Preface
(Stablecoin Act) (S. 1582, GENIUS Act) was originally jointly planned by the Republicans and Democrats. However, due to the recent controversy over Trump's meme coin and USD1, Democratic senators demanded that the bill be amended to restrict Trump's behavior, which hindered the vote on the bill on May 8. In the end, only 48 votes were in favor, which was lower than the passing threshold of 60 votes.
This article will focus on two major warning events in the cryptocurrency market - the Binance money laundering case and the collapse of UST, revealing the risks and trust crisis in the stablecoin market caused by regulatory gaps in the past. This paper further explores the three core demands of the United States (Stablecoin Act) and its profound impact on market order and the development of Web3. Secondly, we analyze the political controversy caused by Trump's involvement in the issuance of stablecoins and memecoins, how it has hindered the promotion of the bill, and pay attention to the latest trends of technology giants such as Meta and financial institutions actively deploying stablecoin applications.
Image caption: Only 48 senators voted in favor of the 5/8 Stablecoin Act, less than the required 60 votes
The importance of the Stablecoin Act to the cryptocurrency world
Stablecoins are at the core of the cryptocurrency ecosystem, such as USDT issued by Tether, USDC issued by Circle, and USD1 recently issued by Trump, providing stable value storage and transaction media. Regulatory gaps in the past have led to major incidents, such as the Binance money laundering case in 2023 and the collapse of the Terra USD stablecoin, which also triggered Congress's high attention to the regulation and anti-money laundering of cryptocurrency exchanges and stablecoins, and promoted the formulation of a regulatory framework.
Former Binance CEO Changpeng Zhao admitted that he failed to effectively implement anti-money laundering measures, and the U.S. Attorney General investigated Binance for millions of suspicious transactions between U.S. users and Iran, Syria, Russian-occupied Ukraine, and Islamic terrorist organizations. U.S. Attorney Damian Williams also said this was not mismanagement but intentional fraud. In the end, Binance agreed to pay a fine of $4.3 billion, and Zhao Changpeng personally paid a fine of $50 million and was imprisoned for four months. This incident also highlights the regulatory loopholes in the anonymity of cross-border transfers and transactions.
The collapse of TerraUSD is due to the fact that UST is an algorithmic stablecoin that is not collateralized by fiat currency or crypto assets, and its anchoring relationship with the US dollar is controlled only by smart contracts. Because it lost its 1:1 peg to the U.S. dollar for some reason, its value plummeted from 1 U.S. dollar to 0.09 U.S. dollars after everyone sold off. Terraform Labs went bankrupt, and the value of its sister coin Luna almost returned to zero. Its collapse also caused investors to face huge losses, as well as a chain reaction of price collapse on other stablecoins and Luna.
Although stablecoin legislation may limit the autonomy of exchanges, requiring them to be regulated by the Federal Bank or the OCC and required to disclose reserve asset compositions on a monthly basis, the market has mixed views on this regulatory atmosphere, and some will worry or deprive them of the advantages of innovative, anonymous trading. Yet we believe that the compliance and transparency of stablecoins, as the core pillars of the entire Web3 financial system, are key to building trust in the market. In the short term, there will be a period of regulatory conversion pains, but in the long term, allowing stablecoins to return to their “stable” nature can prevent the market from repeating events such as the UST crash or money laundering.
In addition, after a bill is voted through by Congress, it usually takes effect within 18 months of enactment or within 120 days after the main federal regulator issues final regulations, and exchanges also have ample time to adapt to the regulations of the stablecoin bill.
The three main demands of the Stablecoin Act
The bill focuses on providing legal definitions for terms related to stablecoins and establishing a complete regulatory framework for payment stablecoins, issuers and virtual asset service providers (i.e. cryptocurrency exchanges) to protect the security of investors' assets and maintain the value reliability of stablecoins. The major reforms of the bill can be summarized into three major focuses (see the appendix for details):
Stablecoin issuance and operation supervision: Standardize the issuance and approval process, issuers must undergo annual compliance and anti-money laundering reviews, and clearly divide the regulatory responsibilities of the federal and state governments. The bill also includes exceptions for special circumstances to maintain confidence during market fluctuations.
