Recently, the hottest topic in our circle is undoubtedly the recently signed "GENIUS Act" which has become law. In a moment, cheers erupted, and many believe that the United States has finally opened the door to Compliance for Crypto Assets, especially stablecoins. It seems we are standing on the eve of a trillion-dollar market explosion. Supporters claim that this move will solidify the global dominance of the dollar while providing consumers with unprecedented strong protection.

Doesn't it sound wonderful?

But as a person who has been educated in dialectical materialism since childhood, I firmly believe that "there's no such thing as a free lunch"; God has already secretly marked the price of every gift. Is this bill really as "brilliant" as it appears on the surface? Or is it hiding risks that we have yet to foresee beneath those shiny terms?

Today, let's thoroughly dissect the potential negative impacts that the "GENIUS Act" may bring, using the most straightforward and easy-to-understand language.

However, I must declare that as an active participant in the Crypto world, I personally welcome the introduction of the "GENIUS Act." After all, it brings blockchain and encryption technology into the daily lives of the general public, marking a key step towards "Massive Adoption," and it also adds a safety belt to the faltering process of globalization. Therefore, the various shortcomings listed in this article can be broadly interpreted as "alarmist warnings during prosperous times," or more narrowly, they can be regarded as my own thought exercise. Dear readers, just take it with a grain of salt and have a laugh.

Dollar Trap: Will the Dream of Manufacturing Reshoring Be Crushed by Stablecoins?

Let's start with the economy. One of the core goals of the bill is to make the US dollar stablecoin 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 coins with high-quality liquid assets (mainly short-term US Treasury bonds) on a 1:1 basis.

Imagine, when the whole world is using the US dollar stablecoin, how massive the demand for US Treasury bonds will need to be as reserves? This will create a huge and sustained pool of demand for US Treasury bonds. Global funds will flood into the US to purchase Treasury bonds, and the dollar will naturally become more "valuable"—what we often refer to as a "strong dollar."

This sounds like a tremendous boon for the United States, but there is a huge paradox hidden within it, especially regarding Trump's long-cherished "manufacturing resurgence", which is almost like pulling the rug out from under it.

Have you ever thought about a question: Why has the manufacturing industry in the United States become "hollowed out"? A key reason is the long-standing trade deficit. The amount of goods that the U.S. imports far exceeds what it exports, resulting in a significant outflow of dollars to the rest of the world. So, what can other countries buy with these dollars? Since the U.S. manufacturing industry has long been hollowed out, there are not that many "Made in America" products available for selection, except for a few high-tech products (besides, some high-tech products are simply not sold to us, even if you are willing to pay, like with China). Therefore, the vast majority of this money ends up purchasing U.S. Treasury bonds and financial products from Wall Street.

This creates a vicious cycle: Foreign capital flows into Wall Street → Driving up the dollar exchange rate → A strong dollar makes "Made in America" incredibly expensive overseas → Exports become more difficult, while imported goods appear cheaper → The trade deficit further widens → The competitiveness of domestic manufacturing continues to weaken.

Now, the "GENIUS Act" is here. It is like adding a super turbocharger to this vicious cycle. The global adoption of stablecoins means that the United States is issuing a "digital dollar" to the world, which will ignite an unprecedented demand for the dollar and U.S. Treasury bonds. What is the result? The value of the dollar will be pushed to an unprecedented high.

This is simply adding insult to injury for the domestic manufacturing industry in the United States. At the same time, it is also a heavy blow for American multinational companies with a significant proportion of overseas revenue, especially large technology and industrial giants. When their profits earned overseas in foreign currencies such as euros and yen are converted back into a strong dollar, the numbers on the financial statements will shrink significantly. This not only directly impacts the profitability of companies and depresses stock valuations, but it may even drag down the overall performance of major stock indices like the S&P 500.

The so-called "manufacturing reshoring" is likely to become an even 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 You Try to Tighten Your Grip, the Faster "De-dollarization" Will Accelerate?

The core economic argument of the "GENIUS Act" is to consolidate the global dominance of the dollar. However, in the long run, this excessively forceful move may actually accelerate the global centrifugal tendency away 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" attempts to further concentrate the core of the digital currency ecosystem within the regulatory boundaries of the US dollar. However, "The moon waxes and wanes, water rises and overflows"—it is precisely the fear of the weaponization of the financial system by the United States that has become the main driving force behind countries around the world seeking to "start anew."

