Dollar on the blockchain: The bigger game behind the GENIUS Act

The total market value of stablecoins has surpassed $320 billion, with USDT and USDC holding more U.S. Treasury bonds than Australia’s national foreign exchange reserves. Nearly a year after the signing of the “GENIUS Act” in the United States, supporting regulations are rapidly being implemented. This is not just a piece of crypto regulation law— it is a strategic restructuring of dollar hegemony in the digital age.

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1. Four days ago, the BIS sounded the alarm

On April 20, 2026, the General Manager of the Bank for International Settlements (BIS), Pablo Hernández de Cos, issued the strongest warning on stablecoins to date. He specifically named USDT and USDC— which together account for about 90% of the $320 billion stablecoin market— bluntly stating these assets behave more like investment products than cash, and pointed out five specific risks: credit supply contraction, financial stability turmoil, monetary policy failure, erosion of fiscal sovereignty, and regulatory arbitrage.

BIS’s warning is not accidental. It chose to speak out at this juncture precisely because the size of stablecoins has already touched a genuine systemic threshold.

For reference: Australia’s foreign exchange reserves are about $150 billion, Brazil’s approximately $145 billion. The U.S. Treasury bonds held by two private companies already exceed the reserves of most medium-sized economies. This means the issuance pace of stablecoins has substantially impacted the short-term U.S. Treasury yields— a domain once monopolized by the Federal Reserve.

2. The GENIUS Act: America’s first federal stablecoin law

To understand the current situation, one must start from the source. On July 18, 2025, Trump officially signed the “Guidance and Establishment of the U.S. Stablecoin National Innovation Act” (GENIUS Act), marking the first federal legislation in U.S. history specifically targeting payment stablecoins, signaling the transition from “fragmented enforcement” to “systematic governance” of crypto regulation.

The core provisions of the bill are not complex, but each clearly reflects specific political and economic intentions:

① 100% Reserve Requirement: Issuers must collateralize with U.S. dollars in cash or U.S. short-term Treasury bonds maturing within 93 days, completely banning the previous practice of Tether using commercial paper. ② Dual Licensing System: Issuers with a market cap over $10 billion are directly regulated by the Federal Reserve and OCC; smaller issuers can opt for state-level regulation but must meet “substantive equivalence” standards. ③ Mandatory Technical Freeze Capabilities: Issuers must have the technical ability to freeze, destroy, or block specific transactions upon lawful orders— applicable not only to U.S. entities but also to foreign issuers entering the U.S. market. ④ Complete Ban on Algorithmic Stablecoins: Lessons from the TerraUSD collapse in 2022 are directly incorporated into legislation, making all stablecoins not fully backed by assets illegal.

After the bill was signed, supporting regulations quickly followed. In March 2026, the OCC released a draft implementing the GENIUS Act; in April, the Treasury issued principles for state-level regulatory equivalence, FinCEN and OFAC jointly published anti-money laundering and sanctions compliance requirements, and FDIC also announced detailed implementation rules for its regulated institutions. The regulatory framework rapidly took shape within these months.

3. The battle for stablecoin yields: who is protecting whose interests?

However, as the regulatory framework accelerates, a game over whether stablecoins can pay interest nearly derailed the next phase of legislation— the CLARITY Act.

The starting point was Coinbase CEO Brian Armstrong. In January 2026, he publicly withdrew support for the Senate Banking Committee’s version of the CLARITY Act, mainly because: the Senate version explicitly bans stablecoin issuers and their related distribution platforms from paying any form of passive income to holders. If enacted, this would directly cut off Coinbase’s stablecoin interest business— which brought in $355 million in Q3 2025. Just hours after Armstrong withdrew support, Senate Banking Committee Chair Tim Scott announced a delay in the review process.

The American Bankers Association (ABA) and other banking lobbying groups strongly pushed for this ban, citing simple logic: if stablecoins can offer returns close to short-term U.S. Treasury yields (historically 3.5%-5%), while bank deposit rates are near zero, it would trigger trillions in deposit shifts, threatening community banks’ lending capacity.

— Lobbing stance of the American Bankers Association, early 2026

But the White House Council of Economic Advisers (CEA), in a report released on April 8, directly countered this logic: banning stablecoin yields entirely would only increase bank loans by about $2.1 billion (less than 0.02%), while causing a net welfare loss of $800 million for consumers. Even under the most extreme assumptions, the boost to community bank loans would be minimal.

