Written in Washington, DC, May 26, 2025
In Q2 25, when several Crypto conferences were held in North America, the US Senate passed the GENIUS Act (Guidance and Establishment of a National Innovation Act for Stablecoins in the United States) with 66 votes in favor and 32 votes against on the 19th. In less than a week, various financial and Crypto institutions quickly iterated with each other. In the words of a friend, the entire market became agitated.
The particularity of this bill is that it will have a great impact on the global financial economy in both the short and long term. There will be many levels from shallow to deep and superimposed, much like a major earthquake very close to the surface. If the GENIUS Act is successfully implemented, it will cleverly resolve the impact of Crypto on the current financial and economic status of the US dollar and US bonds, and reversely increase the value and liquidity of the US dollar-pegged Crypto Market. In essence, it is to transform the existing advantages of the US dollar price anchor into the long-term advantages of the value anchor. It is indeed worthy of the name Genius.
Based on the discussions at the New York meeting last week, we have initially summarized the following related issues:
tl;dr
1. The fundamental reason why the traditional dollar’s control power has declined
2. Recognize the trade-offs and retreat-to-advance decisions under the trend of Crypto driving drastic changes in the global monetary system
3. The nominal and substantive purpose of the GENIUS Act
4. The inspiration of DeFi Restaking to the fiat currency world and the money multiplier of shadow currency
5. Gold, US Dollar, and Crypto Stablecoins
6. Global market feedback after the bill came into effect and dramatic changes in financial transactions and assets
1. The fundamental reason why the traditional dollar’s control power has declined
There are many reasons for the decline in the influence of the US dollar on the global economy. From a long-term perspective, the various resource dividends from the great voyages to World War II in modern times have been completely digested. From a short-term perspective, the regulatory capacity of economic policies is gradually becoming ineffective. However, the essential factors that have led to the current situation are mainly the following four points:
i) The global economy and national power are rising rapidly, and the necessity of using the US dollar as the sole currency for global trade and financial settlement has decreased. More countries and regions are establishing their own trade and currency settlement systems independent of the US dollar;
ii) During the COVID19 period (2020-2022), the United States over-issued more than 44% of the US dollar volume, and M2 increased from 15.2 trillion US dollars to 21.9 trillion US dollars (Federal data), which brought about an irreversible process of declining US dollar credit after the epidemic;
iii) The Federal Government’s own monetary and fiscal policy control methods within the US system are rigid and entropy-increasing, capital efficiency and wealth distribution are seriously asymmetric, and are not compatible with the needs of the new paradigm of digitalization and AI to promote economic growth;
iv) The rapid rise of the Crypto decentralized monetary and financial system, combined with the above-mentioned environmental background, has destructively subverted the traditional global financial and economic system based on national credit since the Bretton Woods Law.
It is worth mentioning that veteran financial entrepreneurs represented by Ray Dalio and some politicians have made dogmatic inertial errors in their understanding of the Thucydides Trap when facing the above environment. Many people have believed in the past decade that the Thucydides Trap still exists or will occur between China and the United States, and even use this topic as the basis for lobbying or investment strategies. In fact, the problems faced by China and the United States are exactly the same, and should be attributed to the same side of the Thucydides Trap. The other side is the Crypto monetary financial system and the production relations of decentralized governance in the encrypted digital era. How to face this inevitable transformation trend is the transition problem that the upgraded version of the Thucydides Trap in the new era should solve. Obviously, the GENIUS Act gets the point this time.
2. Recognize the trade-offs and retreat-to-advance decisions under the trend of Crypto driving drastic changes in the global monetary system
Based on the above, the decision of the GENIUS Act is essentially a trade-off, a desperate retreat: it marks that the Federal Government has begun to accept the reality that the influence and control of the traditional US dollar has declined under the original financial system, and has taken the initiative to further delegate the issuance and settlement rights of the US dollar currency (Note: Most of the fiat offshore US dollars also come from the Federal's off-balance sheet offshore bank credit expansion, which belongs to shadow currency. The authenticity of issuance and settlement is controlled based on the access system and compliance network, and is endorsed and filtered by the sovereign central bank). In the face of the inevitable trend of the development of Crypto finance, it will take advantage of the advanced gameplay of DeFi Restaking and the experience of off-balance sheet extension of the credit expansion of the fiat offshore US dollar in the overseas banking system. By encouraging compliant institutions to issue stablecoins, a new "on-chain shadow currency" model of "on-chain offshore structure" is formed, further amplifying the currency multiplier effect of the US dollar in circulation.
