The New East India Company: How the Genius Act Challenged the Legal Currency System and the State Form

Author: rick awsb; Source: X@rickawsb

This is an extremely clever asymmetric strategy. The United States is using its opponent's weakest link: the fear of losing control, to build its own moat.

I. The Ghost of History: The Digital Return of the East India Company

History never repeats itself simply, but it rhymes. When Trump happily signed his name on the document of the "Genius Act", what emerged in my mind was the memory of history - that was the commercial behemoths granted sovereign power by the state in the 17th and 18th centuries, the Dutch and British East India Companies.

This bill may seem like a technical adjustment to financial regulation, but its deeper meaning is that it is issuing a charter for the "New East India Company" of the 21st century, and a transformation that will reshape the global power structure has already begun.

1a. Charter of New Power

Looking back four hundred years ago, the Dutch East India Company (VOC) and the English East India Company (EIC) were not ordinary trading companies. They were a hybrid of merchants, soldiers, diplomats and colonists with state authorization. The power granted to the VOC by the Dutch government included: recruiting its own army, issuing currency, signing treaties with other monarchs, and even waging war. Similarly, the royal charter granted to the EIC by Queen Elizabeth I of England also gave it the power to monopolize trade in India and establish military and administrative functions. These companies were the earliest multinational companies in history. They controlled not simple commodities, but defined the lifeblood of globalization at that time - the ocean trade routes.

Today, what the "Genius Act" does is to grant legitimacy to the new era's power giants - stablecoin issuers - in the form of legislation. On the surface, the bill aims to regulate the market and prevent risks by setting reserve standards and requiring asset certification. But its real effect is to create an oligarchy of "legal" stablecoin issuers recognized by the US government through screening and certification. These "crowned" companies, such as Circle (USDC issuer), the future Tether (if it chooses to comply), and Internet giants like Apple, Google, Meta, and X with billions of users, will no longer be wildly growing crypto rebels, but "chartered companies" that are officially included in the US financial strategic map. What they control will be the global trade routes of the new era - a borderless digital financial track that runs 24/7 non-stop.

1b. From trade routes to financial tracks

The power of the East India Company is rooted in its monopoly on physical trade routes. They used gunboats and fortresses to ensure the monopoly of the spice, tea and opium trades, and reaped huge profits from them. The new era "digital East India Company" will exercise power by controlling the financial tracks of global value flows. When a dollar stablecoin regulated by the U.S. Treasury or a specific agency becomes the default settlement unit for global cross-border payments, DeFi (decentralized finance) lending, and RWA (real world asset) transactions, its issuer has the power to define the rules of the new financial system. They can decide who can access the system, freeze assets at any address according to instructions, and set compliance standards for transactions. This is a deeper and more intangible power than controlling physical routes.

1c. Ambiguous symbiosis and confrontation with the state

The history of the East India Company is an epic of evolving relations with its mother country. At first, they were agents of the state to promote mercantilism and engage in strategic games with competitors such as Portugal. However, the company's profit-seeking nature caused it to quickly expand into an independent power center. For the sake of profit, the EIC did not hesitate to start wars (such as the Battle of Plassey) and engage in unethical trade (such as the opium trade), repeatedly dragging the British government into diplomatic and military quagmires that it was unwilling to participate in. In the end, when the company was on the verge of bankruptcy due to mismanagement and overexpansion, it had to ask the state for help, which led to the government passing a series of bills (such as the Tea Act of 1773 and the Pitt Act of 1784) to gradually strengthen supervision, and finally after the Indian National Rebellion in 1858, it completely deprived its administrative power and brought its territory under direct royal rule.

This history previews the possible dynamic relationship between stablecoin issuers and the US government in the future. At present, these companies are seen as strategic assets to promote the hegemony of the US dollar and counter China's digital RMB. However, once they grow into a global financial infrastructure that is "too big to fail", their own institutional interests and shareholder demands will become crucial. They may make decisions that are contrary to US foreign policy for commercial interests.

This indicates that when the US dollar stablecoin system issued by private institutions is too large, it will inevitably conflict with national sovereignty. At that time, we are likely to see the escalation of the stablecoin bill based on interest game.

The following table clearly compares these two power entities across time and space, revealing the amazing similarities of history:

The ghost of history has returned. Through the "Genius Act", the United States is releasing a new East India Company. It is dressed in the cloak of technological innovation and holds the scepter of blockchain, but its core is the logic of the ancient commercial empire-a global private enterprise sovereignty chartered by the state that will eventually compete with the state for power.

