Can the three U.S. encryption bills really change the "game rules"?

Written by: Luke, Sam, Li Zhongzhen, Pang Meimei

Recently, the U.S. House of Representatives passed three legislative proposals regarding cryptocurrency regulation with an overwhelming majority, namely the "Genius Act," the "Clarity Act," and the "Anti-CBDC Surveillance National Act." Among them, the "Genius Act," which is referred to as "an important step in consolidating the United States' dominant position in the global financial and cryptocurrency technology sectors," was officially signed into effect by Trump on the 18th and has been reported by domestic media such as CCTV and Caijing.

In this issue, we posed 5 questions to the outstanding members of the Web3 Compliance Research Group: "What does the 'Genius Act' aim to achieve?", "How to understand the regulatory division of labor between the SEC and CFTC under the 'Clarity Act'?", "Why is the U.S. against CBDCs?", "Will these three bills inspire other countries in cryptocurrency regulation?", "How will they affect the operations of cryptocurrency startup projects?"

Let's get to the point!

Q1: Can you explain in plain words what the "Genius Act" aims to do? Do stablecoins from countries outside the US still have a chance to compete?

Luke:

The "Genius Act" simply refers to the U.S. government's establishment of a strict legal framework for stablecoins (like USDT and USDC) and their issuers. It clarifies the definition of stablecoins, allowing them to be legally recognized. This aims to protect the rights of both issuers and consumers who use stablecoins.

The main part consists of three sections.

Firstly, the bill defines stablecoins as 'payment stablecoins'. It clearly states that stablecoins do not possess the characteristics of securities or commodities. This indicates that stablecoins themselves do not have investment appreciation attributes.

Second, it has strictly established that stablecoin issuers manage consumers' redeemed stablecoin principal in a 1:1 high liquidity manner. Additionally, they must publicly disclose their ledger every month to ensure this 1:1 high liquidity. Furthermore, if the market capitalization of the stablecoin issuer exceeds 50 billion dollars, they are also required to submit an audit report annually and accept dual regulation from state and federal authorities to prevent a "de-pegging" collapse like Terra/Luna.

The third point explains that if a company issuing stablecoins goes bankrupt, users have priority rights to compensation, which is equivalent to providing a safety net for users. There are also requirements for anti-money laundering (AML), identity verification (KYC), etc., similar to banks, to ensure transaction transparency and prevent bad actors from taking advantage.

Sam:

The purpose of the Genius Act is to regulate compliance for the issuance and trading of stablecoins, and currently, it is very strict. It requires that any stablecoin wishing to be issued or circulated in North America must obtain a federal or state license, such as qualifying as a formal bank or a regulated financial institution. This means that to continue in the stablecoin business, one must be fully backed, disclose information, and comply with AML regulations.

This wave is completely aimed at Tether, which currently has a market value of around 1,600. In the first two rounds, there has always been a risk of explosions in the industry cycle, mainly due to the lack of transparency in Tether's reserves and audits that are conducted by the same entities. As a result, Tether is often ridiculed by industry insiders, with the annual KPI being to create a round of their own explosions and then buy back chips at a low price.

Moreover, Tether, as the leader of stablecoins, occupies over 70% of the stablecoin market. It seems that such an unstable stablecoin can reach this scale, which must make some consortiums envious. However, for consortiums to enter the market, they must first design appropriate market rules so that they can legally obtain profits. Therefore, the essence of the Genius Act is to provide a ticket for new players or so-called Old money to enter.

The nature of stablecoins in countries outside North America is essentially the same, as the mainstream stablecoins are still pegged to fiat currencies. When fiat is strong, the corresponding stablecoin is strong; when fiat is weak, the corresponding stablecoin has no competitive opportunity, like the Naira in West Africa, which is just not feasible. However, as long as there are sufficient USD reserves, anyone can issue a USD stablecoin. Ultimately, it comes down to whether people believe in your foreign exchange reserves. Another factor is the cost of migration; both the educational cost of stablecoins and the migration cost are very high. Therefore, crypto-friendly countries and regions have a stronger competitive advantage.

Lawyer Li Zhongzhen:

① The "Genius Act" established the concept of payment stablecoins and detailed the requirements and regulatory framework for issuing payment stablecoins in the United States. The "Genius Act" stipulates that issuers of payment stablecoins must maintain at least a 1:1 reserve of assets, and the reserve assets can only be strong liquidity dollar assets such as US dollars or US Treasury bonds with a maturity of 93 days or less. The purpose of the "Genius Act" is to siphon global capital into strong liquidity dollar assets, further enhancing dollar liquidity, establishing the dominance of on-chain dollars, and consolidating dollar hegemony.

