From Nixon Shock to the GENIUS Act: The Digital Evolution of Dollar Hegemony

The U.S. "GENIUS Act" establishes a regulatory framework for digital dollars, impacting Tether, Favourable Information for Circle, and reshaping the stablecoin landscape.

Source: The GENIUS Stablecoin Play

Organized & Compiled by: Lenaxin, ChainCatcher

On August 15, 1971, President Nixon introduced a series of economic policies: the severing of the dollar's link to gold, the freezing of wages and prices, and a 10% import tariff. "I have instructed the Secretary of the Treasury to take necessary measures to protect the dollar from speculators' attacks." This declaration, which changed the global monetary system, later became known as the "Nixon Shock" and was more criticized than praised at the time.

This week, the U.S. Senate passed the GENIUS stablecoin bill with an overwhelming vote of 68 to 30, marking a key step in establishing the first comprehensive regulatory framework for a digital dollar in the United States. Unlike the hasty abandonment of the gold standard by Nixon back in the day, this legislation builds a prudent and meticulous monetary infrastructure for the digital age. According to Citigroup's forecast, the current $250 billion stablecoin market could soar to $3.7 trillion by 2030 in a bull market scenario.

The bill is pending a vote in the House of Representatives and presidential signature. This in-depth report will analyze:

• How does this legislation reshape the financial system?
• Why is Tether facing a survival crisis?
• Has the United States truly reached a watershed moment in its monetary system?

Digital Dollar Blueprint

The "GENIUS Act" sets clear boundaries for the field of digital currency. Unlike the previous fragmented regulation of cryptocurrencies, this act establishes clear standards:

The core requirement is straightforward: stablecoin issuers must maintain a 1:1 reserve of US dollars, short-term government bonds within 93 days, or equivalent liquid assets, and are required to undergo mandatory public audits every month. Interest-bearing stablecoins are explicitly prohibited.

Only three types of entities can issue payment stablecoins: subsidiaries of insured banks, federally qualified non-bank issuers approved by the Office of the Comptroller of the Currency, or state-qualified issuers that meet federal standards. Foreign issuers are granted only a three-year transitional period, and those who do not comply by the end of this period will be completely excluded from the U.S. market.

The bill classifies stablecoins as "digital currencies" rather than special crypto assets, transforming them from a chaotic experiment into a legitimate financial infrastructure through monthly reserve disclosures, criminal accountability for false statements, and compliance with the Bank Secrecy Act. This move not only establishes the legal status of the digital dollar but also systematically eliminates non-compliant participants.

Competition Intensifies

For Tether, the world's largest stablecoin issuer, the "GENIUS Act" is like a precisely worded three-year countdown ultimatum. The USDT issuer, which currently holds a 62% share of the stablecoin market, may face the most severe impact — confirming the market law that "a tall tree catches the wind."

Tether's current reserve structure does not comply with the requirements of the law, and its official website shows that only 81.5% of USDT is backed by cash and short-term deposits, failing to meet the 1:1 high liquidity asset standard. Its Italian auditing firm BDO also does not meet the qualification requirements of the PCAOB in the United States and needs to rebuild its auditing system.

Although the CEO promised to launch compliant products, Tether's business model, which relies on high-yield investments, directly conflicts with the bill's prohibitions. During the three-year transition period, USDT will lose institutional support from banks, payment providers, and corporate finance, leading to a continued reduction in use cases.

As the issuer of USDC, Circle's stock price surged by 35% after the bill was passed, with a market value reaching 5 times the issue price. Its advantages in the US market, compliant reserves, and banking partnership network capitalize on regulatory benefits, and the recent integration of USDC payments by Shopify further highlights its expansion momentum.

The Game of Security and Innovation

The most controversial provision of the "GENIUS Act" is the complete ban on interest-bearing stablecoins, reflecting the deep lessons learned by Congress from the collapse of cryptocurrency leverage events. The core idea is that payment tools should not have investment attributes. When stablecoins generate returns, their nature approaches that of bank deposits or securities, and the traditional banking system manages such systemic risks through mechanisms like deposit insurance and capital adequacy ratios.

