Written by: Xiao Sa Legal Team
One of the hottest topics in the crypto circle these days is that Trump has made another 'move'. Just three days ago, on July 18, Trump officially signed the (Guidance and Establishment of the US Stable National Innovation Act) - also known as the 'GENIUS Act' - at the White House. This act marks the first formal establishment of a digital stablecoin regulatory framework in the US, with Bitcoin reserves and digital asset reserves officially becoming part of the US federal strategy.
On the same day, July 18, David Sack, known as the 'Crypto Tsar', emphasized two key legislative measures in the federal government during a digital asset press conference: the 'GENIUS Act' and the market structure regulatory framework. These two bills will also be pushed forward quickly. Although Trump claims to be 'unreliable', this stablecoin bill undoubtedly brings many positive factors to the cryptocurrency field. Today, the Sa Sister team will chat with old friends about the 'GENIUS Act' and the related stablecoins, discussing the possible regulatory direction for future crypto assets.
01 With the emergence of the 'GENIUS Act', does stablecoin investment become more secure?
The Sa Sister team found that among old friends, there are two extremes in understanding stablecoins. One extreme believes that stablecoins are completely different from virtual currencies and will not be affected by virtual currency regulations, especially those in mainland China. Some even think that the prohibition of 'issuing coins' in mainland China does not apply to stablecoins. The other extreme believes that stablecoins are like Bitcoin, capable of appreciating and yielding huge returns in a short time, making them a very good investment tool.
Both of these perspectives have significant issues. Regarding the belief that stablecoins are completely different from virtual currencies and that issuing stablecoins in mainland China is unregulated, the Sa Sister team has previously refuted this in writing. There is no need to elaborate further here. We mainly discuss the latter misconception: does the emergence of the 'GENIUS Act' mean that stablecoins are now more suitable for investment? Or can stablecoins yield huge profits like Bitcoin investments? The answer is undoubtedly negative.
The fundamental difference between stablecoins and virtual assets like Bitcoin is that stablecoins themselves do not appreciate; their value fluctuations entirely depend on the fiat currency they are pegged to. In fact, if we remove the context of blockchain, the Hong Kong dollar is a typical stablecoin, as it is pegged to the US dollar, making it a 'stablecoin' without the backing of blockchain. Can anyone say that the Hong Kong dollar is an investment tool? From a general perspective, this statement is clearly inappropriate. In other words, holding stablecoins largely equates to holding the cash that the stablecoins are pegged to. Therefore, neither the 'GENIUS Act' nor other stablecoin regulatory bills will change the nature of stablecoins as tools for preserving capital rather than investment targets.
To put it more bluntly, the emergence of the 'GENIUS Act' may benefit the institutions and companies issuing stablecoins rather than the stablecoins themselves. Stablecoins are like shadows of the fiat currencies they are pegged to, and the prospects of a stablecoin entirely depend on the fiat currency it is pegged to. This also reflects the definition of stablecoins in the 'GENIUS Act' - 'digital assets that maintain a fixed value through the support of fiat currency or other secure reserves.'
02 What impact does the 'GENIUS Act' have on enterprises and trade?
Previously, old friends would ask what qualifications are needed to issue stablecoins in places like the US/China Hong Kong/Singapore? What are the entry standards? There are also friends concerned about what conveniences stablecoins can bring to trade and payments? In summary, will the 'GENIUS Act' impact general enterprises?
The Sa Sister team first answers the first question: does the 'GENIUS Act' stipulate the entry standards and qualifications for stablecoin issuers? The answer is certainly affirmative - the 'GENIUS Act' specifies in Article 5 the qualifications for issuers of payment stablecoins. Article 5 of the 'GENIUS Act' states that only authorized payment stablecoin issuers can be legally authorized to issue payment stablecoins. Specifically, issuers of payment stablecoins must meet the following conditions: subsidiaries of insured deposit institutions authorized to issue stablecoins (subsidiaries regulated by relevant federal banking institutions); federally qualified non-bank payment stablecoin issuers (non-FDIC insured institutions regulated by the Office of the Comptroller of the Currency ('OCC')); or state-qualified payment stablecoin issuers operating under federal standards or state standards that are substantially similar to federal standards (state-chartered entities regulated by state banking institutions). Additionally, the 'GENIUS Act' also stipulates that stablecoin issuers with a market capitalization exceeding $10 billion will be subject to appropriate federal regulatory oversight. These provisions essentially establish the qualifications and entry standards for institutions that can issue stablecoins.
To answer the second question again, do stablecoins have a positive impact on cross-border trade between enterprises? The answer is also affirmative. In the past, cross-border transfers from the United States to Hong Kong could take five to six days and incur high fees. Stablecoins will significantly enhance the efficiency of cross-border payments and reduce costs, which is actually a tool beneficial for cross-border trade. Of course, in the long run, there may also be negative impacts on general enterprises. For example, the large-scale development of stablecoins may directly lead to a decrease in bank deposits, subsequently affecting banks' lending capabilities. If a company's cash flow relies on bank loans rather than financing from the capital market, then the large-scale development of stablecoins is likely to affect the operation of such enterprises. However, these can only be considered as 'secondary disasters'. In fact, the tremendous convenience brought by stablecoins in cross-border transfers is what truly benefits cross-border trade enterprises.
03 In conclusion
The Sa Sister team finally discusses the potential for stablecoin development in mainland China. US dollar stablecoins can significantly help the US consolidate its position in the global diplomatic and financial system. A simple example is that the US dollar is actually the de facto circulating currency in many countries (such as the often-cited Argentina and Turkey). US dollar stablecoins may weaken the central bank functions of these countries, thereby reinforcing the US dollar's position. At the same time, US dollar stablecoins may also influence the current rising trend of non-dollar settlement, which poses challenges.
Lastly, the Sa Sister team wants to emphasize again, stablecoins still belong to the category of virtual currencies and are still subject to strict regulation in mainland China. All financial activities related to virtual currencies are illegal. Moreover, due to the lack of a systematic, independent regulatory framework for stablecoins, stablecoins may also encounter issues related to the red line of 'disguised public deposit absorption' as defined in our country's (Regulations on Preventing and Dealing with Illegal Fundraising), and engaging in stablecoin-related businesses may touch upon restrictions regarding cross-border capital flows in foreign exchange management regulations. These are all red lines.