② Do stablecoins from countries outside the United States still have competitive opportunities? This question actually depends on the comprehensive strength of these countries and regions in reality. I believe that China, the European Union, and Japan still have opportunities, while other countries and regions do not.

Fat Meimei:

In the past few years, no one has been able to clearly define what stablecoins are, what threshold requirements exist for issuers, who should be responsible for their regulation, and what to do when problems arise? The "Genius Act" aims to end the regulatory vacuum and address these issues.

Of course, although the "Genius Act" has further strengthened the dominance of the U.S. dollar in the global reserve and payment system by mandating stablecoin reserves in U.S. treasury bonds and dollar assets, it has also further consolidated the dollar's status as the world's leading currency. However, the main role of stablecoins is to be used for cross-border payments and settlements, allowing for enhanced flexibility and efficiency in trade settlements without changing national monetary policies. Many countries around the world are now developing stablecoins, and as the world's largest trading nation, China has a natural strategic need for optimizing the efficiency and cost of cross-border settlements. We have a huge opportunity, and this opportunity lies in Hong Kong. On May 21 of this year, the Hong Kong Legislative Council passed the "Stablecoin Regulation Draft", becoming the first jurisdiction in the world to implement full-chain regulation on stablecoins. Hong Kong plays a key role in the trend of promoting stablecoin development, and China also has unique advantages and strong competitiveness.

Q2: How to understand the regulatory division of labor between the SEC and CFTC under the "Clear Act"? What impact will the definition of "mature blockchain" have on the industry?

Luke:

In simple terms, the "Clarity Act" is essentially aimed at addressing the "gray area" of digital asset regulation by clearly delineating the responsibilities of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), avoiding regulatory overlap or vacuum, and allowing the cryptocurrency industry to develop in a more orderly manner. Simply put, the SEC mainly oversees digital assets that are investment return expectant like stocks (such as certain tokenized securities), while the CFTC is responsible for those that resemble "commodities," such as Bitcoin or Ethereum, whose value primarily comes from actual use rather than dividends. This aims to refine the definition and position of the entire cryptocurrency market within the legal framework, along with a series of reduced regulations on DeFi to encourage the implementation and innovation of DeFi projects.

Among them, it is necessary to mention the definition of 'mature blockchain' in the bill. The bill defines 'mature blockchain' as a network that meets statutory conditions (such as decentralized governance, distributed ownership, and no single entity control) confirmed through a certification process submitted to the SEC. The SEC may also establish additional rules to refine these standards. Specifically, certification includes proving the degree of decentralization of the network, market adoption rate, openness, and interoperability, among others. If the certification is approved (typically taking effect by default after a certain period following submission unless the SEC objects), this blockchain is considered 'mature'.

Sam:

Dividing the boundaries and managing each one's own, it is a typical form of decentralization. The SEC regulates security tokens, such as POS algorithms and DeFi; decentralized assets that meet the definition of a mature blockchain are classified as commodities and fall under the jurisdiction of the CFTC.

Mature blockchain projects are comparatively favorable for POW algorithms, as POW is the most original cryptocurrency that is completely decentralized. These projects pursue the ultimate in technology, optimizing algorithms and performance, embodying the principle of Code Is Law. The industry has long believed that the success of the tech stack does not represent the success of the chain, and there are various forms of securities regulation that can come up unexpectedly, causing the entry channel for technical personnel to shrink. Those with real technical skills are reluctant to enter, fearing being struck down. Now, it’s better; everyone can write code with peace of mind without worrying about the SEC knocking on the door. Miners can also expand production without restraint, alleviating some pressure on the chip industry, and hardware prices are expected to ease a bit. The recovery period for POW has doubled from the previous cycle to the recent year, and it currently appears hopeful for a drop.

From now on, everyone will play their own game. The SEC is bringing POS to the financial market to roll out APY, while the CFTC is bringing POW back to the original intention of blockchain.

Lawyer Li Zhongzhen:

The "Clarity Act" has resolved the issue of regulatory confusion between the SEC and CFTC in the cryptocurrency field, clarifying that digital commodities are managed by the CFTC and restricted digital assets are handled by the SEC, further improving the regulatory framework for cryptocurrency in the United States. A clear and defined regulatory environment helps the development of the cryptocurrency industry. Any emerging industry is not afraid of regulation; what they fear is the anxiety caused by unclear regulatory responsibilities.

