The "GENIUS Act" has been passed by the U.S. Senate, providing an overview of the global regulatory landscape for stablecoins

Author: Tuo Luo Finance

Whether acknowledged or not, in terms of application, the current crypto world does not differ fundamentally from the crypto world five or even ten years ago. Of course, the scale is continuously increasing, with DeFi being one of the biggest highlights, but ultimately, the crypto market's applications that have truly gained traction are primarily currency-related. Besides Bitcoin, stablecoins are the other significant player.

Both have gained traction, but their paths are quite different. Bitcoin has captivated people with its astonishing growth curve, achieving a hundredfold increase and successfully legitimizing itself as a major representative of decentralized currency. However, when measured by practicality rather than value, stablecoins are the true examples of large-scale adoption of crypto on a global scale.

As of now, the global market capitalization of stablecoins has reached $243.8 billion. According to panel data provided by Visa, in the past 12 months, the total transaction volume of stablecoins has reached $33.4 trillion, with a staggering 5.8 billion total transactions, and the number of unique active addresses has also reached 250 million.

With high frequency and large scale, it is evident that the demand and application logic for stablecoins have essentially matured. However, from a regulatory perspective, stablecoins are still in a phase of adjustment. In recent years, global regulations surrounding stablecoins have been continuously improving. Just today, the U.S. Senate voted to pass the "Guidance and Promotion of U.S. Stablecoin National Innovation Act" (also known as the GENIUS Act), clearing another obstacle for global stablecoin regulation.

01. Rapid Development of Stablecoins, Prominent Head Effect

Stablecoins, as the name suggests, are a type of crypto asset that provides value stability by being pegged to underlying assets such as fiat currencies, precious metals, commodities, or asset combinations. Their main goal is to eliminate the volatility inherent in many cryptocurrencies, providing users with reliable settlement, value storage, and investment tools. As a measure of value in the crypto market, every expansion of stablecoins reflects the growth of the industry. In 2017, the total circulation of stablecoins globally was less than $1 billion, but now it has approached $250 billion, while the global crypto market has grown from less than $1 trillion to $3 trillion, moving from a small niche market to mainstream visibility.

From recent data, this bull market can be seen as a bull market for stablecoins. After the FTX incident, the global supply of stablecoins dropped from $190 billion to $120 billion, but subsequently, the supply of stablecoins has steadily increased over the past 18 months, corresponding with Bitcoin's rise from a low of $17,500 to above $100,000. The reason for this is that the liquidity in this bull market comes from external institutions, which typically prefer stablecoins as a medium of exchange when they enter the market, thus showing a characteristic of increased external liquidity and growing stablecoin scale.

As of now, the types of stablecoins are diverse and complex. They can be categorized into centralized and decentralized stablecoins based on their control centers, into dollar stablecoins and non-dollar stablecoins based on fiat currency types, and even into interest-bearing and non-interest-bearing stablecoins. They can also be subdivided based on collateral types, such as U.S. Treasury bonds, U.S. dollars, or digital asset-backed stablecoins, covering a wide range. Unlike other use cases, although the market has begun to see interest-bearing or rebate stablecoins, due to their stable value, stablecoins essentially serve as core pricing tools, not for speculation, and are largely free from official institutional restrictions, making them globally adoptable. This lays the foundation for stablecoins to leap into the realm of global currency.

In terms of coverage, besides mainstream regions like Europe, the U.S., Japan, and South Korea, emerging markets such as Brazil, India, Indonesia, Nigeria, and Turkey, especially those with weak financial infrastructure and high inflation, have begun to use stablecoins for everyday transactions. According to a report released by Visa last year, the most popular use of stablecoins outside of crypto is as a currency substitute (69%), followed by payment for goods and services (39%) and cross-border payments (39%).

It is evident that stablecoins have begun to shed the label of crypto investment and become an important entry point for the integration of the crypto market with the global economy. Against this backdrop, the development landscape of global stablecoins has also attracted attention. In terms of market share, dollar stablecoins account for 99% of the stablecoin market, leading to stablecoins being humorously referred to as the "dollar branch."

In detail, due to the inherent scale effect of currency, the strong get stronger, and the head effect is a key characteristic in the field of stablecoins. Centralized stablecoins dominate, with USDT being the absolute leader, holding a market share of $152 billion, accounting for 62.29% of the total market. The second is USDC, with a market size of about $60.3 billion, accounting for 24.71%. Together, these two account for over 80% of the total market, indicating a high degree of concentration. The third is USDe, which has emerged with a unique mechanism and high yield, classified as a semi-centralized stablecoin, currently with a market size of $4.9 billion. Since the Terra incident, algorithmic stablecoins have declined, with only the decentralized stablecoin in the Sky ecosystem, USDS, remaining prominent at about $3.5 billion, while DAI has shrunk to a mere $4.5 billion due to diversion effects. In terms of public chains, Ethereum holds an absolute dominant position, with a market share of 50%, followed by Tron (31.36%), Solana (4.85%), and BSC (4.15%).