The following table lists the characteristics of the US dollar at different levels and attributes and various types of shadow currency dollars:
This decision and measure of the GENIUS Act will effectively help the US dollar to "return to the anchor" to a great extent. It will not only restore the confidence of holders of US debt and US dollar assets, but also further enable the off-balance sheet US dollar to expand rapidly with the help of the growth of the Crypto Market, thus achieving the effect of turning danger into safety and killing two birds with one stone.
3. The nominal and substantive purpose of the GENIUS Act
The nominal purpose and actual purpose of the GENIUS Act are obviously different. Simply put, it is called compliance supervision internally, but it is actually a sample promotion externally. It provides a policy model for financial management departments in other countries and regions around the world, and provides an implementation model for financial institutions in other countries and regions using the US market as an example, so that the world can use the US dollar stablecoin anchored by the US dollar in the Crypto Market more quickly.
In the short term, it is of course for the direct purpose of compliance management, ensuring stability during the transition period when the Crypto Market is developing rapidly and impacting the traditional financial market. This is a routine operation of the US financial legal system. In the long term, this has achieved an absolute proofing and publicity effect, maximizing the inherent advantages of the US dollar as a price anchor in the traditional financial system, and combining the pain point of the lack of other stablecoin price anchors in the Crypto Market except the US dollar. It cleverly uses a semi-compliant and semi-open approach - specifically mentioning restrictions on foreign issuers in the bill: foreign stablecoin issuers that have not been approved by US regulators are not allowed to operate in the US market, which is actually equivalent to suggesting that they can operate in markets outside the United States, in order to stimulate and confirm the further reliance and use of US dollar stablecoins in the global Crypto Finance upgrade process.
On May 21, the Hong Kong Legislative Council passed the Stablecoin Bill. It is believed that the Japanese Financial Services Agency (JSA), Singapore MAS, and Dubai DFSA will soon respond. Due to the special importance of the stablecoin ecological niche and the rapid iterative changes caused by the GENIUS Act, this is a great challenge for countries and regions with pre-emptive bills. It is very important to balance the boundaries and easing. If it is too loose, it will cause market chaos and management difficulties. If it is too tight, it will quickly be left behind by the Crypto Market and lose its competitive advantages in finance, payment, and asset management in the next stage. In addition, the quality of the formulation directly determines the degree of PEG with the US dollar stablecoin in the next stage. If the PEG is too deep, it will quickly lose the financial market independence of its own stablecoin (Note: Due to the globalization, high liquidity and high interactivity of the Crypto Market, the independence of other legal currency stablecoins relative to the US dollar stablecoin may be more difficult to form, and the PEG may be more rigid). In addition, the situation of countries with post-emptive bills will not be better. They will also encounter the dilemma of market chaos and difficulty in management due to rapid paradigm changes and the dilemma of conservative backwardness and loss of competitiveness.
4. The inspiration of DeFi Restaking to the fiat currency world and the money multiplier of shadow currency
A partner of an asset side told me last week that the challenges of global finance in the next stage are huge, and it requires dual cognition and cross-understanding of traditional finance and Crypto, otherwise it will soon be eliminated by the market. Indeed, in the past two cycles of DeFi development, the Crypto Market has independently evolved a set of digital protocolized professional economic science systems, from protocol logic, Tokenomics, and financial analysis methods and tools to the complexity of business models, which has far exceeded the traditional financial system. Although Crypto DeFi is different from traditional finance, it still needs the experience system of traditional finance for correction and comparison during its development. The two learn from each other, develop rapidly, and continuously couple to form a new financial system.
The introduction of the GENIUS Act is highly similar to DeFi's Staking, Restaking, and LSD in previous cycles, or it can be said to be another extension of the same methodology in the fiat currency world.
Let’s take an example in DeFi: use ETH to obtain rebased stETH through Lido, pledge stETH to AAVE to obtain USDC with 70% of the pledge value, and then use the USDC to enter the market to continue purchasing ETH. The ideal model of the repeated operation of this process is a q=0.7 times geometric progression cyclic series, which will eventually obtain a 3.3 times currency multiplier.