The definition of "mature blockchain" provides the industry with a relatively objective standard, which states that the holding ratio of the largest token holder must not exceed 20%, and no individual or entity can unilaterally control the blockchain or its applications. "Mature blockchain" allows projects initially issued as securities to transition to commodities after meeting the "mature blockchain" standards, shifting from SEC regulation to CFTC regulation. This is very favorable for the crypto industry, as being defined as a security regulated by the SEC incurs excessively high compliance costs that many startups cannot afford. However, if defined as a commodity regulated by the CFTC, the compliance costs are significantly reduced.

Fat Meimei:

In simple terms, the bill labels digital assets, and the "Clear Act" clearly categorizes digital assets into different types, delineating the regulatory scope of the SEC and CFTC. The CFTC primarily regulates securities-like products, with higher and stricter requirements, while the SEC's regulation is much more lenient. Therefore, I believe that differentiated regulation provides a more relaxed compliance pathway for projects genuinely dedicated to blockchain to a certain extent. The most ingenious design of this bill creates an evolutionary path for digital assets from securities attributes to commodity attributes, providing these projects with a "graduation channel" from "securities" to "digital commodities."

The concept of a mature blockchain system is primarily used to determine whether a blockchain has reached a level of decentralization, thereby deciding whether its tokens can transition from being "securities" to "digital goods." Nowadays, blockchain technology is becoming increasingly widespread, and the industry is undergoing a paradigm shift, which involves the criteria or dimensions and characteristics used to distinguish whether a blockchain is reliable and has entered a mature stage. Legislation provides a clear definition, clarifying details and assessment standards, which allows entrepreneurs to better understand how to meet these standards, thus providing greater certainty for ICOs and IDOs.

Q3: The U.S. "Anti-CBDC Act" seems to stand in stark contrast to the attempts by some countries to promote CBDC. Why is there opposition to CBDC? Is there anything else you would like to say?

Luke:

The United States prohibits CBDC mainly for the following reasons. First, there are concerns about the Federal Reserve's increasing power over the privacy of personal financial assets. Second, there are concerns about the stability of the financial system. Third, there are concerns about the centralization of global currencies.

Firstly, privacy and surveillance risks are core objections. CBDCs are essentially digital banking systems directly issued by central banks (similar to stablecoin issuers, but CBDCs operate at a national level), capable of real-time tracking of every transaction. This could be misused for government surveillance or various human error risks, infringing on personal financial privacy and freedom. Supporters of the bill argue that this would create a 'surveillance state', akin to China's digital yuan, which, while convenient, also strengthens the central bank's transaction monitoring capabilities. In contrast, the United States emphasizes the protection of constitutional rights and individual privacy rights, avoiding excessive government intervention in private financial assets.

Secondly, CBDC will strengthen 'disintermediation' and impact the implementation of the Federal Reserve's monetary policy. Allowing central banks to directly serve individual consumers will directly weaken the role of commercial banks, potentially leading to a loss of deposits from commercial banks, increased competition among banks, and even triggering a wave of bank failures, disrupting the existing economic structure. The Federal Reserve's 2022 report pointed out that this transformation is too radical and could amplify systemic risks. CBDC is mainly used to enhance payment efficiency and financial inclusion, but the United States believes these benefits are not enough to offset the potential harms.

There are also concerns about the concentration of power and global competition. Opponents of CBDC worry that it will enhance central banks' control over monetary policy and even foster digital hegemony internationally, such as a country's CBDC dominating global trade and threatening national sovereignty. The United States chooses to maintain the traditional position of the dollar by opposing CBDC and promoting private stablecoins (like USDC) as alternatives to encourage market-driven innovation.

Sam:

The Federal Reserve does not belong to any political party, and therefore there are no political donations involved. It will definitely prioritize those who have paid the "protection fee"; when the Federal Reserve goes down, everyone should stop playing. Moreover, stablecoins at least have some decentralized attributes, such as algorithmic stablecoins and cryptocurrency-backed stablecoins. In the future, with new technologies, algorithms, or solutions, there is still room for development. CBDC is completely centralized, which fundamentally contradicts the idea of cryptocurrency. Decentralized assets are the core of these three bills, with demands for private privacy, free finance, and resistance to censorship. Releasing CBDC would have a significant impact on the overall system.

In simple terms, the Federal Reserve issuing currency is like taking off your pants to fart; these three bills will just be for show.

Lawyer Li Zhongzhen:

The U.S. government does not have the authority to issue dollars; that power lies with the Federal Reserve. One significant reason the U.S. government promotes the "Genius Act" is to bypass the Federal Reserve in expanding the dollar. Allowing CBDC would greatly benefit the Federal Reserve, but it wouldn't bring much practical benefit to the U.S. government. Only by restricting the Federal Reserve can the government achieve fiscal freedom.