For example, everyone is optimistic about the huge potential of stablecoins in cross-border payments, even fantasizing that it can replace SWIFT. But when did the term "SWIFT" become well-known among the Chinese public? It was precisely during the Russia-Ukraine war when SWIFT "excluded" Russia that many Chinese people began to feel alert. If stablecoins replace SWIFT in the future as the mainstream means of cross-border payments, wouldn't that be a self-inflicted injury to the dollar's hegemony?

Therefore, the "GENIUS Act" actually sends a clear signal to America's competitors: While the old order represented by SWIFT is facing disintegration, and the new order represented by stablecoins has not yet fully matured, the window of opportunity to establish alternatives has arrived before the new digital dollar system becomes deeply entrenched.

Although it is almost impossible to shake the dollar's hegemony in the short term, achieving "de-dollarization" in local markets is entirely feasible. The wave of "de-dollarization" led by Russia and China, with the support of BRICS countries like India and Iran, as well as other emerging markets, is developing at an unprecedented speed. The measures taken by these countries include: shifting to local currency settlement in bilateral trade, increasing gold holdings to replace dollar assets, and actively developing and promoting non-dollar digital currency payment systems to bypass SWIFT.

Debt and Credit: The Government's "Little Treasury" and "Household Affairs"

First is the "money bag" - the inescapable debt trap

As mentioned earlier, stablecoins have created enormous demand for U.S. Treasuries. What does this mean for the U.S. government? It means that borrowing money has become easier than ever!

Under normal circumstances, if a government excessively borrows, the market would demand higher interest rates as risk compensation due to concerns about its repayment ability, which serves as a natural "brake" mechanism. However, now with the existence of stablecoin issuers as this "hardcore buyer" group, it is equivalent to people around the world becoming buyers of U.S. Treasury bonds, artificially lowering borrowing costs. Governments can borrow more money more easily and cheaply, greatly weakening the constraints of fiscal discipline, making borrowing even more addictive.

This can be seen as a variant of "debt monetization" in economics. Although it is not the central bank directly printing money for the government to spend, the effects are highly similar: private companies issue "digital dollars" (stablecoins) and then use public money to purchase government bonds, essentially financing the government deficit by expanding the money supply. The end result is likely inflation, which acts as an "invisible tax" that unknowingly transfers wealth from our pockets.

More dangerously, it may transform inflation risk from a cyclical policy choice into a structural feature of the financial system. Traditionally, large-scale debt monetization is an unconventional, temporary tool that central banks only deploy 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 routine operations of the financial system. This will implant a potential and persistent inflationary pressure within the economic system, making the Federal Reserve's task of controlling inflation exceptionally challenging in the future.

Secondly, it is "Iron Lock Linking Boats" - a new financial instability transmission mechanism

In this round of stablecoin frenzy, various forces have entered the arena, and for a moment, the symbols of various stablecoins such as USDT, USDC, USDe, USDs, and USD1 are dazzling. People even jokingly say that the 26 letters are not enough for all the suffixes that can follow "USD".

However, after the "GENIUS Act", regardless of what suffix follows your "USD", to operate in compliance in the United States, the world's largest capital market, you must treat U.S. Treasury bonds as your core reserve asset. This is the origin of the section title "Iron Chains Connecting Boats": different stablecoins are the "boats", tightly connected together by the "U.S. Treasury bonds" chain. The consequences of "Iron Chains Connecting Boats" may be unfamiliar to Americans, but Chinese people are certainly well aware of it.

The "GENIUS Act" thus creates an unprecedented and entirely new conduit for financial instability. It tightly binds the fate of the digital currency market to the health of the U.S. Treasury market in a way that has never been seen before.

• On one hand, if a major stablecoin experiences a crisis of confidence, it could trigger a massive wave of redemptions, forcing its issuer to sell off a large amount of U.S. Treasury bonds in a short period of time. This kind of "fire sale" could disrupt the U.S. Treasury bond market, which is a cornerstone of the global financial system, potentially leading to soaring interest rates and broader financial panic.
• On the other hand, if a crisis occurs in the U.S. sovereign debt market itself (for example, a debt ceiling stalemate or a downgrade of sovereign credit ratings), it will directly threaten the safety of reserves for all major stablecoins, potentially triggering a systemic "run" on the entire digital dollar ecosystem.

The bill thus creates a bidirectional contagion channel that can amplify risks. Moreover, as a new entity, the public's understanding of stablecoins is still shallow; any panic caused by minor disturbances could be sharply amplified in this risk transmission chain.