2. Global Monetary Tsunami: Dollarization, Great Deflation and the End of Non-Dollar Central Banks

The "Genius Act" has spawned not only a new power entity, but also a monetary tsunami that will sweep the world. The energy of this tsunami stems from the collapse of the Bretton Woods system in 1971. It was that historic "liberation" that paved the way for the global conquest of the US dollar stablecoin today. For those countries whose sovereign credit is already fragile, the future will no longer be a choice between the government's national currency and the traditional US dollar, but a choice between the collapsing local currency and the accessible, frictionless digital dollar. This will trigger an unprecedented wave of super-dollarization, completely ending the monetary sovereignty of many countries and bringing them a devastating deflationary shock.

2a. The ghost of the Bretton Woods system

To understand the power of stablecoins, we must go back to the moment when the Bretton Woods system collapsed. The system pegged the US dollar to gold, and other currencies to the US dollar, forming a stable structure with gold as the ultimate anchor. However, this system contains a fatal contradiction, namely the "Triffin dilemma": as the world's reserve currency, the US dollar must continue to flow to the world through the US trade deficit to meet the needs of global trade development; but the continued deficit will shake people's confidence in the ability of the US dollar to exchange for gold, and eventually lead to the collapse of the system. In 1971, President Nixon closed the gold exchange window and declared the death of the system.

However, the death of the US dollar is the beginning of its rebirth. Under the subsequent "Jamaica System", the US dollar was completely decoupled from gold and became a pure credit currency. It was liberated from the "shackles of gold", and the Federal Reserve could issue currency more freely to meet the domestic fiscal needs of the United States (such as the expenses of the Vietnam War) and the global demand for dollar liquidity. This laid the foundation for the dollar's hegemony in the past half century - an unanchored hegemony that relies on global network effects and the comprehensive national strength of the United States. Stablecoins, especially stablecoins recognized by US law, are the ultimate technical form of this post-Bretton Woods system. It has elevated the liquidity supply capacity of the US dollar to a whole new dimension, enabling it to bypass the layers of regulatory governments and the traditional, slow and expensive banking system, and directly penetrate into every capillary of the global economy and every individual's mobile phone.

2b. The advent of hyper-dollarization

In countries such as Argentina and Turkey that have long suffered from high inflation and political turmoil, in order to preserve their wealth, people spontaneously exchanged their local currencies for US dollars. This is the phenomenon of "dollarization". However, there are many obstacles to traditional dollarization: you need a bank account, you need to face capital controls, and you need to bear the risks of holding physical currency. Stablecoins completely remove these barriers. Anyone with a smartphone can exchange their depreciating local currency for a stablecoin anchored to the US dollar in a few seconds at a very low cost.

In Vietnam, the Middle East, Hong Kong, Japan, and South Korea, one U store after another is rapidly replacing traditional money changers, Dubai sales offices have begun to accept Bitcoin payments, and Yiwu shops have begun to use U to buy cigarettes.

These pervasive payment penetrations will turn the stablecoinization of the US dollar from a gradual process into an instantaneous tsunami. When a country's inflation expectations rise slightly, capital will no longer "flow out", but "evaporate" - instantly disappearing from the local currency system and entering the global encrypted network. We can define this attribute as "enhanced substitutability for sovereign currencies".

For those governments whose credit is already shaky, this will be a fatal blow. The status of the local currency will be completely shaken because the people and enterprises have a more perfect and efficient alternative.

2c. Great Deflation and the Evaporation of State Power

When an economy is swept by the wave of super dollarization, its sovereign state will lose two of the most core powers: one is the power to make up for the fiscal deficit by printing money (i.e., currency seigniorage); the other is the power to regulate the economy through interest rates and money supply (i.e., monetary policy independence).

The consequences are disastrous.

First, as the local currency is abandoned on a large scale, its exchange rate will spiral downward and fall into hyperinflation. However, at the level of economic activities denominated in US dollars, there will be a severe great deflation. Asset prices, wages, and commodity values will plummet if measured in US dollars.

Second, the government's tax base will evaporate. Taxes denominated in rapidly depreciating local currencies will become worthless, and national finances will collapse. This fiscal death spiral will completely destroy the country's governance capacity.

This process, starting with Trump's signing of the genius bill, will be accelerated through RWA (real world asset on-chain).

2d. White House vs. Federal Reserve: Power Game within the United States

This monetary revolution is not just a blow to America's opponents, it will even cause a crisis within the United States.