On March 20, Senators Tillis and Alsobrooks proposed a compromise framework: “rewards” linked to user activity could be permitted, while purely passive savings yields would be banned. The problem is, there are no clear legal or technical precedents delineating the boundary between the two. This debate is essentially a game of interests, with banking, crypto-native institutions, regulators, and Congress each staking their claims in a redefinition of boundaries.

4. The four-party game: who wins, who loses, who watches

Winner: USDC (Circle)

Leading in compliance, with monthly audits, and a regulatory framework tailored to the GENIUS Act, institutionalizing its competitive advantage. Expected to hold over 90% of the compliant market share.

Adapter: USDT (Tether)

Offshore operation mode under pressure, but with a market cap of $320 billion and a circulating supply of $18.7 billion, surpassing most sovereign reserves. Regulatory compliance will be its only ticket into the U.S. market.

Damaged: Small and medium crypto platforms

High costs of licensing and compliance barriers will push most small and medium stablecoin projects out of the competitive arena. The leading platforms like Coinbase will see their moat deepen.

Strategic observers: Hong Kong & Asian markets

Hong Kong’s “Stablecoin Regulations” completed legislation by late 2025, providing a compliant path for multi-currency (including offshore RMB) stablecoins. Whether the U.S. legislative framework can accelerate the development of RMB stablecoins remains a key variable to watch.

5. Dollar on the chain: a “re-dollarization” strategy

Peeling back the layers of technology and law, the political economy logic of the GENIUS Act is quite clear: it is a digital strategic counterattack by the U.S. against the wave of “de-dollarization.”

Over the past decade, the global trend of “de-dollarization” has been fermenting: Russia and Iran shifting to local currency settlements; BRICS exploring alternative payment networks; some Middle Eastern oil producers beginning to accept non-dollar oil settlements. The dollar’s share in global foreign exchange reserves has fallen from over 70% in the 2000s to about 59% today.

Stablecoins provide a clever countermeasure. Their underlying logic is a closed loop: users buy stablecoins → issuers purchase U.S. Treasuries with reserve funds → demand for dollars expands, and Treasuries find buyers. Circle’s CEO has publicly stated that every additional $10 billion in USDC reserves would bring about $6 billion in short-term financing for the U.S. Treasury. Standard Chartered estimates that the expansion of compliant stablecoins could generate up to $1.6 trillion in new short-term Treasury demand.

More critically, stablecoins bypass SWIFT and traditional banking systems, entering the gray areas where the dollar coverage is weak— such as ordinary citizens in Argentina after peso devaluation, daily transactions in Venezuela, small cross-border merchants in Southeast Asia… These users rely on USDT, and on-chain dollars reach further and deeper than any U.S. bank.

6. Three key variables still unresolved

The GENIUS Act has been enacted, but the entire framework remains in a dense rule-making phase. The following three variables will determine the final shape of this “on-chain dollar” strategy:

① Will the CLARITY Act pass? This bill aims to establish comprehensive regulation for the entire digital asset market, and on March 17, it made a historic ruling that Bitcoin, Ethereum, and other major assets are officially recognized as “digital commodities” by the SEC and CFTC. The issue is: the November 2026 midterm elections set a hard deadline— if the House flips, the pro-crypto Republican legislative coalition could collapse, and the bill might be shelved for up to four years. JPMorgan predicts that if the CLARITY Act passes mid-2026, institutional capital entering digital assets will accelerate significantly in the second half of the year.

② The stance of Federal Reserve Chair candidate Kevin Warsh on crypto assets. His financial disclosures show a crypto investment portfolio exceeding $100 million— if this candidate takes the helm, digital assets will be integrated into mainstream financial infrastructure policy considerations in an unprecedented way.

③ The speed of Asian responses. The BIS warning on April 20 specifically highlighted the “digital dollarization” risks faced by Asian banking systems: even if Asian countries issue local currency stablecoins as protective measures, these tokens can be exchanged for USDT on decentralized exchanges with just a few clicks after going on-chain. The pace of Hong Kong’s offshore RMB stablecoin development, and the regulatory standards competition between Singapore and Dubai, will shape the “Asian variables” in future digital currency order.

Significant to note: the U.S. took three years to block China’s AI chips, and another three years to weave the dollar into the global blockchain infrastructure.

The former is defensive— preventing opponents; the latter is offensive— active expansion. Both are happening simultaneously. The cleverness of stablecoins lies in the fact that they do not require government promotion; private enterprises will spontaneously complete the “dollar colonization” work— every USDT transaction subtly reinforces the network effect of the dollar.

BIS’s alarm has made Asian central banks anxious. China’s CIPS and digital yuan are accelerating— this “battle for which currency becomes the on-chain settlement unit” has only just begun its real confrontation.