4E Labs｜A new era of stablecoin regulation in the United States: the passage of the GENIUS Act and its far-reaching impact

I. Stablecoin Definition and Classification

Stablecoins serve as the "stable anchor" in the cryptocurrency market, with their value typically pegged to fiat currency, commodities, or algorithmic mechanisms. Based on collateral asset types and operational modes, they can be classified into four categories:

• Fiat-Collateralized Stablecoins

1. Definition: Such as Tether (USDT), USD Coin (USDC), backed 1:1 by US dollars or other fiat currencies, with reserves typically held in banks or trust institutions.
2. Mechanism: Issuers hold equivalent fiat currency (such as US dollars) as reserves, allowing users to exchange stablecoins at a 1:1 ratio at any time.
3. Advantages: - High stability with minimal price fluctuations, suitable for payments and trading. - Easy to understand, widely used in centralized exchanges and DeFi platforms. - High regulatory transparency (such as periodic reserve audits for USDC).
4. Disadvantages: - Dependent on issuer's credit and operational transparency (e.g., Tether has faced reserve controversies). - Centralized management creates single point of failure risks. - Subject to strict regulatory requirements with high compliance costs.
5. Examples: USDT market cap exceeds $110 billion, USDC market cap around $55 billion (2025 data).

• Crypto-Collateralized Stablecoins

1. Definition: Such as DAI from MakerDAO, generated through over-collateralization of cryptocurrencies like ETH, typically operated via smart contracts.
2. Mechanism: Users deposit cryptocurrencies (like ETH) as collateral to generate stablecoins, with value maintained through algorithms and over-collateralization.
3. Advantages: - Decentralized, no need to trust a single issuer, strong resistance to censorship. - Suitable for DeFi ecosystem with high flexibility. - High transparency with all transactions recorded on the blockchain.
4. Disadvantages: - Collateral asset price volatility may lead to liquidation risks. - Potential systemic risks from smart contract vulnerabilities. - High complexity requiring technical knowledge from users.
5. Examples: DAI widely used in DeFi, but experienced partial liquidations during ETH price crash in 2022.

• Algorithmic Stablecoins

1. Definition: Such as TerraUSD (UST, collapsed in 2022), dynamically adjusting supply through algorithms to maintain value stability, without direct asset collateralization.
2. Mechanism: Regulating supply and demand through arbitrage mechanisms or token burning/minting, such as UST balancing value through Luna tokens.
3. Advantages: - No reserve assets required, low operational costs. - Fully decentralized, theoretically unlimited expansion. - Suitable for rapidly growing crypto markets.
4. Disadvantages: - Poor stability, easily affected by market sentiment and bank runs (e.g., UST collapse causing hundreds of billions in losses). - Complex algorithms with low market trust. - High regulatory difficulty, potentially viewed as high-risk assets.
5. Examples: UST's failure highlights algorithmic stablecoins' fragility, with currently small market share.

• Hybrid Stablecoins

1. Definition: Combining fiat or crypto collateralization with algorithmic mechanisms, attempting to balance stability and flexibility, still in experimental stage.
2. Mechanism: Such as partial reserve support combined with algorithmic regulation, or dynamically adjusting collateralization ratios.
3. Advantages: Potentially balancing stability and decentralization advantages, high innovation potential, adaptable to various scenarios.
4. Disadvantages: - Technically complex with unverified risks. - Low market acceptance and limited application scenarios. - High regulatory uncertainty, potentially facing dual compliance requirements.
5. Examples: Frax Finance's FRAX attempts a hybrid model but with small market scale.

Stablecoins are widely used for cross-border remittances, DeFi, payment settlements, and value storage due to low costs, fast transactions, and low volatility. The market size reached $232 billion in 2025. The expansion of stablecoin scale (30% of cross-border payments completed via stablecoins in 2025) and risk events (UST collapse, Tether's opaque reserves) have prompted US regulatory intervention.

II. Main Provisions of the GENIUS Act

The GENIUS Act establishes a federal and state-level regulatory framework to regulate payment stablecoins (defined as digital assets primarily used for payments and settlements, pegged to a fixed currency value). The following are its main provisions, integrated from public information:

The bill passed the Senate Banking Committee with an 18-6 vote and the full Senate with a 66-32 vote, demonstrating bipartisan support.

III. Legislative Motivations: From Financial Safety to Digital Dollar Hegemony Financial Safety and System Stability: Regulation as Foundation Consumer Protection is Urgent 1. In recent years, stablecoins have frequently experienced "de-pegging" events, especially the TerraUSD (UST) collapse in 2022, which caused billions of dollars in retail investor assets to evaporate. 2. The GENIUS Act requires all payment stablecoins to undergo monthly audits, maintain 1:1 liquidity reserve assets, and grant users priority claim rights in case of issuer bankruptcy, significantly enhancing user protection. Anti-Money Laundering and Financial Crime Prevention 1. Stablecoins' widespread use in anonymous transactions has drawn law enforcement attention. 2. Senator Elizabeth Warren pointed out that over 40% of ransomware ransoms are paid through stablecoins. 3. The bill mandates issuers implement KYC (identity verification), AML (anti-money laundering), and CFT (counter-terrorism financing) procedures to combat illegal fund flows. Digital Dollar Demand Binding: Continuing US Dollar Dominance 1. By 2025, over 99% of global stablecoins will be denominated in US dollars, with the dollar becoming the core value anchor for digital assets. 2. The GENIUS Act aims to strengthen the dollar's fundamental position in the crypto financial system through regulatory means. The analysis continues to discuss the bill's implications for US Treasury markets, technological power balancing, and various stakeholders' perspectives.

1. Federal Bailout Risk: Adam Levitin points out that the bill may mislead the public about stablecoin safety, but without modifying bankruptcy law, users may suffer losses during bankruptcy, potentially requiring federal assistance.
2. Conflict of Interest: Trump's crypto business (such as World Liberty Financial) might benefit, raising conflict of interest concerns.
3. Insufficient AML/KYC: Senator Warren criticizes the bill for not adequately addressing money laundering issues, with Tether potentially exploiting loopholes.
4. Innovation Suppression: High compliance costs may squeeze out small issuers and hinder innovation.
5. Regulatory Loopholes: Decentralized finance provisions might allow non-compliant stablecoins to enter the market.

These criticisms reflect the tension between consumer protection and market freedom.

VI. Summary and Outlook

The passage of the GENIUS Act is an important milestone in U.S. stablecoin regulation. Through reserve requirements, consumer protection, and AML compliance measures, it provides a clear framework for the payment stablecoin market. This not only consolidates U.S. dollar hegemony but also lays the foundation for global stablecoin promotion and application.

However, the bill still needs to balance consumer protection and innovation development, preventing systemic risks while avoiding excessive suppression of small issuers and decentralized ecosystems. In the future, its implementation effectiveness will depend on regulatory details, industry adaptability, and international regulatory coordination.

As an important tool in digital finance, stablecoins' development prospects will be profoundly influenced by the GENIUS Act, warranting continued attention.