Finally, it's "Face" - An Indispensable Reputation Risk

In the voting process of the recent "GENIUS Act", there were significant divisions between the two parties. A major point of controversy directly pointed to the president's conflict of interest issue. One provision in the act prohibits members of Congress and their families from profiting from stablecoin businesses – which is good, to avoid suspicion. But strangely, 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 encryption industry. Their family-held World Liberty Financial company has issued a stablecoin called USD1, which has rapidly risen in a short period. Trump himself reported in his 2024 financial disclosure that he received tens of millions of dollars in income from this company.

If you search for "World Liberty Financial", you will see its official website title boldly stating "Inspired by Trump, Powered by USD1". A head of state endorsing a cryptocurrency, this kind of "using public office for private gain" feels a bit too strong (the last head of state to do this was Argentine President Javier Milei, known as "Little Trump"). On one hand, the president is vigorously promoting the legalization of stablecoins, while on the other hand, the family's 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.

The deeper risk lies in a bill that is clearly colored by partisan and personal interests, which inevitably raises concerns about its stability. Although it was passed under Republican leadership this time, the criticisms from the Democrats are incessant. Who can guarantee that after a change of power in the future, the new government will not seek to "settle scores" with the current president? At that time, will they choose to "throw out the bathwater with the baby" due to their aversion to the interests entangled behind the bill, directly abolishing or overturning the entire stablecoin framework? This political uncertainty is undoubtedly a ticking time bomb for an industry that desperately needs long-term stable expectations.

Game of Thrones: Is it an "Innovation Paradise" or a "Giant's Backyard"?

The bill claims to "promote innovation," but if we closely examine its rules, we may reach an entirely opposite conclusion.

The legislation 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 translates to extremely high compliance costs. Research shows that as many as 93% of fintech companies are struggling to meet these unified regulatory requirements.

For startups, this is almost an insurmountable barrier. So, who can handle it easily? The answer is obvious: the well-established Wall Street giants and mature fintech companies. They have ready-made compliance teams, strong capital, and extensive experience in dealing with regulatory agencies.

The result is likely that this bill, named "Promoting Innovation," actually digs a deep "moat" for industry giants, ruthlessly blocking vibrant and disruptive small teams from entering. In the end, we may not see a flourishing innovation ecosystem, but rather an oligopoly market dominated by a few banks and "recruited" tech giants. It will once again concentrate systemic risk on 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 the oligarchs.

Although Tether has a mixed reputation, its "entrepreneurial myth" of rising from grassroots to becoming an industry giant and even the highest profit-per-capita company globally is likely to become a distant echo after the "GENIUS Act".

Agent Monitoring: Who is Watching Your Wallet?

While promoting the GENIUS Act, lawmakers also prominently passed another bill—the Anti-CBDC Surveillance National Act—and declared they successfully prevented the government from issuing an "Orwellian" central bank digital currency (CBDC) that could directly monitor every one of our purchases. This is hailed as a "great victory for privacy."

But wait a minute, could this just be a clever smokescreen?

The government has not personally operated a centralized ledger, but what does the "GENIUS Act" do? It mandates that all private stablecoin companies must conduct strict identity verification (KYC) for users and record all transaction data.

Here, I would like to use a famous case from the Web2 era to help everyone understand - the Snowden incident and the "PRISM" program. At that time, the documents exposed by Snowden showed that the U.S. NSA could directly obtain users' emails, chat records, photos, and various types of private 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 obtain it.

This logic also applies under the "GENIUS Act". According to the deeply rooted "Third-Party Doctrine" in U.S. 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 all your transaction records from stablecoin companies in the future without a search warrant.

Do you understand? The government has simply "outsourced" the monitoring and established a "proxy monitoring" system. This system is functionally no different from direct government monitoring, and it is even more covert because the government can shift the responsibility to "private companies," thereby evading accountability politically and legally.

It is somewhat ironic to say that the "GENIUS Act" is hailed as a significant milestone in the history of blockchain development, as it has taken a giant leap towards "Massive Adoption" for blockchain and encryption technology that pioneers have long yearned for. But at what cost? The anonymity and censorship-resistance that blockchain pioneers value most have been completely castrated. As for my attitude towards this, I can't say I feel regretful, because I know well that flawless things do not exist in this world.

Conclusion

At this point, I believe everyone has a more comprehensive and cautious understanding of the "GENIUS Act." It is by no means a simple black-and-white story.

For the United States, it is like a sharp double-edged sword. While trying to consolidate the position of the dollar and bring regulatory certainty, it may also exacerbate the difficulties of the real economy, plant the seeds of inflation, stifle true grassroots innovation, and erode our financial privacy in a smarter way.

The future has arrived, but where will it go? It requires each of us to stay alert and continue to ask questions.