserves? This will create a huge and continuous demand pool for US Treasury bonds. Global funds are pouring into the United States to buy Treasury bonds, and the US dollar will naturally become more "valuable" - that is, what we often call a "strong dollar."

This sounds like a great thing for the United States, but there is a huge paradox hidden in it,especially for Trump's "manufacturing return", this is almost a firewood.

I wonder if you have ever thought about a question:Why is the US manufacturing industry "hollowed out"? One of the key reasons is the long-standing trade deficit. The United States buys far more things (imports) than it sells (exports), resulting in a large amount of US dollars flowing to the world. So, what can other countries buy with these dollars? Because the US manufacturing industry has long been hollowed out, except for a few high-tech products, there are not so many "Made in the USA" products to choose from (besides, some high-tech products, even if you pay, they will not sell, such as us in China). Therefore, most of this money goes back to buy US Treasury bonds and Wall Street financial products.

This forms a vicious circle:

Now, the GENIUS Act is here. It is equivalent to adding a super turbocharger to this vicious cycle.

The global popularity of stablecoins means that the United States is issuing a "digital dollar" to the world, which will trigger unprecedented global demand for the US dollar and US Treasury bonds.

What is the result? The value of the US dollar will be pushed to an unprecedented high.

This is simply adding insult to injury for the domestic manufacturing industry in the United States. At the same time, it is also a heavy blow to American multinational companies, especially large technology and industrial giants, whose overseas revenue accounts for a large proportion. When the foreign currency profits they earn overseas, such as euros and yen, are converted back to strong US dollars, the figures on the accounting statements will shrink significantly. This not only directly impacts the profitability of companies and depresses stock valuations, but may even drag down the overall performance of major stock indices such as the S&P 500.

The so-called "manufacturing repatriation" may only become a more distant and unrealistic dream in the face of such a strong dollar.

The paradox of dollar hegemony: the more you want to hold on, the faster you will "de-dollarize"?

The core economic argument of the GENIUS Act is to consolidate the global dominance of the dollar. However, in the long run, this over-exertion may accelerate the world's centrifugal tendency towards the dollar.

Before the emergence of stablecoins, the US dollar had long been a tool for the United States to impose economic sanctions and project geopolitical power. The GENIUS Act attempts to further concentrate the core of the digital currency ecosystem within the US dollar and its regulatory boundaries. However, "the moon waxes and wanes, and the water overflows when it is full." It is the fear of the United States weaponizing the financial system that has become the main driving force for countries around the world to "start anew."

For example, everyone is optimistic about the huge potential of stablecoins in cross-border payments, and even imagines that it can replace SWIFT. But when did the word "SWIFT" become well-known to the majority of Chinese people? It was during the Russian-Ukrainian war that SWIFT "expelled" Russia, which made many Chinese people begin to be vigilant. If stablecoins replace SWIFT as the mainstream means of cross-border payment in the future, wouldn’t it be a self-destruction of the US dollar hegemony?

Therefore, the GENIUS Act actually sends a clear signal to the US competitors:While the old order represented by SWIFT is facing disintegration, and the new order represented by stablecoins is not yet fully mature, the window period for establishing alternatives has arrived before the new digital dollar system is deeply rooted.

Although it is almost impossible to shake the hegemony of the US dollar in a short period of time, it is completely feasible to achieve "de-dollarization" in local markets. The wave of "de-dollarization" led by Russia and China and responded by BRICS countries such as India and Iran and other emerging markets is developing at an unprecedented speed. The measures taken by these countries include: switching to local currency settlement in bilateral trade, increasing gold holdings to replace US dollar assets, and actively developing and promoting non-US digital currency payment systems to bypass SWIFT. Debt and Credit: The Government's "Private Coffers" and "Household Affairs" First is the "Money Bag" - a Debt Trap from Which It Is Difficult to Extricate Yourself. As we mentioned earlier, stablecoins have created huge demand for US Treasury bonds. What does this mean for the US government? It means that borrowing money has become easier than ever before!