In some countries that are attempting to promote CBDC, the power to issue their national currency is in the hands of the government, so there is no conflict of interest in these countries issuing CBDC.

Fat Meimei:

In China, everyone knows about the digital renminbi, and the government has been promoting it. This is actually an example of CBDC. CBDC itself has obvious benefits, such as convenience and efficiency in payment and settlement. Since the advantages are so clear, why oppose it? We need to look at this issue from a more macro perspective. Generally speaking, it is difficult for individuals to connect directly with the central bank, so commercial banks play an intermediary role in this process. CBDC is a blockchain online banking service system operated by the central bank. If every individual can directly connect with the central bank for storage and loans, over time, commercial banks may become redundant. I believe a significant portion of commercial banks may be forced to close, which would directly harm the stability of the existing economic and financial system. Furthermore, the CBDC system is not completely decentralized. If CBDC is issued and becomes liquid, how do we protect personal financial assets? KYC and AML will still need to be conducted, so how is this different from the online banking we currently use?

It is equivalent to merely adding blockchain technology to an already digitized banking system, with no essential improvements otherwise. The final outcome could be that there is neither improvement nor that it creates a lot of potential problems, isn't it a case of losing more than gaining? Personally, I tend to move forward steadily, avoiding the blind large-scale implementation of CBDCs, or learning from Hong Kong's "sandbox" approach.

Q4: Will this lead to regulatory references in regions such as the EU and Asia? How will this move by the United States affect the global Web3 regulatory landscape?

Luke:

The "Genius Act," "Clarity Act," and "Anti-CBDC Act" passed by the United States in 2025 may inspire the European Union and Asian countries to adopt its cryptocurrency regulatory model. The EU's MiCA regulations could be refined to match U.S. standards, while Japan and Singapore may follow suit in regulating stablecoins. India may seek to balance innovation and compliance, and China could leverage the opportunity presented by anti-CBDC to expand the influence of the digital yuan. It is also possible that, like the U.S., China will vigorously promote the use of the renminbi stablecoin.

The global Web3 regulatory landscape will move towards standardization, encouraging private stablecoins and DeFi, but the United States' anti-CBDC stance may cause it to 'fall behind' in CBDC payment systems, while simultaneously boosting the status of other private crypto asset platforms. This could trigger global regulatory competition, with capital flowing to regulation-friendly regions, and may also exacerbate geopolitical frictions, testing the United States' leadership in the digital economy.

Sam:

The European Union is not necessarily the leader; some Asian countries have a demand for learning from crypto regulations because the EU has been regulating cryptocurrencies for a long time. In 2014, Germany became the first country to accept Bitcoin as a currency, followed by the Netherlands, France, and others. Last year, statistics showed that there were over 2,700 crypto licenses across Europe, and Canada's licenses and regulations came earlier and were more numerous than those in North America. However, Asia does need to borrow from these experiences, as the entire region currently has the fewest licenses, with not even one more than Poland. This data indicates that in terms of crypto regulation or crypto-friendliness, the U.S. can only be considered to be moderately keeping pace with the fleet, as their own size is large, making it difficult to pivot.

However, the regulation of stablecoins will reference North American legislation, as compliance in this area needs to align with it, given that mainstream stablecoins are primarily pegged to the US dollar, which is itself strictly controlled. This round of operations in North America will also accelerate the implementation of regulations in various regions, mainly concerning stablecoins, with the possibility of a cryptocurrency tax as well. The regulatory standards of major countries and regions will quickly move towards a unified front, making the entire industry more regulated and transparent. The days of hundredfold returns from early coins are unlikely to return. Web3 is no longer a path to instant wealth, but it will develop in a more sustainable manner.

Lawyer Li Zhongzhen:

① On the issue of stablecoin regulation, Hong Kong is at the forefront, but when it comes to cryptocurrency regulation beyond stablecoins, the United States is the fastest country in the world to establish a detailed regulatory framework for cryptocurrencies. Other countries can improve their regulatory frameworks based on their national conditions by learning from the U.S. regulatory model, such as implementing tiered and classified regulation of crypto assets, clarifying regulatory agencies and regulatory systems.

The United States fired the first shot, and I believe other countries will follow suit soon. I expect that it won't be long before the global Web3 regulatory framework continues to improve, and even mutual recognition of regulatory compliance may be formed.

