The ‘Wild West’ is Over. A New Financial Order is Being Established.
- The dual strategy of the U.S. to ’nurture’ stablecoins and ‘prohibit’ CBDCs
- Key contents of the four major bills (GENIUS Act, CBDC Anti-Surveillance State Act, RFIA/FIT21)
- How the new regulations will determine winners and losers in the global financial market
A New Blueprint for U.S. Digital Finance
Do you remember the ‘crypto winter’ in the cryptocurrency market? The Terra/Luna incident and the collapse of FTX were not mere market failures. These events sent a clear signal to Washington that industry self-regulation or post-factum punishment alone is insufficient, which became a decisive catalyst for the enactment of the U.S. Digital Asset Law.
Amidst the chaos, the U.S. established a clear two-pronged strategy: to ‘promote’ privately-led stablecoins under strict regulation, while firmly ‘prohibiting’ government-controlled CBDCs. This strategy aims to stabilize the domestic market while protecting U.S. financial hegemony against China’s digital yuan (e-CNY).
Chapter 1: The Birth of the ‘Official’ Digital Dollar: GENIUS Act
Once referred to as the ‘poker chips of the cryptocurrency casino,’ stablecoins were ticking time bombs in the system. Terra/Luna, which relied solely on algorithms without collateral, collapsed like a mirage, and Tether (USDT) fueled fears of ‘de-pegging’ due to the opacity of its reserves.
To address this issue, the GENIUS Act emerged. This law represents the first federal regulatory framework to tame the wild stablecoin market.
A Club for ‘Permitted Issuers’ Only
The era of anyone being able to issue stablecoins is over. Now, only a select few can become ‘Permitted Issuers’ as follows:
- Bank Subsidiaries: Subsidiaries of existing banks like JP Morgan and Citigroup
- Federal Authorized Entities: Fintech companies that pass the scrutiny of the Office of the Comptroller of the Currency (OCC)
- State Authorized Entities: Institutions like Paxos, which are regulated by the New York Department of Financial Services (NYDFS) and have received state approval that meets federal standards
1:1 Reserve Requirement and Enhanced Transparency
All stablecoins must be backed 100% by ‘high-quality liquid assets’ (cash, short-term U.S. Treasury securities) equal to their circulation. ‘Rehypothecation’—using customer assets as collateral for other investments—is explicitly prohibited, and issuers must publicly disclose their audited reserve details on their websites monthly. This represents a level of transparency that is worlds apart from past practices of Tether (USDT).
The Birth of a New Asset Class and Prohibition of Interest Payments
The most significant achievement of the GENIUS Act is defining stablecoins as a new asset class that is neither securities nor commodities. This resolves the long-standing jurisdictional dispute between the SEC and CFTC, placing them under the supervision of banking regulators.
However, paying interest to holders is prohibited. This measure aims to prevent stablecoins from directly competing with bank deposits and disrupting the financial system, clearly defining their nature as ‘payment instruments, not investments.’
Chapter 2: Reasons for Rejecting ‘Big Brother Currency’: CBDC Anti-Surveillance State Act
Another pillar of the U.S. digital currency strategy is the firm rejection of Central Bank Digital Currencies (CBDCs). The CBDC Anti-Surveillance State Act enshrines this in law.
The primary motivation stems from concerns over ‘financial privacy’ highlighted by China’s digital yuan (e-CNY). The ‘Big Brother currency,’ which allows the government to monitor all transactions and control the use of money, could undermine American values of freedom and privacy.
The U.S. has made a clear choice at the crossroads of regulated private innovation (stablecoins) and state control (CBDCs).
This law prohibits the Federal Reserve from issuing, researching, or testing CBDCs without explicit congressional approval. This perfectly complements the stablecoin nurturing law by first legally eliminating the public option of CBDCs to create a market void (‘prohibit’) and then paving the way for regulated private stablecoins to fill that void (’nurture’).
Chapter 3: Plans to End the Regulatory War: RFIA & FIT21
The Responsible Financial Innovation Act (RFIA) and its House version, the Financial Innovation and Technology for the 21st Century Act (FIT21), represent comprehensive regulations that encompass the entire digital asset ecosystem beyond stablecoins.
The core of these bills aims to put an end to the age-old debate of ‘Is cryptocurrency a security or a commodity?’ by introducing a new standard of ‘decentralization’ and delineating roles as follows:
- Basic Principle: All digital assets are considered ‘commodities’ and are regulated by the Commodity Futures Trading Commission (CFTC).
- Exception Clause: Only assets that are not sufficiently ‘decentralized’ are exceptionally classified as ‘securities’ and fall under the jurisdiction of the Securities and Exchange Commission (SEC).
This hands over the leadership of the digital asset spot market to the CFTC, serving as a strong check against the SEC, which has suppressed the market until now.
Comparison/Alternatives
Two key opposing frameworks help clarify the U.S. strategy.
Legislative Competition in the U.S.: Stable Act vs. GENIUS Act
| Provision | Stable Act (House) | GENIUS Act (Senate/Final) |
|---|---|---|
| Federal vs. State Supervision | No limit on issuance scale for state regulatory choice | Only issuers with total issuance below $10 billion can choose state regulation |
| Regulatory Standards | Federal authorities establish unified standards | Federal and state standards applied separately |
| Treatment of Foreign Issuers | Ban on non-permitted foreign stablecoin sales after 18 months | Requires reciprocity study for foreign stablecoins |
Global Model Competition: U.S. vs. China
| Strategic Vector | U.S. (Private-led Model) | China (State Control Model) |
|---|---|---|
| Core Technology | Regulated stablecoins (e.g., USDC) | Digital yuan (e-CNY) |
| Governance | Regulated private companies (indirect government oversight) | Direct issuance by central bank (direct state control) |
| Main Goals | Strengthening dollar system dominance and promoting private innovation | Reducing dependence on the dollar and enhancing state surveillance capabilities |
Conclusion
The new U.S. digital asset legal framework is a massive national strategy that consolidates fragmented regulations. Initially, I viewed these bills as mere individual regulations, but the deeper I looked, the more I realized they are part of a sophisticated strategy.
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Key Summary:
- Dual Strategy: The U.S. is establishing a model of ‘regulated private innovation’ by ’nurturing’ private stablecoins and ‘prohibiting’ state-led CBDCs.
- Strengthening Dollar Hegemony: By mandating stablecoin reserves in U.S. Treasuries, it employs a ‘genius’ financial strategy where the growth of private enterprises translates into demand for U.S. Treasuries.
- New Order: The future digital asset market will center around ‘regulated decentralization,’ likely restructured into two digital currency blocks led by the U.S. and China.
These changes signify not just a technological issue but a shift in global financial power. What opportunities do you see in this new order?
References
- US Senators Introduce Comprehensive Stablecoin Bill | Global Fintech & Digital Assets Blog link
- Financial Innovation and Technology for the 21st Century Act - House Committee on Agriculture link
- Transcript: Unpacking the Lummis-Gillibrand Payment Stablecoin Act… - Troutman Pepper Locke link
- Statement on the Financial Innovation and Technology for the 21st Century Act - SEC.gov link
- Majority Whip Tom Emmer’s Flagship Legislation, the Anti-CBDC Surveillance State Act, Passes House… link
- Four questions (and expert answers) on the new US cryptocurrency legislation - Atlantic Council link
- Text - H.R.4763 - 118th Congress (2023-2024): Financial Innovation and Technology for the 21st Century Act link