Under normal circumstances, if a government borrows excessively, the market will demand higher interest rates as risk compensation due to concerns about its repayment ability. This is a natural "brake" mechanism. But now, the existence of the "hardcore buyers" group of stablecoin issuers is equivalent to people all over the world becoming buyers of US debt, artificially lowering the cost of borrowing. The government can borrow more money more easily and cheaper, the constraints of fiscal discipline have been greatly weakened, and borrowing has become more addictive.

In economics, this can be seen as a variant of "debt monetization." Although it is not the central bank that prints money directly for the government to spend, the effect is highly similar: private companies issue "digital dollars" (stablecoins) and then use the public's money to buy government bonds, which is essentially financing the government deficit by expanding the money supply. The end result is likely to be inflation, a "stealth tax" that transfers wealth away from our pockets without us noticing.

More dangerously,it could transform inflation risk from a cyclical policy choice to a structural feature of the financial system. Traditionally, large-scale debt monetization is an unconventional, temporary tool used by central banks to respond to severe crises (such as the 2008 financial crisis or the COVID-19 pandemic). However, the GENIUS Act creates a permanent source of government debt demand that is decoupled from the economic cycle. This means that

The second is "Iron Locks and Boats" - a new transmission mechanism of financial instability

In this round of stablecoin craze, various forces have entered the market. For a time, USDT, USDC, USDDe, USDs, USD1... various stablecoin symbols are dazzling. People even joked that the suffixes that can be followed by "USD" are not enough for 26 letters.

But after the "GENIUS Act", no matter what suffix your "USD" is followed by, as long as you want to operate in compliance in the United States, the world's largest capital market, you must use US debt as a core reserve asset. This is the origin of the title of this section "Iron Locks and Boats": different stablecoins are "boats", but they are closely linked together by the chain of "US debt". What are the consequences of "Iron Locks and Boats"? Americans may not be familiar with it, but Chinese are very familiar with it.

The GENIUS Act thus creates an unprecedented, new transmission path for financial instability. It ties the fate of the digital currency market to the health of the U.S. Treasury market in an unprecedented way.

• On the one hand, if a major stablecoin suffers a crisis of confidence, it could trigger a massive wave of redemptions, forcing its issuer to sell off a huge amount of U.S. Treasury bonds in a short period of time. Such a "fire sale" behavior is enough to disrupt the U.S. Treasury market, which is the cornerstone of the global financial system, and could lead to soaring interest rates and a wider financial panic.

• On the other hand, if the U.S. sovereign debt market itself is in crisis(for example, a debt ceiling deadlock or a sovereign credit rating downgrade), it will directly endanger the reserve security of all major stablecoins and may trigger a systemic "run" on the entire digital dollar ecosystem.

The bill thus creates a two-way contagion channel that can amplify risks. Moreover, as a new thing, stablecoins are still not well known to the public, and any panic caused by any disturbance may be sharply amplified in this risk transmission chain.

Finally, there is "face" - a reputation risk that cannot be ignored

During the voting process of the GENIUS Act this time, the differences between the two parties were actually quite large. A huge point of controversy is the president's conflict of interest. There is a provision in the bill that prohibits members of Congress and their families from profiting from the stablecoin business - which is good, in order to avoid suspicion. But strangely, this ban does not extend to the president and his family.

Why is this so sensitive? Because it is well known that the Trump family is deeply involved in the crypto industry. World Liberty Financial, a company held by his family, issued a stablecoin called USD1 and rose rapidly in a short period of time. Trump himself reported tens of millions of dollars in income from the company in his 2024 financial disclosure.

If you search for "World Liberty Financial", you will see that the title of its official website reads "Inspired by Trump, Powered by USD1". The head of state stands up for a cryptocurrency, which is too much of a "public tool for private use" (the last head of state to do this was Argentine President Javier Milley, known as "Little Trump"). On the one hand, the president vigorously promotes the legalization of stablecoins, while on the other hand, his own stablecoin business is booming. This not only casts a shadow of "interest transfer" on the bill itself, but also damages the reputation of the entire Web3 and encryption industry, as if it has become a tool for political dignitaries to make profits. The deeper risk is that a bill with obvious party and personal interests is bound to be worrying about its stability. Although it was passed under the leadership of the Republicans this time, the criticism from the Democratic Party is endless. Who can guarantee that after the regime change one day in the future, the new government will not "liquidate" the current president? By then, will they choose to "throw out the baby with the bathwater" and directly abolish or subvert the entire stablecoin framework because they hate the conflicts of interest behind the bill? This political uncertainty is undoubtedly a time bomb for an industry that desperately needs long-term stable expectations.