Stablecoins need to have cash reserves, and the composition of reserves must be transparent and open: Stablecoins must be reserved in 1:1 cash or highly liquid assets, including US dollars, Treasury bills, overnight repurchase agreements (RPs) or tokenized assets. Issuers must disclose the details of their reserve assets on a monthly basis, and reserves must not be repeatedly pledged. They should also have the ability to freeze or seize suspicious assets to prevent money laundering risks.
Customer account management during stablecoin custody: Customer assets must be managed separately from the custodian’s own funds and can be centrally stored in a comprehensive account. Custodians must be subject to federal or state government supervision to ensure asset security and transparency.
The essence of the Stablecoin Act is like a roadside stall that needs to obtain a health license and regularly inspect ingredients to prevent food safety problems caused by unqualified vendors. Past incidents such as illegal transactions and stablecoins not being linked to real assets have highlighted regulatory gaps, just as unqualified vendors caused a food safety storm. Although the implementation of the new law may reduce the number of qualified operators and increase operating costs, in the long run it will help improve the safety and trust of the overall market.
For cryptocurrency investors, the bill reduces the risks of stablecoin decoupling and redemption, standardizes bankruptcy procedures, and allows traditional funds to invest in cryptocurrencies with greater ease, but the issuance costs may be passed on to the user end.
For Web3 developers, clear regulation can attract large institutions to participate. For example, asset management company Fidelity and technology giant Meta are planning to apply stablecoins to payment and social scenarios, which is expected to accelerate the implementation of applications. However, due to high compliance thresholds, the market may be concentrated in a few large issuers (such as Circle and Tether), thereby compressing the development space for small and medium-sized developers.
As of 2025, the market capitalization of stablecoins has exceeded US$240 billion, with trading volume reaching 1.82 trillion in April. The implementation of the bill is expected to bring long-term stability to the cryptocurrency industry, attract more participants and trading volume, and provide growth momentum for the Web3 ecosystem. Overall, the long-term benefits outweigh the short-term disadvantages.
Stablecoin bill put on hold due to Trump meme controversy, bipartisan alliance at risk of breaking up
Trump recently launched a meme coin related to his image and made millions of dollars from it. He also promised to provide the largest investors with private dinners and VIP trips with the president at the time of the launch, which also attracted strong condemnation from the Democratic Party.
In addition to memecoin, Trump founded World Liberty Financial and launched the stablecoin USD1, which currently has a market value of US$2.1 billion and has even been used in Abu Dhabi MGX's US$2 billion investment in Binance. The president's issuance of stablecoins and the involvement of cross-border transactions before the implementation of relevant regulations, and the fact that Binance was also involved in anti-money laundering sanctions, further exacerbated the Democratic Party's concerns about national security and corruption risks.
USD1 stablecoin is more of a flash in the pan than USDT and USDC
USD1 was issued in March 2025 by World Liberty Financial (WLFI), a DeFi platform founded by Trump and his son. Trump family members hold 60% of its shares. Compared with USDT and USDC, it has a strong political color. On the first day of the platform's launch, the market response was cold, with less than 3% of WLFI tokens sold. 70% of the tokens are held by insiders and cannot be transferred, which runs counter to the concept of decentralization.
In terms of reserve transparency, USD1 claims to be collateralized by U.S. Treasury bonds, U.S. dollars, etc., and is regularly audited by accountants. Among the three, USDT has the lowest level of transparency and disclosure and is most affected by the Stablecoin Act.
Although USD1 (market value of $2.1 billion) had an explosive start and has now entered the top seven stablecoin market capitalization rankings, the stablecoin market is currently saturated and is dominated by USDT (US$149.8 billion) and USDC (US$60.8 billion). USD1’s main advantage comes from Trump’s brand recognition, which has been used in Abu Dhabi’s investment in Binance. In the future, USD1 is expected to be integrated into Tron (whose founder Justin Sun has invested more than $75 million in WLFI), but it is still in the early planning stages.
DA Labs believes that USD1 does not provide enough differentiated advantages to convince investors to hold it immediately. It relies more on personal branding to manipulate topic popularity, and its core value and technological development are still in the planning stage. Just like Trump’s past involvement in the NFT market, it disappeared after the heat died down, lacking long-term operation and innovation drive. In the short term, Trump is also busy negotiating tariffs with various countries, and there will be no radical reforms in the near future. Therefore, it is not expected that the market rankings dominated by USDT and USDC will change significantly.