This will have a direct impact on decentralized finance (DeFi) protocols that rely on interest-bearing stablecoins. The bill explicitly excludes "securities issued by investment companies" and "deposits" from the regulatory scope, meaning that users seeking returns can only turn to tokenized bank deposits or regulated investment products.

But controversy follows. Although users bear the opportunity cost of holding non-yielding assets, stablecoin issuers can still generate returns by investing in yield-generating instruments. This trade-off has garnered institutional confidence far exceeding the value lost from DeFi yields: requirements such as monthly reserve transparency, mandatory anti-money laundering compliance, and transaction monitoring are transforming stablecoins from marginal experiments in the crypto space into formal financial infrastructure.

Today, large banks can regard compliant stablecoins as true cash equivalents, corporate finance departments can hold them with confidence, and payment service providers can interface with them based on their characteristics that meet banking standards. This institutional recognition may reshape the entire financial ecosystem.

Scalable Application Infrastructure

The "GENIUS Act" builds a regulatory foundation for the integration of stablecoins into mainstream finance through the two pillars of custodial protection and compliance clarity.

The custody framework requires qualified custodians to segregate client assets, prohibit the mixing of funds, and ensure priority in bankruptcy settlements, extending traditional financial protections to the digital asset space.

• For retail users, the legislation retains self-custody rights while requiring service providers to meet bank-grade standards, ensuring that regulated stablecoin wallets enjoy the same level of protection as bank accounts.
• In terms of enterprise applications, cross-border settlements can be shortened to the minute level, supply chain payments achieve programmable circulation, and fund management breaks through holiday restrictions. Individual users can also enjoy fast cross-border transfers, exempting them from high fees.

The bill also mandates the assessment of interoperability standards to ensure the cross-platform circulation of stablecoins and to prevent regulatory fragmentation from hindering innovation.

Landing Challenge

Although the "GENIUS Act" has received bipartisan support, it still faces multiple challenges for implementation.

1 Compliance costs will reshape the market landscape. The monthly audits, complex reserve management, and ongoing regulatory reporting required by the legislation effectively create a high compliance threshold. Large issuers can easily cope with this due to their scale advantages, while small and medium-sized stablecoin enterprises may be forced to exit the market due to the sharply increased operational costs.

2 Cross-border frictions hinder global applications. European companies that use USD-pegged stablecoins may face "currency conversion" and "foreign exchange risk" issues. Heiko Nix, head of global cash management and payments at German industrial giant Siemens, told Bloomberg that this is exactly why the company chose to tokenize bank deposits.

3 The return rate ban may force innovation to flow out. If other jurisdictions allow interest-bearing stablecoins, the United States may maintain financial stability but could lose technological leadership. DeFi protocols relying on interest-bearing stablecoins will face a cliff-like impact if they cannot find compliant alternatives.

4 The coordination between state and federal regulation introduces new variables. The bill allows issuers with a market capitalization of less than 10 billion USD to choose a state-level regulatory framework, but they must demonstrate that their standards are "substantially similar" to federal requirements. State regulators are required to proactively submit compliance proof, and the treasury secretary has the authority to veto the certification, forcing reluctant issuers to transition to the federal regulatory framework.

Token Dispatch Observation

The Republican Party controls the House of Representatives with a margin of 220-212, and the passage of the bill is almost certain, but its implementation will test the art of balancing innovation and regulation in the United States. This bill may reshape the currency sovereignty landscape in the digital age, just as the "Nixon Shock" controversially ended the gold standard in 1971; today, the "GENIUS Act" may usher in a new era of digital dollars. Its core mechanism is to mandate that all compliant stablecoins are backed by USD / U.S. Treasuries, thereby directly converting global stablecoin demand into dependency on the USD system.

The bill introduces a "substantially similar" reciprocity clause: compliant entities are allowed to enter the U.S. market, while those that refuse are isolated from the market. Ironically, this technology, originally created to evade centralized regulation, has instead become a tool to reinforce dollar hegemony. Crypto fundamentalists will have to confront this institutional irony.

Traditional financial institutions see it as a turning point for digital assets to integrate into mainstream finance, while the 35% surge in Circle's stock price confirms the choice of capital: a clear regulatory framework is far more attractive than a wild growth market. When technological idealism meets real-world regulation, the market has cast its vote of confidence with real money.