From a business perspective, the issuance of stablecoins is a harmless transaction. Large-scale issuance allows the issuing institutions to bring their marginal costs close to zero. The method of directly exchanging digital currency for cash allows issuers to earn substantial risk-free profits. Taking Tether, the issuer of USDT, as an example, according to its revenue report for 2024, it achieved a net profit of $13.7 billion in one year, with the group's net assets soaring to $20 billion, while the company has only 165 employees, showcasing an astonishing employee productivity. Such high returns have attracted various institutions to enter the market. In recent years, traditional financial institutions like Visa and PayPal have been actively laying out this sector, and internet companies are also eager to participate. Besides Meta overseas, domestic JD.com is also hoping to get a share in Hong Kong. Currently, the Trump family project WLFI is also launching a stablecoin USD1, which soft-launched on April 12 and has quickly expanded, integrating over 10 protocols or applications.

02. Regulatory Adjustment Accelerates, U.S. Senate Passes the GENIUS Act

As institutions rush in, regulation has also arrived as expected. So far, globally, including the U.S., EU, Singapore, Dubai, and Hong Kong, have begun or are already improving legislation around the stablecoin framework. The U.S., as a crypto hub, is undoubtedly the most watched region globally.

In terms of U.S. regulation, stablecoins have undergone a complete process from high uncertainty to certainty. Until 2025, the U.S. Congress had not issued specific regulations for stablecoins and cryptocurrencies. In the existing regulations, the SEC, CFTC, and OCC have defined stablecoins to gain dominance in this emerging sector. The Financial Crimes Enforcement Network (FinCEN) is responsible for regulating entities engaged in the issuance and trading of cryptocurrencies through a licensing system, while the SEC relies on securities laws to classify some stablecoins (such as BUSD and USDC) as securities. The CFTC focuses on anti-fraud and anti-market manipulation regarding stablecoins. The complex regulatory nesting has made it difficult to define the entities involved. Under the U.S. administrative system, the state-level regulatory environment for stablecoins has also shown a trend of diversification, with state laws requiring currency dealer licenses. For example, New York has an independent cryptocurrency license.

It is evident that before 2025, the regulation of stablecoins was quite fragmented, even leading to regulatory chaos due to the tug-of-war among regulatory agencies, bringing high uncertainty and compliance challenges to the stablecoin industry. However, as time has progressed, with Trump taking office, the regulation of stablecoins has been accelerated.

As early as February of this year, Bryan Steil, chairman of the House Digital Assets Subcommittee, and French Hill, chairman of the Financial Services Committee, submitted the "2025 Stablecoin Transparency and Accountability Promotion Ledger Economy Act" (abbreviated as "STABLE") draft. In the same month, Senators Bill Hagerty, Tim Scott, Kirsten Gillibrand, and Cynthia Lummis jointly proposed the "Guidance and Establishment of U.S. Stablecoin National Innovation Act" in the Senate.

The simultaneous introduction of these two bills is not accidental but a proactive action under top-level support. At the first crypto summit held at the White House in March this year, Trump expressed interest in stablecoins, stating that this would become a "promising" growth model and explicitly hoped that Congress would submit relevant legislation to the President's office before the August recess, sending a clear signal.

On March 17, the Senate Banking Committee passed the GENIUS Act with bipartisan support, 18 votes in favor and 6 against, officially submitting the bill to the Senate. On March 26, the STABLE Act successfully submitted a revised version and was passed by the House Financial Services Committee on April 3, submitting it to the House for a full vote.

Although both are stablecoin bills, their focuses differ slightly. STABLE prioritizes federal unified control, while GENIUS emphasizes building a dual regulatory system that operates in parallel at the state and federal levels. STABLE limits issuance qualifications to insured deposit institutions and federally approved non-bank institutions, while GENIUS allows more types of issuers to enter the market. Both require a 1:1 reserve backing and monthly disclosures, but STABLE is stricter, requiring additional insurance from the Federal Deposit Insurance Corporation (FDIC) and imposing a two-year ban on algorithmic stablecoins, while GENIUS allows exploration of algorithmic stablecoin mechanisms under specific conditions. Additionally, the GENIUS Act supports stablecoins providing interest or returns to holders, while the STABLE Act explicitly prohibits interest payments.

In practice, both bills face various criticisms. State governments oppose federal priority in regulating STABLE, some industry participants express dissatisfaction with the stringent terms, while GENIUS mainly faces discussions about compliance costs, arguing that the dual-track system will increase compliance costs and that the bill overly focuses on the U.S. domestic market, neglecting the needs of third-world countries.

Currently, the GENIUS Act is progressing more rapidly than STABLE. On May 9, during a Senate vote, the GENIUS Act failed with 48 votes in favor and 49 against, due to Democrats demanding stronger anti-corruption clauses and prohibiting members of the executive branch from holding cryptocurrencies, accusing Trump of crypto corruption, but the Republicans did not relent. In response to this incident, the U.S. Treasury Secretary tweeted that U.S. lawmakers are doing nothing and expressed dissatisfaction with the decision.

