Recently, the hottest topic in our circle is undoubtedly the (GENIUS Act), which has just been signed into law. In a moment, cheers erupted, and many believe the US has finally opened the doors of compliance for cryptocurrencies, especially stablecoins. It seems we are 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 protections.
Doesn't that sound wonderful?
But as someone who has been educated in materialist dialectics from a young age, I firmly believe that 'there is no free lunch.' God has long marked the price of every gift in the dark. Is this bill really as 'genius' as it appears on the surface? Or is there a risk hidden beneath those shiny provisions that we have yet to foresee?
Today, let's thoroughly dissect the potential negative impacts that the (GENIUS Act) may bring, using the most straightforward language.
However, I must state that as an active participant in the crypto world, I personally welcome the introduction of the (GENIUS Act). After all, it pushes blockchain and crypto technology into the daily lives of the public, taking a crucial step towards 'Massive Adoption,' and adds a safety belt to the wobbly process of globalization. Therefore, the various drawbacks listed in this article can be seen as 'warnings in prosperous times' on a grand scale, or simply as a thought exercise for myself on a smaller scale. Readers, take it lightly, 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 objectives of the bill is to make dollar stablecoins the 'hard currency' of the global digital economy, thereby defending the dollar's hegemonic position. The logic is simple: the bill requires all compliant stablecoin issuers to back their reserves 1:1 with high-quality liquid assets (mainly short-term US government bonds).
Imagine, when the whole world is using dollar stablecoins, how much US debt will be needed as reserves? This will create a massive and sustained demand pool for US debt. Global funds will flood into the US to buy government bonds, making the dollar naturally 'more valuable'—which is what we often call a 'strong dollar.'
This may sound like a great thing for the US, but it hides a huge paradox, especially for Trump's long-cherished dream of 'manufacturing repatriation', which is almost undermining.
I wonder if anyone has thought about this question: Why has US manufacturing become 'hollowed out'? A key reason is the long-standing trade deficit. The US imports far more than it exports, leading to a significant outflow of dollars worldwide. So, what can other countries buy with these dollars? Since US manufacturing has long been hollowed out, there aren't many 'Made in America' products available, except for a few high-tech items (and even some high-tech products are not sold to us, like to China). Thus, most of this money returns to buy US government bonds and Wall Street financial products.
This creates a vicious cycle: foreign capital flows into Wall Street → raises the dollar exchange rate → a strong dollar makes 'Made in America' extraordinarily expensive overseas → exports become more difficult, while imported goods are much cheaper → trade deficits further widen → the competitiveness of domestic manufacturing continues to weaken.
Now, the (GENIUS Act) has arrived. It is akin to installing a super turbocharger on this vicious cycle. The global proliferation of stablecoins means the US is issuing a 'digital dollar' to the world, which will trigger an unprecedented surge in demand for the dollar and US debt. What will the result be? The value of the dollar will be pushed to an unprecedented high.
This is simply adding insult to injury for US domestic manufacturing. At the same time, for those US multinational companies with a high proportion of overseas income, especially large tech and industrial giants, this is also a heavy blow. When they earn profits in foreign currencies such as euros and yen overseas, the figures on their accounting statements will significantly shrink when converted back to a strong dollar. This not only directly impacts the profitability of companies, lowers stock valuations, but may even drag down the overall performance of major indices like the S&P 500.
The so-called 'manufacturing repatriation' is likely to become a more distant and unrealistic dream in the face of such a strong dollar. The GENIUS Act may be consolidating the dollar's financial hegemony at the expense of the domestic real economy.
⚖️ The Paradox of Dollar Hegemony: The more one tries to tighten, the more it accelerates 'de-dollarization'? ⚖️
The core economic argument of the (GENIUS Act) is to consolidate the global dominance of the dollar. However, in the long run, such forceful actions may actually accelerate the global tendency to distance itself from the dollar.
Before the emergence of stablecoins, the US dollar had long been a tool for the United States to implement economic sanctions and project geopolitical power. The (GENIUS Act) seeks to further concentrate the core of the digital currency ecosystem within the dollar and its regulatory boundaries. However, the fear of the United States weaponizing its financial system has become the primary driving force behind many countries' desire to 'start anew.'
For example, everyone is optimistic about the enormous potential of stablecoins in cross-border payments, even fantasizing that they could replace SWIFT. But when did the term 'SWIFT' become well-known to the general public? It was during the Russia-Ukraine conflict, when SWIFT 'expelled' Russia, prompting many people to become vigilant. If stablecoins were to replace SWIFT as the mainstream method for cross-border payments in the future, wouldn't that mean a self-inflicted wound to dollar hegemony?