Fat Meimei:

The Genius Act establishes a solid regulatory framework for stablecoins, clearly defining categories of digital assets, corresponding regulatory agencies, and the regulatory responsibilities of different institutions. The anti-CBDC act explicitly prohibits the Federal Reserve from issuing central bank digital currency to individuals, preventing excessive monitoring of finance and maintaining the role of commercial banks in the financial system.

Previously, there had been uncertainty in U.S. regulation. On one hand, the regulatory approach varies between different states, and on the other, there has been ongoing debate about whether cryptocurrencies are classified as securities or commodities. This uncertainty has led many entrepreneurial entities to migrate to other regulation-friendly regions. The implementation of this three-step legislation could help the U.S. seize the initiative in digital asset innovation, and the regulatory framework may become a global reference template, prompting other countries to expedite the improvement of laws related to crypto assets. The digital asset ecosystem in the U.S. and even globally may undergo significant changes.

Q5: The three bills are seen as a turning point for the United States and even the entire cryptocurrency industry, shifting from "barbaric growth" to "rule-driven." How will they affect the compliance costs and operational models of Web3 startups?

Luke:

It is clear that the three bills will push the U.S. crypto industry from "wild growth" to rule-based governance, significantly impacting the compliance costs and operational models of Web3 startup projects. In the short term, compliance costs will increase startup expenses due to stablecoin disclosures, audits, and KYC/AML requirements (legal costs can account for 40% of financing), causing small projects to potentially relocate due to heavy burdens. However, in the long term, clear regulations will reduce litigation risks and attract VC investments. The operational model will shift from vague to compliant, emphasizing decentralized governance and RWA tokenization to gain exemptions (such as an ICO cap of $75 million), transitioning from rapid iteration to innovation within legal frameworks.

This may squeeze small projects in the short term, but in the long run, it will enhance industry maturity, attract global resources, and establish an internationally recognized regulatory framework. This may influence the legal compliance frameworks for cryptocurrency markets in other regions (such as the EU's MiCA, Singapore's DTSP, etc...).

Sam:

marks a new era in which Web3 entrepreneurship moves from "disorderly innovation" to "compliance first" to a certain extent.

There are several aspects that can be anticipated, such as the entrepreneurial threshold being significantly higher, the inability to issue tokens carelessly, and licenses becoming standard; compliance costs will also rise sharply, with lawyers, audits, KYC/AML, etc., becoming essential budgets; the industry will accelerate the elimination of small projects or gray projects that lack innovation and cannot be profitable; however, POW miners should be the group that benefits the most, especially in Bitcoin. Only compliant businesses can scale up, only compliant businesses can sustain in the long run, while also avoiding the situation where bad money drives out good.

But for the "Crypto Native" community, Web3 is Web3, business is business, crypto is crypto, and native crypto is permissionless; true crypto will find where it can happen.

Lawyer Li Zhongzhen:

With the implementation of the "Genius Act", "Clarity Act", and "Anti-CBDC Act", project teams need to determine their compliance path based on their project type:

① Projects issuing stablecoins must invest a large amount of capital to obtain the corresponding licenses, and also establish an independent auditing system and bankruptcy isolation mechanism. Particularly regarding the requirement for reserve assets, a 1:1 reserve ratio imposes high demands on the funding strength of the project parties.

② Non-stablecoin projects need to clearly recognize whether they are securities or commodities. In the past, when there was no regulation, project teams might only need to assemble a technology development team, a security protection team, and a marketing team to narrate their story, attract funding, and go on-chain, but this is no longer possible. Therefore, at the initial stage of the project, the project team must establish a professional compliance team to cope with the regulations of the SEC or CFTC, and the compliance costs incurred may even exceed the R&D costs, making it difficult for small projects with insufficient strength to incubate.

Fat Meimei:

Yes, these three bills together establish clear [rules of the game] for the crypto industry. In the past few years, the lack of clear regulations in the crypto industry has led to legitimate entrepreneurs facing erratic regulation, while speculators have profited from legal ambiguities. These three bills will change this situation.

The bill has detailed requirements for stablecoin issuers, trading platforms, and DeFi projects, and has listed many prohibited behaviors. The asset reserve requirements and fund segregation system increase funding costs and management costs, while financial information disclosure and auditing raise operating costs. For digital assets that were originally in a gray area, more resources need to be invested to ascertain regulatory attributes, which increases compliance costs. Furthermore, countries or institutions planning to issue central bank digital currencies may need to readjust their strategies and plans, which also raises compliance costs and uncertainty. The increase in compliance costs may cause some smaller projects to be unable to bear the costs and exit the market, but it also provides a clear path for those excellent projects, allowing them to establish long-term operational models based on legal provisions for robust and sustainable operation.

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