The GENIUS Act: Strategic Positioning of U.S. Dollar Hegemony in the Crypto Era

Jul 16, 2025MEXC

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When the U.S. Senate passed a procedural vote on the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) with an overwhelming majority, it immediately drew the attention of global financial markets. This legislation, named "GENIUS," appears on the surface to be a regulatory framework for stablecoins, but in essence, it represents a strategic shift in U.S. dollar hegemony in the digital era. It not only redefines the right to issue currency, but also builds a hidden yet powerful financial system by closely linking stablecoins to U.S. Treasury bonds.

1. What is The GENIUS Act?

The GENIUS Act focuses on the issuance and circulation of stablecoins. Its core provisions include:

1) Reserve asset requirements: Stablecoin issuers must hold 100% in cash and U.S. Treasury bonds with maturities of 90 days or less.

2) Audit transparency: Issuers must submit monthly third-party audit reports, with on-chain proof of reserves updated in real time.

3) Market access: Foreign stablecoins must establish a legal entity in the U.S. and maintain a 20% risk reserve.

Judging from its core provisions, the policy intent of the GENIUS Act goes beyond simple risk control. By requiring stablecoin issuers to hold U.S. Treasury bonds, the Act directly creates structural demand for the U.S. dollar and Treasuries. This demand not only brings new buyers to the Treasury market, but also reinforces the dollar's position in the global financial system.

2. A U.S. Treasury Absorption Strategy Within a Regulatory Framework

This mandatory linkage creates a dual dependency: it both controls the "dollarization" of the crypto world through fiat-backed reserves and secures new buyers for the ever-expanding U.S. Treasury market.

Data shows that while the share of U.S. Treasuries held by traditional major buyers such as China and Japan dropped from 34% to 26% between 2014 and 2024, the amount held by stablecoin issuers surged by 470% over the past three years, reaching $120 billion—equivalent to the holdings of an entire country like Belgium. This indicates that stablecoin issuers and entities have become one of the key buyers in the U.S. Treasury market.

3. The Stablecoin–Treasury Ecosystem and the Regulatory Evolution of Stablecoins

The linkage between stablecoins and U.S. Treasuries has created a hidden yet powerful ecosystem. As of the end of May 2025, the total global market capitalization of stablecoins exceeded $249.8 billion. Among them, USDT (Tether) holds a dominant position with $152.7 billion in circulation, followed by USDC (Circle) at $61.5 billion.

Data shows that compliant stablecoins hold $132 billion in U.S. Treasuries, accounting for 18% of the daily average trading volume in the Treasury market. Of these holdings, 67% are in short-term bonds with maturities under three months—significantly higher than the 34% held by sovereign wealth funds. This high proportion of short-term debt allows stablecoins to quickly respond to market changes and adjust their reserve asset structure.

Driven by the GENIUS Act, the stablecoin market has not only formed a close ecosystem with U.S. Treasuries but has also undergone a "second evolution" in the process of regulatory compliance. A clear structural divergence is emerging in the stablecoin landscape:

1) Regulated segment: Stablecoins such as USDC and PAX have rapidly adjusted their reserve structures, increasing short-term Treasury holdings to $32.4 billion and $5.8 billion, respectively.

2) Grey zone: The offshore-issued euro stablecoin EURT surged 142% in just three months, reaching a total supply of $4.7 billion.

3) Technical upgrades: 85% of compliant stablecoins have adopted "dynamic reserve management systems" to algorithmically match Treasury maturities with redemption demand.

The market has responded positively to this shift with decisive action. In the first half of 2025, the trading volume share of compliant stablecoins rose from 68% to 79%, while the market share of partially non-compliant products like USDT fell by 9 percentage points to 58%.

Standard Chartered forecasts that by the end of 2028, the circulating market capitalization of U.S. dollar–pegged stablecoins could surge to $2 trillion. Citigroup's analysis suggests that in a "bull market" scenario, the stablecoin market could reach $3.7 trillion by 2030. This implies that, within the next few years, stablecoin issuers may hold more U.S. Treasuries than many sovereign nations—becoming key participants in the Treasury market.

4. The Silent Reshaping of the Global Financial Landscape

The deeper impact of the GENIUS Act lies in how it uses stablecoins as a tool to restructure the global distribution of financial power.

1) Monetary sovereignty: Countries like El Salvador have adopted Bitcoin as legal tender, while emerging markets in Africa and Latin America are increasingly using U.S. dollar–denominated stablecoins for cross-border payments. Data shows that in 2024, stablecoin transaction volume in Africa grew by 400%, and in Latin America by 300%. The share of cross-border payments traditionally handled by the SWIFT system is being eroded by stablecoins, particularly in small, high-frequency transactions. The instant settlement feature of stablecoins has made them a popular choice for remittances and international trade settlements.

2) Regulatory power competition: Issuers with a market capitalization exceeding $1 billion fall under the supervision of the Federal Reserve, while smaller issuers are regulated by state governments. This tiered regulatory structure ensures effective oversight while avoiding excessive interference in innovation. Regulatory agencies monitor stablecoin issuers in real time through tools such as reserve audits and anti-money laundering rules. While this enhances the transparency of global capital flows, it has also raised concerns about privacy rights.

3) Technical standards dominance: Leading stablecoins like USDC and USDT hold a dominant market share, prompting developers to prioritize these compliant stablecoins when building applications. This market concentration effectively grants top issuers de facto control over technical standards. As a result, new entrants face high technological barriers to entry.

5. Strategic Power Dynamics in the Crypto Era

The GENIUS Act may become a major turning point in monetary history. It is neither a simple regulatory innovation nor a pure form of market protection—it represents a carefully designed institutional transformation. In this transformation:

1) United States: Through stablecoin legislation, the U.S. is turning the crypto market into a distribution network for U.S. Treasuries, while also leveraging technology to enable real-time monitoring of global capital flows. Treasury Secretary Scott Bessent has projected that digital assets could generate up to $2 trillion in additional demand for U.S. Treasuries in the coming years. This demand not only brings new buyers to the Treasury market but also further strengthens the dollar's position in the global financial system.

2) Emerging markets: While benefiting from the convenience of stablecoin payments, these regions face the risk of losing monetary policy autonomy. Africa and Latin America have become the frontline of stablecoin expansion. In response, some central banks have begun researching central bank digital currencies (CBDCs) as a countermeasure. However, developing and deploying CBDCs requires time and resources, making it difficult to compete with mature stablecoin systems in the short term.

3) Global investors: As stablecoins become increasingly tied to U.S. Treasuries, investors face a new investment paradigm. With Treasuries serving as the implicit collateral for stablecoins, traditional risk assessment models need to be fundamentally restructured. Innovations such as tokenized short-term Treasuries and on-chain fixed-income protocols are reshaping the logic of fixed-income investing. Investors must reassess risk-return profiles and adapt to this evolving market environment.

The passage of the GENIUS Act marks the formal entry of U.S. dollar hegemony into a new 2.0 era. In this financial contest, stablecoins are no longer merely a use case for cryptocurrencies—they have become a bridge between traditional finance and the digital world, as well as a key tool for the United States to maintain its global monetary dominance.

As technology continues to advance and the market matures, stablecoins are expected to play an increasingly important role in the future financial system. The implementation of the GENIUS Act will serve as a key lens through which to observe this trend.

For global investors, trading platforms like MEXC will be vital gateways to participate in this historic transformation, offering a secure and transparent trading environment that helps investors seize the opportunities of the digital currency era.

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