Therefore, the (GENIUS Act) effectively sends a clear signal to America's competitors: take advantage of the window of opportunity to establish alternatives while the old order represented by SWIFT is collapsing and the new order represented by stablecoins is not yet fully matured, before the new digital dollar system takes root.
While shaking the dollar's hegemony in the short term is almost impossible, achieving 'de-dollarization' in specific markets is entirely feasible. The 'de-dollarization' wave led by Russia and China, supported by BRICS countries like India and Iran and other emerging markets, is developing at an unprecedented speed. The measures these countries are taking include shifting to local currency settlements in bilateral trade, increasing gold reserves to replace dollar assets, and actively developing and promoting non-dollar digital currency payment systems to bypass SWIFT.
?️ Debt and Credibility: The government's 'little treasury' and 'domestic affairs' ?️
First is the 'money bag'—the inescapable debt trap.
As mentioned earlier, stablecoins create significant demand for US debt. What does this mean for the US government? It means borrowing money has become unprecedentedly easy!
Under normal circumstances, if a government borrows excessively, the market will demand higher interest as a risk premium due to concerns about repayment capacity, which acts as a natural 'brake' mechanism. But now, the presence of stablecoin issuers as 'loyal buyers' means that people worldwide have become buyers of US debt, artificially lowering borrowing costs. The government can borrow more money more easily and cheaply, significantly weakening the constraints of fiscal discipline, making borrowing even more addictive.
Economically, this can be seen as a variant of 'debt monetization.' While it is not the central bank directly printing money for the government to spend, the effect is highly similar: private companies issue 'digital dollars' (stablecoins) and then use public money to purchase government bonds, essentially financing government deficits by expanding the money supply. The ultimate result is likely to be inflation, this 'invisible tax' will unknowingly transfer wealth from our pockets.
What's more dangerous is that it may shift inflation risk from a periodic policy choice to a structural characteristic of the financial system. Traditionally, large-scale debt monetization is an unconventional, temporary tool that central banks only resort to in response 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 debt monetization will no longer be a crisis response measure but will be 'embedded' in the daily operations of the financial system. This will implant a potential, ongoing inflationary pressure in the economic system, making the Federal Reserve's task of controlling inflation exceptionally challenging in the future.
Secondly, the 'Iron Lock Connecting Boats'—a new mechanism for transmitting financial instability.
In this round of stablecoin frenzy, various forces have entered the game, and suddenly USDT, USDC, USDe, USDs, USD1... various stablecoin symbols are dazzling, leading people to jokingly say that the suffixes that can follow 'USD' are more than the 26 letters of the alphabet.
However, after the (GENIUS Act), regardless of what suffix follows your 'USD', if you want to operate compliantly in the largest capital market in the US, you must treat US debt as a core reserve asset. This is the origin of the title 'Iron Lock Connecting Boats': different stablecoins are 'boats,' but they are tightly linked together by 'US debt.' The consequences of 'Iron Lock Connecting Boats' may be unfamiliar to Americans, but they are all too familiar to Chinese.
The (GENIUS Act) thus creates an unprecedented, entirely new pathway for financial instability transmission. It tightly binds the fate of the digital currency market to the health of the US debt market in an unprecedented way.
On one hand, if a major stablecoin faces a crisis of confidence, it could trigger a massive wave of redemptions, forcing its issuer to sell a large amount of US debt in a short time. Such a 'fire sale' could disrupt the US debt market, the cornerstone of the global financial system, potentially leading to skyrocketing interest rates and broader financial panic.
On the other hand, if a crisis occurs in the US sovereign debt market itself (for instance, a debt ceiling standoff or a downgrade of sovereign credit ratings), it will directly endanger the safety of the reserves of all major stablecoins, potentially triggering a systemic 'run' on the entire digital dollar ecosystem.
The bill thus creates a two-way transmission channel that can amplify risks. Moreover, as stablecoins are new, public understanding is still shallow, and any panic triggered by even the slightest disturbance could be sharply amplified along this risk transmission chain.
Finally, there's the 'face'—an undeniable risk to credibility.
During the voting process for the (GENIUS Act), there were significant differences between the two parties. A major point of contention directly pointed to the president's conflict of interest. One provision in the act prohibits members of Congress and their families from profiting from stablecoin businesses—this is commendable to avoid suspicion. However, curiously, this ban does not extend to the president and his family.
Why is this point so sensitive? Because it is well-known that the Trump family is deeply involved in the crypto industry. The family-owned World Liberty Financial has issued a stablecoin named USD1, which has quickly risen in a short period. Trump himself reported receiving tens of millions of dollars in income from this company in his 2024 financial disclosure.