Currently, the Federal Reserve, as an independent central bank, controls the United States' monetary policy. However, a privately issued digital dollar system supervised by the Treasury Department or a new agency under the White House will create a parallel monetary track. The executive branch can indirectly or even directly intervene in the supply and flow of money by influencing the regulatory rules for stablecoin issuers, thereby bypassing the Federal Reserve. This could become a powerful tool for the U.S. executive branch to achieve its political or strategic goals (for example, stimulating the economy in an election year, or precisely sanctioning opponents), thereby triggering a profound crisis of confidence in the independence of monetary policy in the U.S. dollar in the future.

3. The financial battlefield in the 21st century: the U.S. versus China's "free financial system"

If the stablecoin bill is a power reconstruction internally, then externally, it is a crucial chess piece in the game of great powers between the United States and China: through legislation to support a private, public blockchain-based, dollar-centered "free financial system".

3a. Financial Iron Curtain in the New Era

After World War II, the United States led the establishment of the Bretton Woods system, the purpose of which was not only to rebuild the post-war economic order, but also to build a Western economic group that excluded the Soviet Union and its allies in the context of the Cold War. Institutions such as the International Monetary Fund (IMF) and the World Bank have become tools for promoting Western values and consolidating the alliance system. Today, what the "Genius Act" is trying to build is a new version of the "Bretton Woods system" in the digital age. It aims to establish a global financial network based on the US dollar stablecoin, which is open, efficient, and ideologically diametrically opposed to the Chinese state-led model. This is a bit like the arrangement of the US free trade system to fight the Soviet Union, but it is more ruthless.

3b. Open encirclement and closure: permission system vs. no permission required

The strategic paths of China and the United States on digital currency show fundamental differences. This is an ideological war between "open" and "closed".

China's digital RMB (e-CNY) is a typical "permissioned" system. It runs on a private ledger controlled by the central bank, and every transaction and every account is under the close monitoring of the state. This is a digital "walled garden" whose advantages lie in efficient centralized management and strong social governance capabilities, but its closed nature also makes it difficult to gain the real trust of global users, especially those individuals and institutions that are wary of its monitoring capabilities.

In contrast, the stablecoins supported by the United States through the "Genius Act" are built on "permissionless" public blockchains such as Ethereum and Solana. This means that anyone, no matter where they are, can innovate on this network - develop new financial applications (DeFi), create new markets, and conduct transactions - without the approval of any centralized institution. The role of the US government is not to be the operator of this network, but to be the "credit guarantor" of the most core asset (US dollar) in this network.

This is an extremely clever asymmetric strategy. The United States is using its opponent's weakest link - the fear of losing control - to build its own moat. It attracts innovators, developers and ordinary users seeking financial freedom around the world to an open ecosystem centered on the US dollar. China has been invited to play a game that it cannot win in terms of structure: How can a local area network controlled by the state compete with a dynamic financial Internet that is open to the world?

3c. Bypassing SWIFT: A dimensionality reduction attack that cuts off the firewood

In recent years, a core strategy for China, Russia and other countries to deal with the hegemony of the US dollar is to build financial infrastructure that bypasses US control, such as a cross-border payment system that replaces SWIFT (Society for Worldwide Interbank Financial Telecommunication). However, the emergence of stablecoins has made this strategy clumsy and outdated. Stablecoin transactions based on public blockchains fundamentally do not need to go through the intermediary of SWIFT or any traditional bank. The transfer of value is completed in a cryptographic way through a globally distributed network of nodes, which is a brand new track parallel to the old system.

This means that the United States no longer needs to work hard to defend the old financial castle (SWIFT), but directly opens up a brand new battlefield. In this new battlefield, the rules are defined by code and protocols, not treaties between countries. When most of the world's digital value begins to run on this new track, trying to build a "SWIFT alternative" is like trying to build a more luxurious carriageway in the era of highways.

3d. Winning the battle of network effects

The core war in the digital age is the war of network effects. Once a platform attracts enough users and developers, it will form a strong gravitational force that makes it difficult for its competitors to catch up. Through the "Genius Act", the United States is merging the dollar, the world's most robust monetary network, with the crypto world, the world's most innovative financial network. The network effect it generates will be exponential.

Developers around the world will give priority to developing applications for the US dollar stablecoin with the largest liquidity and the broadest user base. Users around the world will flock to this ecosystem because of the rich application scenarios and asset choices. In contrast, e-CNY may be promoted within a specific scope such as the Belt and Road Initiative, but its closed, RMB-centric nature makes it difficult to compete with this open dollar ecosystem on a global scale.