Game of Thrones: Is it an "innovation paradise" or a "giant backyard"?  

The bill claims to "promote innovation", but if we look closely at its rules, we may come to the opposite conclusion.

The bill sets a set of strict regulatory standards for stablecoin issuers that are comparable to those of banks: anti-money laundering (AML), know your customer (KYC), frequent audits, bank-level security systems... All of this means extremely high compliance costs. Studies have shown that up to 93% of fintech companies are troubled by meeting the requirements of the unified regulation.

For start-ups, this is almost an insurmountable wall. So, who can cope with it easily? The answer is self-evident: those Wall Street giants and mature financial technology companies that have long been big and powerful. They have ready-made legal and compliance teams, strong capital, and rich experience in dealing with regulators.

The result is likely to be that this bill, called "promoting innovation", has actually dug a deep "moat" for industry giants, ruthlessly blocking those vibrant and most subversive small teams from the door. In the end, we may not see an innovative ecosystem where a hundred flowers bloom, but an oligopolistic market dominated by a few banks and "recruited" technology giants. It will once again concentrate systemic risks on those institutions that proved to be "too big to fail" in the 2008 financial crisis, and may just be laying the groundwork for the next crisis caused by oligarchs. Although Tether has mixed reputations, its "startup myth" of being a grassroots company, growing wildly, and eventually becoming an industry giant and the company with the highest per capita profit in the world will probably become a "last echo" after the GENIUS Act. Proxy monitoring: Who is watching your wallet?

While pushing the GENIUS Act, lawmakers also passed another bill, the Anti-CBDC Surveillance State Act, and claimed to have successfully prevented the government from issuing an "Orwellian" central bank digital currency (CBDC) that can directly monitor our every consumption. This was hailed as a "great victory for privacy."

But wait, is this just a clever smokescreen?

The government did not personally operate a centralized ledger, but what did the GENIUS Act do? It requires all private stablecoin companies to conduct strict identity authentication (KYC) of users and record all transaction data.

Here, I would like to use a famous case in the Web2 era to help you understand - the Snowden incident and the "Prism Project" (PRISM). At that time, the documents exposed by Snowden showed that the US NSA could obtain users' emails, chat records, photos and other private data directly from the servers of technology giants such as Google, Facebook, and Apple through a secret project called "Prism". Although these data nominally belong to private companies, the government still has a way to get them.

This logic also applies under the GENIUS Act. According to the "Third-Party Doctrine" deeply rooted in US law, the information you voluntarily provide to a third party (such as a bank or a stablecoin company) is not fully protected by the Fourth Amendment of the Constitution. This means that in the future, government agencies will most likely be able to retrieve all your transaction records from stablecoin companies without a search warrant.

Do you understand? The government simply "outsourced" the monitoring and established a "proxy monitoring". This system is almost the same as direct government monitoring in terms of function, and is even more covert, because the government can push the responsibility to "private companies" and thus evade accountability politically and legally.

It is even a bit ironic that the "GENIUS Act" is hailed as a major milestone in the history of blockchain development. It has taken blockchain and encryption technology a big step towards "Massive Adoption" that the pioneers have dreamed of. But at what cost? The anonymity and anti-censorship that the blockchain pioneers value most have been completely castrated. My attitude towards this is not regretful, because I know very well that perfect things do not exist in this world.

Conclusion

Having talked about this, I believe that everyone has a more three-dimensional and prudent understanding of the GENIUS Act. It is by no means a simple story of black and white.

For the United States, it is like a sharp double-edged sword. While trying to consolidate the status of the dollar and bring regulatory certainty, it may alsoaggravate the plight of the real economy, sow the seeds of inflation, stifle real grassroots innovation, and erode our financial privacy in a smarter way.

The future has come, but where it will go requires each of us to stay awake and continue to ask questions.