Thoughts on the Stablecoin Bill

Author: Sima Cong AI Channel

This is progress

On May 20, Beijing time, the Stablecoin Regulation Act (GENIUS Act) ushered in a key breakthrough in a vote in the U.S. Senate: The Senate passed the GENIUS Act with 66 votes in favor and 32 votes against. This means that the Senate has agreed to stop the debate on the bill and will hold a final vote in 30 hours at the latest.

It should be clear that the bill itself has not yet passed the final vote.

The cloture vote is a key mechanism in the U.S. Congressional legislative process, specifically used to break the deadlock in which the minority party with opposing views hopes to hinder the bill vote through "endless debate."

This is the core

On February 4, 2025, U.S. Senators Bill Hagerty, Tim Scott, Kirsten Gillibrand, and Cynthia Lummis jointly proposed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS Act), which aims to establish a legal framework for the legal use of stablecoin payments in the United States.

The core terms are as follows:

• Ø Payment stablecoin definition: A digital asset anchored to a fixed currency value, fully backed by the U.S. dollar or other highly liquid assets at a 1:1 ratio, and dedicated to payment settlement scenarios.

• Ø Dual licensing supervision: Federal supervision, issuers with a market value of more than $10 billion must be subject to federal supervision; state supervision, small issuers can choose state registration (subject to federal equivalent standards).

• Ø 100% reserve requirement: Reserve assets are limited to cash, short-term US Treasury bonds or central bank deposits, and must be isolated from operating funds. Proof of sufficient reserves must be submitted monthly to ensure that users can redeem at face value.

• Ø Transparency mandatory disclosure: Regularly disclose the composition of reserves and redemption policies, and conduct compliance audits by registered accounting firms.

• Ø Anti-money laundering compliance: Issuers are subject to the Bank Secrecy Act and fulfill financial institution-level AML obligations.

• Ø Priority protection of users: When the issuer goes bankrupt, the claims of stablecoin holders take precedence over other claimants.

• Ø Clear regulatory authority: It is clearly stipulated that payment stablecoins do not belong to the category of securities, commodities or investment companies, and the regulatory boundaries are clearly defined.

The GENIUS Act essentially includes stablecoins in the category of "digital financial infrastructure". It is not an extension of crypto assets, but a new channel for compliant US dollars. It is a digital mapping of the US dollar.

Calm thinking

Some people say that stablecoins are the most thoroughly implemented application in the field of cryptocurrency, without a doubt.

Now, if the Stablecoin Act is passed, it may also be the fastest and earliest cryptocurrency infrastructure to be centrally regulated.

The role of stablecoins is to build a bridge between ordinary people and cryptocurrencies. The landing is to make it convenient for everyone to speculate in cryptocurrencies. The root cause is the imperfect infrastructure of cryptocurrencies, but the reason behind it is that the law has not really recognized the value of cryptocurrencies. So, one day, the law recognizes cryptocurrencies and establishes a sound regulatory system. Will stablecoins be directly replaced by legal tender? Maybe you don’t need to convert legal tender into stablecoins at that time, is that right?

The most important role of stablecoins (such as USDT and USDC) in the currency circle is to build a bridge between the legal tender world and the crypto asset world. It provides a stable and digital settlement medium for exchanges, DeFi, NFT, GameFi and other ecosystems. Stablecoins are essentially a "digital mapping of the US dollar" and are essentially still dependent on legal tender.

At this stage, crypto assets cannot be directly traded on the chain using legal tender (due to issues such as supervision, bank access, and on-chain transfer efficiency).

It may take 1-3 days for the traditional banking system to process a US dollar transfer, but it only takes a few seconds to transfer stablecoins on the chain.

So, once the law recognizes cryptocurrencies or establishes a systematic regulatory framework, is it necessary to continue using stablecoins?

That is, if fiat currency can directly settle tokens, is there still a need for stablecoins as a bridge? It is similar to using a broker's trading software to buy and sell stocks, and directly transferring to fiat currency without first converting the fiat currency into a virtual currency recognized by the broker.

Case 1: Central Bank Digital Currency (CBDC) Online

If the United States issues its own digital dollar (CBDC) and implements on-chain settlement and account management, then USDC, a "civilian version of digital dollar", may be marginalized.

CBDC has official credit endorsement, which is theoretically safer and more compliant.