The above process will soon be realized on the basis of the fiat-Bergian stablecoin under the GENIUS Act: Assume that a Japanese financial institution outside the United States pledges US bonds to issue USDJ based on compliance conditions, obtains JPY through off-ramp and exchanges for USD, and then purchases US bonds to form a cycle. There are several assumed multipliers in the repeated operation of this process, one is the pledge rate (it may be full, or it may be discounted or excessive), the second is on/off-ramp and exchange wear, and the third is the market-based churn rate. After all of them are calculated, a single-cycle geometric multiplier q will be obtained, and finally the money multiplier 1/(1-q) will be calculated. This multiple is the ideal conditional financial amplification money multiplier that may be obtained by the GENIUS Act and subsequent countries for stablecoin bills on the US dollar and US bond holdings.
Of course, this does not include the over-issuance of some informal institutions, and other types of shadow assets obtained by further pledging asset tokens after stablecoins are invested in assets. The flexibility of stablecoins will far exceed the derivatives market in the fiat currency world, and the "stablecoin asset nesting doll" will definitely bring unimaginable impacts to the traditional financial market.
5. Gold, US Dollar, and Crypto Stablecoins
In a previous article, I mentioned the replacement of faith in the anchors of the three generations of financial systems. The anchors of the three generations of financial targets are: gold, US dollars and Bitcoin. This is from a macro perspective. From a micro perspective, the three generations of finance need to have a settlement unit in hand every day. In the past, it was a gold ingot or a US dollar bill. What will it be in the future?
As mentioned earlier, there is no (native Crypto) currency or asset that can serve as a price anchor for stablecoins in the Crypto Market except the US dollar (stablecoin). The reason is that pricing is very important. In real-world transactions, a commodity or service needs to have a relatively stable amount as an intuitive reference price. It cannot be that a cup of Americano was 0.000038 BTC yesterday and 0.000032 BTC today. This will make consumers and traders lose their ability to judge value. The most important feature of stablecoins is stability, which helps consumers and traders to judge and understand value in the form of price. Then the price fluctuation is a dynamic regulator to meet the balance between consumption power and economic development.
Why USD (stablecoin)?
First of all, the US dollar has established relative universality in the fiat currency world. Secondly, it is difficult to redefine it in a better consensus. Of course, I have discussed this issue with several friends: the world currency stablecoin. Assuming that its issuance is a more reasonable pricing mechanism based on the global historical GDP total and the annual GDP increase, even if it has a more optimized economic and financial efficiency than the current US dollar, it is difficult to gain consensus to replace the position of the US dollar stablecoin in social development. This is like the invention of Esperanto 140 years ago. Even if the greatest comprehensive optimization is made in the algorithm, it is difficult to replace the leading market share advantage of English in the world. Many countries with native languages have eventually chosen English as the official language in their later development. For example, India, Singapore, and the Philippines, although they use English, the standards have long been independent of the British English standards. It can be said that these "shadow English" are completely independently operated. The indirect influence and control rights extended by the current decentralization of the issuance rights of the US dollar stablecoin after the GENIUS Act are very similar to this example of English.
The GENIUS Act was proposed to meet the needs of this historical transition point. It uses the irreplaceable advantages of the dollar as a price anchor in the world and transforms it into a long-term advantage of the future Crypto Market value anchor in the form of a dollar stablecoin. It is an ingenious innovative design that maximizes the use of historical advantages to leverage future advantages. In essence, the idea of pledging the dollar and U.S. bonds to issue a dollar stablecoin is actually a bold attempt to upgrade the U.S. dollar and U.S. bonds into second-level gold.
6. Global market feedback after the bill came into effect and dramatic changes in financial transactions and assets
It will take some time for the GENIUS Act to be implemented, as will stablecoin bills in other countries and regions. Some markets are beginning to respond to some initial feedback from short-term sentiment in terms of asset prices.
In the short term, the introduction of the Stablecoin Act will trigger dramatic changes in financial institution assets, RWA, and Crypto assets. Opportunities are accompanied by restructuring, chaos and development expectations coexist, and the uncertainty of traditional financial adjustments has further increased, leading to a normal correction in some asset prices. The confidence in the return of US debt to the anchor will in turn add to and support the current market. The advantage of open decision-making will lead to the development of a second curve of US dollar assets adding to Crypto growth, forming a second curve belonging to US dollar assets themselves. The expectations obtained in advance will also offset part of the panic of short-term restructuring, forming a relatively complex superposition environment.
From the perspective of the Crypto Market, this is undoubtedly an excellent window to open up further asset management and financial innovation. RWAFi will have more landing channels and asset forms, which will be conducive to the rapid transition and development of all long-term established projects such as CICADA Finance that do Real Yield Asset Management in the DeFi, PayFi, and RWAFi industries.
Author: Yang Ge Gary
Date: May 26, 2025