If you search for 'World Liberty Financial,' you will see its official website prominently stating, 'Inspired by Trump, Powered by USD1.' A head of state promoting a cryptocurrency like this has a strong scent of 'public resources for private use' (the last head of state to do so was Argentina's Javier Milei, known as 'Little Trump'). On one side is the president vigorously promoting the legalization of stablecoins, and on the other side, his own stablecoin business is thriving. This not only casts a shadow of 'interest transfer' over the bill itself but also damages the reputation of the entire Web3 and crypto industry, as if it has become a tool for political elites to profit.
Deeper risks lie in the fact that a bill with obvious partisan and personal interests will inevitably be unstable. Although it was passed under Republican leadership, the criticisms from the Democrats are ceaseless. Who can guarantee that a new government will not seek 'accountability' against the current president after a regime change in the future? At that time, will they choose to 'throw out the baby with the bathwater' due to their aversion to the interests entangled with the bill and directly abolish or overturn the entire stablecoin framework? This political uncertainty is undoubtedly a ticking time bomb for an industry that desperately needs long-term stable expectations.
? Power Games: Is it an 'Innovation Paradise' or a 'Giant's Backyard'? ?
The bill claims to 'promote innovation,' but if we scrutinize its rules, we may reach an entirely opposite conclusion.
The bill sets a set of stringent regulatory standards for stablecoin issuers 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 show that as many as 93% of fintech companies are struggling to meet unified regulatory requirements.
For startups, this is almost an insurmountable high wall. So, who can handle this easily? The answer is obvious: those well-established Wall Street giants and mature fintech companies. They have ready-made legal and compliance teams, substantial capital, and rich experience dealing with regulators.
The likely result is that this act, named 'Promoting Innovation,' actually digs a deep 'moat' for industry giants, ruthlessly blocking vibrant, disruptive small teams from entering. Ultimately, we may not see a flourishing ecosystem of innovation, but rather an oligopolistic market dominated by a few banks and 'co-opted' tech giants. This will once again concentrate systemic risk in those institutions that were proven to be 'too big to fail' during the 2008 financial crisis, perhaps only laying the groundwork for the next crisis triggered by oligarchs.
Although Tether has a mixed reputation, its 'startup myth' of rising from grassroots to becoming an industry giant and even the most profitable company per capita in the world, is likely to become a thing of the past after the (GENIUS Act).
?️ Agent Monitoring: Who is watching your wallet? ?️
While promoting the (GENIUS Act), lawmakers also loudly passed another bill—the (Anti-CBDC Surveillance National Act), claiming to have successfully prevented the government from issuing Orwellian central bank digital currencies (CBDCs) that could directly monitor our every transaction. This has been hailed as a 'great victory for privacy.'
But wait, could this just be a clever smokescreen?
The government indeed does not personally operate a centralized ledger, but what does the (GENIUS Act) do? It mandates that all private stablecoin companies must enforce strict identity verification (KYC) on users and record all transaction data.
Here, I want to use a famous case from the Web2 era to help everyone understand— the Snowden incident and the 'PRISM' program. Back then, the documents exposed by Snowden showed that the US NSA could directly obtain user emails, chat records, photos, and other privacy data from the servers of tech giants like Google, Facebook, and Apple through a secret project called 'PRISM.' Although this data nominally belongs to private companies, the government still has ways to access it.
This logic also applies under the (GENIUS Act). According to the deeply-rooted 'Third-Party Doctrine' in US law, the information you voluntarily provide to third parties (such as banks or stablecoin companies) is not fully protected by the Fourth Amendment of the Constitution. This means that government agencies are likely to be able to obtain your entire transaction history from stablecoin companies without a warrant in the future.
Do you understand? The government has simply 'outsourced' the monitoring and established an 'agent monitoring' system. This system functions almost identically to direct government oversight, even more covertly, because the government can shift responsibility to 'private companies,' thereby evading accountability politically and legally.
It is even somewhat ironic that the (GENIUS Act) is hailed as a major milestone in the history of blockchain development, as it takes a significant step towards 'Massive Adoption' that blockchain pioneers have long dreamed of. But at what cost? The anonymity and censorship resistance that blockchain pioneers value most have been completely neutered. I don't feel regret about this, as I deeply understand that perfect and flawless things do not exist in this world.
Conclusion
At this point, I believe everyone has a more nuanced and cautious understanding of the (GENIUS Act). It is by no means a simple black-and-white story.
For the US, this is like a sharp double-edged sword. In trying to consolidate the dollar's position and bring regulatory certainty, it may also exacerbate the plight of the real economy, sow the seeds of inflation, stifle genuine grassroots innovation, and erode our financial privacy in a more clever way.
The future has arrived, but where it will go requires each of us to remain alert and continue to ask questions.
This article is based on publicly available information and does not constitute investment advice. Cryptocurrency investments carry significant risks; please make cautious decisions and do your own research (DYOR).
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