Shortly thereafter, the GENIUS Act made another attempt, and in the updated version, it divided the regulatory mechanism by scale, with stablecoins over $10 billion in assets being federally regulated, while those below $10 billion would be self-regulated by the states. It also clarified the separation from U.S. insurance credit and government credit to reduce systemic risk and added restrictions on technology companies' participation in stablecoins. Although the updated bill still does not address the ethical standards questioned by the Democrats, it has made progress in protecting investors and existing mechanisms. Against this backdrop, some Democrats successfully switched sides, and on the evening of the 19th, the U.S. Senate passed the procedural motion for the GENIUS Act with a vote of 66 in favor and 32 against, clearing the way for final legislation. The next step will enter the Senate's full debate and amendment process, followed by submitting the bill to the House for review. Considering the relatively low threshold for passage in the House, the likelihood of this bill being submitted to the President's office for signature and becoming final legislation is very high.

The passage of this bill is undoubtedly an important milestone in the history of U.S. crypto assets, filling the regulatory gap for U.S. stablecoins, clarifying regulatory subjects and rules, and further promoting the vigorous development of the U.S. stablecoin industry, contributing to the mainstreaming of the crypto industry. From the perspective of the U.S. itself, after the regulations are enacted, the benefits of the dollar penetrating deeply based on stablecoins will become more pronounced, and the trend of the crypto market becoming an appendage to the dollar will continue to strengthen, providing a core drive for building centralized and decentralized hegemony for the dollar. It is worth noting that regardless of the bill, all require stablecoin holders to hold U.S. Treasury bonds, dollars, etc., which also creates new and sustained demand for U.S. Treasury bonds.

03. Outside the U.S., Global Stablecoin Regulation Has Begun to Take Shape

With clear stablecoin regulation expected by 2025, it is evident that the regulation of stablecoins in the U.S. is not leading the way. In fact, even before the U.S., the EU had introduced the Markets in Crypto-Assets (MiCA) bill, providing a comprehensive regulatory framework for all crypto assets, including stablecoins. In terms of stablecoins, MiCA categorizes them into asset-referenced tokens and electronic money tokens, also prohibiting algorithmic stablecoins. It requires stablecoin issuers, especially those with a certain market scale, to maintain a 1:1 capital reserve, comply with transparency rules, and register with EU regulatory authorities. Meanwhile, the European Insurance and Occupational Pensions Authority (EIOPA) has recommended strict capital management systems for insurance companies holding crypto assets (including stablecoins), requiring them to maintain a 100% capital adequacy ratio for such assets and treating them as zero-value assets in solvency calculations.

Beyond the EU, Hong Kong is also a leader in stablecoin regulation. On December 6, 2024, the Hong Kong government published the "Stablecoin Bill" in the Gazette and submitted it to the Legislative Council for a first reading on December 18. According to the latest news, the plan will resume second reading debates at the Legislative Council meeting on May 21. Hong Kong's approach to stablecoin legislation shows a cautious and inclusive attitude, also adopting a licensing system for management, clearly stating that issuers must establish themselves in Hong Kong, have sufficient financial resources and liquid assets, and pay a minimum capital of HKD 25 million. They must ensure that reserve assets are segregated from other reserve asset combinations and specify that the market value of the reserve asset combination must at all times be at least equal to the face value of the outstanding and circulating stablecoins, i.e., a 1:1 reserve. Earlier, in July of last year, the Hong Kong Monetary Authority announced the list of participants in the stablecoin issuer "sandbox," including JD Coin Chain Technology (Hong Kong) Limited, Yuan Coin Innovation Technology Limited, Standard Chartered Bank (Hong Kong) Limited, Anni Group Limited, and Hong Kong Telecommunications Limited.

In addition to the regions mentioned above, Singapore and Dubai have also engaged in stablecoin regulation, with Singapore releasing a stablecoin regulatory framework in 2023, while Dubai has included stablecoins in the "Payment Token Services Regulations."

Overall, the differences in global stablecoin regulation are limited, with latecomers showing clear signs of absorbing the experiences of earlier adopters. Global regulatory agencies focus on licensing to regulate issuers and have made clear provisions regarding reserve issuance, risk isolation, anti-money laundering, and counter-terrorism, with differentiation mainly reflected in the categories of allowed stablecoins, restrictions on issuers, and localized anti-money laundering compliance.

However, the successive introduction of stablecoin regulations in major global regions reflects that the role of stablecoins in the global financial market is transitioning from being overlooked to a competitive arena, with stablecoins gradually becoming an important part of the global currency market. This not only enhances the voice of the crypto market but also adds a significant chapter to the killer applications in the crypto field. On the other hand, third-world countries can also use stablecoins for 24-hour global settlements, which truly realizes Satoshi Nakamoto's original vision—free electronic cash.

Time changes everything, and life is full of changes. After a century of crypto, how many proclaimed value applications will still exist after the sands of time? As it stands, at least stablecoins and Bitcoin still hold their significance.