To sum up, the "Genius Act" is far from a simple domestic bill. It is the core strategic deployment of the United States in the geopolitical chess game of the 21st century. It uses the concepts of "decentralization" and "openness" in a "four-two-pound" way to consolidate its most core power - the dollar hegemony. It is not engaged in a symmetrical arms race with China, but by changing the terrain of the financial battlefield, it brings the competition into a new dimension where the United States has an absolute advantage and strikes down the opponent's financial system.

Fourth, the "denationalization" of everything: How RWA and DeFi disintegrate state control

Stablecoin itself is not the end of the revolution, it is more like a Trojan horse that enters the city. Once global users get used to holding and transferring value through it, a bigger and deeper revolution will follow. The core of this revolution is to transform all valuable assets - stocks, bonds, real estate, and artworks - into digital tokens that can flow freely on the global public ledger. This process, the "real world asset on-chain" (RWA), will fundamentally sever the connection between assets and the jurisdiction of a specific country, realize the "denationalization" of assets, and ultimately subvert the traditional financial system centered on banks.

4a. Stablecoins: The Trojan Horse to the New World

In ancient legend, the Greeks conquered the fortified city of Troy by offering a giant wooden horse. Today, stablecoins are playing a similar role. In the eyes of governments and regulators, regulated, asset-backed stablecoins seem to be the "Trojan Horse" to tame the wild horse of the crypto world - a relatively safe and controllable entrance.

However, the irony of history is that while the GENIUS Act is committed to consolidating state power by promoting "safe" stablecoins, it has inadvertently built the largest user acquisition channel in history for "dangerous" and truly decentralized non-state currencies.

The core function of stablecoins is to serve as a gateway connecting the world of traditional fiat currencies with the world of crypto assets. They are the "on-ramp" of the crypto world and the "bridge" across the two worlds. An ordinary user may initially just want to enjoy the low cost and high efficiency of stablecoins in cross-border remittances or daily payments, or the subsidies given by merchants. But once they download a digital wallet and get used to the mode of on-chain transactions, they are only one click away from truly decentralized assets such as Bitcoin and Ethereum.

Platforms that provide stablecoin trading services, such as Coinbase or Kraken, are themselves an all-encompassing supermarket of crypto assets. Users come for stablecoins, but will soon be attracted by the high returns provided by DeFi protocols or the narrative of Bitcoin as a store of value. From holding USDC to staking ETH to participate in liquidity mining, this process is a natural extension for an already entry-level user.

This creates a profound paradox for the country. The country's short-term goal is to strengthen the hegemony of the US dollar by promoting stablecoins pegged to the US dollar. To achieve this goal, the country must encourage and support the development and popularization of user-friendly wallets, exchanges, and various applications. However, these infrastructures are technically neutral and protocol-independent. The same wallet can store both regulated USDC and anonymous Monero; the same exchange can trade both compliant stablecoins and fully decentralized Bitcoin.

As users' understanding of the crypto world deepens, their demand for higher returns, stronger privacy protection, or true censorship resistance will also grow. At that time, they will naturally turn from stablecoins that only provide stable value but no appreciation potential to assets that can meet these higher-level needs.

4b. RWA Revolution: Assets Break Free from the Shackles of National Borders

If DeFi is the superstructure of this revolution, then RWA is its solid economic foundation. The core of RWA is to transform assets that exist in the physical world or the traditional financial system into tokens on the blockchain through legal and technical processes.

We can imagine a scenario like this:

1. An app developed by a Chinese team in the Apple App Store with millions of global users, its ownership is tokenized through legal and technical means and becomes a digital certificate circulating on the blockchain.

2. The token is traded in an on-chain, permissionless decentralized finance (DeFi) protocol.

3. An Argentine user received the token in his digital wallet within seconds after initiating the transaction.

The entire process - tokenization of assets, collateralization, minting and transfer of stablecoins - is completed entirely on the chain, bypassing the traditional banking systems of China, the United States (because of its dollar anchor) and Argentina. This is not just a superior payment track, it is a parallel financial universe that almost ignores the political and legal boundaries drawn by the Westphalian system.

This is exactly how the "denationalization of currency" promotes the "denationalization of finance" and ultimately achieves the "denationalization of capital".

When capital can be denationalized, capitalists will naturally be denationalized.

4c. The end of the traditional financial system

This new financial ecology driven by stablecoins and based on RWA is a comprehensive impact on the traditional financial system. The core function of traditional finance is essentially to act as an intermediary for information and trust. Banks, securities companies, exchanges, payment companies and other institutions use their huge capital, complex systems and government licenses to solve the trust problem between the two parties of the transaction and charge high fees.