Back to the discussion on the stablecoin bill, the current bill does not regulate the financial and ethical standards of the president, vice president and their families. This loophole also became the reason why Democratic Senator Elizabeth Warren took the lead in pushing to prevent the passage of the stablecoin bill, and demanded the addition of clauses to prohibit the gray area of "the president making money through the cryptocurrency circle." Republican senators have not yet agreed to the revised terms, and the two parties are continuing negotiations.
As for the future development of stablecoins, DA Labs believes that the probability of the stablecoin bill being passed is still very high. In the future, it will only be necessary to add clauses to restrict the president from maintaining administrative neutrality between politics and business. In addition, USDT has been criticized by the market in the past for its opaque supervision. If it fails to fully comply with regulations, it may face restrictions or fines. The impact on USDT is also worthy of follow-up attention.
Meta enters stablecoin payment
On May 8, 2025, Meta announced that it was in talks with cryptocurrency companies and planned to use stablecoins for platform payments. It also hired former Ripple executive Ginger Baker as its vice president of products. Shares rose 2% following the announcement.
Meta's move is aimed at its huge creator economy, especially the large number of small cross-border payment needs. The low cost and instant settlement characteristics of stablecoins can significantly reduce wire transfer fees and improve payment efficiency. In 2019, Meta launched the cryptocurrency Libra (later renamed Diem), but subsequently sold the intellectual property due to regulatory opposition. This time, Meta is more likely to turn to cooperation with existing stablecoin issuers to avoid the regulatory barriers of issuing stablecoins on its own.
In addition, Citi expects that as regulatory tailwinds allow cryptocurrencies with stable value to flow into the mainstream economy, they will accelerate their expansion into the payment and remittance sectors, and in the next five years will replace part of domestic and foreign US dollar holdings and become part of banks' short-term liquidity. The size of stablecoins is estimated to grow from US$240 billion to US$1.6 trillion at a CAGR of 46% between 2025 and 2030, and even to US$3.7 trillion in an optimistic scenario.
As a reflection of this, VISA announced last month that it would partner with stablecoin infrastructure provider Bridge to invest in stablecoin startup BVNK. Fidelity, JP Morgan, Mastercard and PayPal have also entered the stablecoin market.
Senators Rand Paul and Josh Hawley pushed for an amendment to ban technology giants such as Meta and Amazon from issuing stablecoins, arguing that they could monopolize monetary power and threaten democratic systems. This stance may limit Meta’s future strategy, but will not affect its plans to cooperate with existing stablecoins.
appendix
In addition to clearly defining key terms such as payment stablecoins, issuers, virtual assets, virtual asset service providers (cryptocurrency exchanges), the S.1582 GENIUS Act also regulates stablecoin supervision and custody services. The following are three major regulations:
1. Stablecoin Regulation: Preventing Systemic Risks and Clarifying Federal and State Regulatory Frameworks
Regulatory frameworks can help prevent systemic risks in the stablecoin market, especially from large issuers. At the same time, government supervision is used to ensure that exchanges comply with regulations and anti-money laundering requirements to reduce the risk of illegal activities. Clearly outline the relevant regulations for federal government regulation and state government regulation.
2. Stablecoin issuers: ensuring reserves and compliance regulations
Issuers are required to back stablecoins with 1:1 reserves (e.g., U.S. dollars, treasury bills), conduct monthly public audits, establish redemption policies, and comply with anti-money laundering regulations. These regulations help ensure reserve stability, increase market transparency, reduce the risk of illicit activity, and promote the long-term credibility of the stablecoin market.
3. Stablecoin Custodians: Protecting Customer Assets and Operating Standards
Note: Other provisions of S.1582 include supervision of foreign issuers, civil fines and criminal imprisonment, exceptions and exemptions, and bankruptcy claims procedures
Source: Bloomberg, U.S. Congress
This report is for information sharing purposes only and its content does not constitute any form of investment advice or decision-making basis. The data, analysis and opinions cited in this article are based on the author’s research and public sources and may be uncertain or change at any time. Readers should make prudent investment decisions based on their own circumstances and risk tolerance. If further guidance is required, it is recommended to seek professional advice.