Scenario 2: The traditional banking system is fully "on-chain"

If banks support customers to use US dollars directly to operate on the chain (such as participating in DeFi or purchasing NFTs), the bridge function of the intermediate stablecoin is not so necessary.

However, stablecoins will not disappear completely for the following reasons:

1. Different technical paths: CBDC ≠ stablecoin

Central bank digital currency may adopt a licensed chain, which is highly centralized and may not be compatible with the existing public chain ecosystem.

Stablecoins are universal circulating assets on open chains and have stronger cross-chain flexibility.

2. Decentralization needs

Some people do not trust the central bank at all and do not want to be regulated or bound to identity information.

Under such an ideological background, decentralized stablecoins (such as DAI) will still have long-term survival space.

3. Commercial stablecoins can innovate faster

Circle (USDC issuer) can quickly access various chains such as Solana, Base, Arbitrum, Polygon, etc., while the speed of CBDC is limited by policy and technical conservatism.

Stablecoins have been deeply integrated into the DeFi ecosystem, and many protocols and products are built around existing stablecoins. Even with CBDC, the liquidity and interoperability of stablecoins within DeFi may keep them in the short term, especially for some DeFi users who pursue decentralization and censorship resistance.

Combined with the "Stablecoin National Innovation Guidance Act", the legal status of stablecoins and the definition of payment and settlement scenarios are directly defined, with the aim of preventing centralized operating institutions from causing systemic risks while achieving on-chain digital mapping of fiat currencies such as the US dollar.

In the short term, stablecoins are still indispensable, because the cryptocurrency infrastructure is not yet complete, the legal and regulatory framework is still immature, and the direct entry of fiat currencies into the crypto market is still limited.

Settlement in payment scenarios

Assuming that the regulators approve and define most tokens in the category of securities, and define other tokens in the category of commodities, that is, simply divide them into stable tokens and volatile tokens, then the basic regulatory framework of KYC\AML will inevitably be established, and fiat currency will directly enter the market to settle tokens, similar to fiat currency directly settling securities such as stocks. Then the question is, since fiat currency directly settles tokens, do we still need to use tokens to settle commodity payment scenarios?

For example, can I use Tesla stock to buy a luxury house? Stock prices fluctuate in real time, and token prices also fluctuate in real time. Can't I just settle directly with fiat currency? In other words, why should I use an asset that is expected to generate income to exchange for a commodity with a basically stable price?

Assumption background: Regulators (such as the US SEC and CFTC) divide tokens into two categories:

1. Securities tokens (such as most ICO tokens, possibly including some Ethereum tokens): must comply with securities laws, similar to stocks.

2. Commodity tokens (such as Bitcoin, stablecoins, etc.): regulated as commodities, which may be more relaxed.

3. Establish a KYC/AML basic regulatory framework to allow fiat currency to directly settle tokens (such as directly purchasing Bitcoin with US dollars, similar to stock trading).

Assets vs. payment tools are contradictory. If an asset is expected to rise in price, the holder will naturally be reluctant to spend it (called the "Hoyle Paradox", a variant of Gresham's Law).

You wouldn't buy a house with Tesla stock, even if you hold it. This asset does not have the price stability and liquidity matching of a "daily trading medium".

Tesla briefly accepted Bitcoin as payment for vehicles in 2021, but quickly canceled it due to volatility and settlement complexity.

Only units with stable value are suitable as "payment tools", which is why stablecoins or fiat currencies exist. Most tokens/cryptocurrencies are not suitable as payment media directly.

The essence of payment is the superposition of trust mechanism + legal infrastructure, not the technical "can or cannot transfer". This is why in mature economies, the roles of investment assets and payment currencies are clearly distinguished.

If fiat currencies (such as digital dollars) can be used directly on the chain, and payment systems (such as banks, PayPal) support seamless docking of fiat currencies and crypto ecosystems, the payment function of stablecoins may be weakened.

The future pattern is more likely to be:

That is, stablecoins can be used for payment and settlement scenarios, but if supervision becomes increasingly complete, legal tender will impact the role of stablecoins. After all, an institution operating a stablecoin has operating costs, and people choose the criteria: availability, speed, and low cost.

The strict requirements of the GENIUS Act (100% reserves, KYC/AML, audits) may increase the operating costs of stablecoin issuers.