Blockchain technology, through its immutable, open and transparent characteristics, and rules enforced by code (smart contracts), provides a new trust mechanism - "code is law". Under this new paradigm, most of the functions of traditional intermediaries appear redundant and inefficient:

• Banks' deposit and loan businesses can be replaced by decentralized lending protocols.

• Exchanges' matching transactions can be replaced by automated market makers (AMM) algorithms.

• Cross-border settlements of payment companies can be replaced by global transfers of stablecoins in seconds.

• Wall Street's asset securitization can be replaced by more transparent and efficient RWA tokenization.

V. The Rise of Sovereign Individuals and the Twilight of the State

When capital can flow without borders, when assets can be separated from judicial jurisdiction, and when power shifts from nation-states to private giants and online communities, we have reached the end of this transformation - a new era dominated by the "Sovereign Individual" and marked by the end of the Westphalian system. This revolution, driven by stablecoins and artificial intelligence (AI), will have a far-reaching impact that exceeds the French Revolution, because it not only brings about a change of regime, but also changes the form of power.

(The book Sovereign Individual is indeed a prophecy of our time)

5a. The prophecy of "The Sovereign Individual" has come true

In 1997, James Dale Davidson and Lord William Rees-Mogg predicted in their groundbreaking book "The Sovereign Individual" that the advent of the information age would fundamentally change the logic of violence and power. They believed that the nation-state was able to rise in the industrial age because it could effectively protect large-scale, fixed industrial assets and collect taxes from them. But in the information age, the most important capital - knowledge, skills and financial assets - will become highly mobile and even exist in invisible cyberspace. At that time, the state will be like a rancher trying to fence in "winged cattle", and its ability to tax and control will be greatly reduced.

The emergence of stablecoins, DeFi, and RWA is the real version of the "cybermoney" and "cyberreconomy" in this book. Together, they build a global, low-friction value network that truly gives capital wings. An elite individual can easily allocate his wealth to RWA tokens around the world and transfer it instantly between different jurisdictions through stablecoins, all of which is recorded in a public ledger that is difficult for the state machine to reach. The book's predictions that "individuals will be free from government oppression" and "wealth holders will be able to bypass the state's monopoly on currency" are becoming a reality.

5b. The End of the Westphalian System

Since the signing of the Treaty of Westphalia in 1648, the basic unit of world politics has been the sovereign state. The core principles of this system include: the supreme sovereignty of the state within its territory, the sovereign equality of all countries, and the principle of non-interference in each other's internal affairs. The cornerstone of this system is the state’s absolute control over the population and property within its territory.

The rise of the sovereign individual is fundamentally eroding this foundation. When the most creative and productive individuals’ economic activities and wealth accumulation occur “outside the territory” (cyberspace), territorial borders lose their meaning. The state will inevitably weaken its fiscal base as it finds itself unable to effectively tax these globally mobile elites. In order to stop the outflow of wealth, desperate governments may resort to more radical and authoritarian measures, such as the “hostage-taking” taxation predicted in the book and the destruction of technologies that enable individual autonomy. But this will only accelerate the exodus of the elite, forming a vicious cycle. Ultimately, the nation-state may degenerate into a hollow shell whose function is limited to providing welfare and security to those less mobile people who cannot enter the global digital economy—a “nanny state” serving the poor. But obviously, such a country has nothing to do with wealth creation

5c. The final frontier: the final battle between privacy and national taxation

The next step in this revolution will be privacy. Although the current public blockchain is pseudonymous, transactions can still be tracked. However, with the maturity of privacy technologies such as zero-knowledge proofs (such as those used by Zcash and Monero), future financial transactions may be completely anonymous and untraceable.

When a globalized, stablecoin-based financial system is combined with powerful privacy technologies, it poses the ultimate challenge to the country's taxation capabilities. Tax authorities will face an impenetrable "black box" and will be unable to effectively identify transaction parties and taxable income. This will be the final form of "deregulation" because when the state loses its ability to levy taxes, it also loses its ability to effectively regulate and provide public services.

The French Revolution replaced "monarchical sovereignty" with "national sovereignty", and the subject of power changed from the king to the nation-state, but the territorial nature of power did not change. The revolution started by stablecoins uses "network sovereignty" and "individual sovereignty" to dissolve the "territorial sovereignty of the nation-state". It is not a transfer of power, but the "decentralization" and "denationalization" of power. This is a more fundamental and thorough paradigm shift, and its far-reaching impact is indeed no less than, or even greater than, the French Revolution. We are standing at the dawn of the disintegration of the old world and the emergence of a new order. This new world will give individuals unprecedented freedom and power, but it will also bring chaos and challenges that we can hardly imagine today.