GENIUS Act: A Passport to the Future, or a Trigger for Crisis?
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GENIUS Act: A Passport to the Future, or a Trigger for Crisis?
In this game, ordinary people will most likely still be the ones paying the bill.
Navigating Web3 tides with focused insightsAuthor: IOBC Capital
On May 19, 2025, the U.S. Senate passed a procedural motion for the GENIUS stablecoin bill by a vote of 66-32. On the surface, this appears to be a technical piece of legislation aimed at regulating digital assets and protecting consumer rights. However, a deeper analysis of the underlying political and economic logic reveals that this may mark the beginning of a far more complex and far-reaching systemic transformation.
The timing of the stablecoin bill's advancement is particularly intriguing against the backdrop of massive U.S. debt pressure and escalating disputes between Trump and Federal Reserve Chair Powell over monetary policy.
U.S. Debt Crisis: A Stablecoin Policy Born of Necessity
During the pandemic, the U.S. embarked on an unprecedented money-printing spree. The Federal Reserve's M2 money supply surged from $15.5 trillion in February 2020 to $21.6 trillion today, with growth rates jumping from 5% to 25%, peaking at 26.9% in February 2021—easily surpassing growth rates seen during the 2008 financial crisis and the high-inflation 1970s–1980s era.
Meanwhile, the Fed’s balance sheet has ballooned to $7.1 trillion. Pandemic relief measures cost $5.2 trillion—equivalent to 25% of GDP—more than the combined cost of the 13 most expensive wars in U.S. history.
In short, the U.S. printed $7 trillion in just two years, planting a massive time bomb for future inflation and debt crises.
Interest payments on U.S. government debt are setting historic records. As of April 2025, total U.S. national debt exceeds $36 trillion. In 2025 alone, the government is expected to repay approximately $9 trillion in principal and interest, with around $7.2 trillion attributable to maturing principal.
Over the next decade, projected interest payments will reach $13.8 trillion. The share of GDP devoted to debt servicing continues to rise annually. To meet these obligations, the government may need to raise taxes or cut spending—both of which would have negative economic consequences.
Trump vs. Powell: The Clash Over Interest Rates
Trump: "Cut Rates or I’ll Fire You"
Trump urgently needs the Fed to cut interest rates for practical reasons: high rates directly impact mortgages and consumer spending, threatening his political prospects. More importantly, Trump has consistently treated stock market performance as a key metric of his success. High interest rates suppress further equity gains, undermining the core data he relies on to showcase his achievements.
Additionally, tariff policies have increased import costs, driving up domestic prices and adding inflationary pressure. Moderate rate cuts could partially offset the negative impact of tariffs on economic growth, ease signs of slowdown, and create a more favorable economic environment for re-election.
Powell: Unmoved
The Federal Reserve has a dual mandate: maximum employment and price stability. Unlike Trump, whose decisions are driven by political expectations and stock market performance, Powell strictly follows a data-driven methodology. He avoids predictive judgments about the economy and instead assesses progress toward the dual mandate based on current data. He only implements targeted policy responses when one of the two goals—either inflation or employment—is off track.
As of April, U.S. unemployment stood at 4.2%, and inflation remains broadly aligned with the 2% long-term target. Until signs of recession caused by tariff policies and other factors materialize in actual economic data, Powell will not take action. He believes Trump’s tariff policies “will likely push inflation higher, at least temporarily,” and that “the inflationary effects could also be more persistent.” Premature rate cuts before inflation fully returns to target could worsen inflation.
Moreover, the Fed’s independence is a cornerstone of its decision-making process. The Fed was established to ensure monetary policy is guided by economic fundamentals and professional analysis—not short-term political demands. Facing pressure from Trump, Powell insists on defending the Fed’s independence, stating, “I never ask to meet with the president, and I never will.”
GENIUS Act: America’s New Mechanism for Harvesting Debt Investors
Market data clearly demonstrates the significant impact of stablecoins on the U.S. Treasury market. Tether, the largest stablecoin issuer, purchased $33.1 billion in U.S. Treasuries in 2024, making it the seventh-largest global buyer of U.S. debt. According to Tether’s Q4 2024 report, its holdings of U.S. Treasuries have reached $113 billion. Circle, the second-largest stablecoin issuer, backs its USDC—worth approximately $60 billion—with cash and short-term Treasuries.
The GENIUS Act mandates that stablecoin issuers maintain reserves at a minimum 1:1 ratio, with reserve assets including short-term U.S. Treasuries and other dollar-denominated assets. With the current stablecoin market size at $243 billion, full implementation of the GENIUS framework would generate hundreds of billions of dollars in new demand for U.S. Treasuries.
First, the Benefits
The direct financing effect is clear: every dollar of stablecoin issued theoretically requires the purchase of one dollar in short-term Treasuries or equivalent assets, creating a new source of government funding. Second, cost advantages: compared to traditional Treasury auctions, stablecoin reserve demand is more stable and predictable, reducing uncertainty in government financing. Third, scale effects: once implemented, the GENIUS Act will compel more stablecoin issuers to buy Treasuries, generating large-scale, institutionalized demand. Most importantly, regulatory premium: by controlling stablecoin issuance standards through the GENIUS Act, the government effectively gains influence over the allocation of this massive capital pool. This form of "regulatory arbitrage" allows the government to advance traditional debt-financing objectives under the guise of innovation while bypassing political and institutional constraints associated with conventional monetary policy. U.S. Treasury Secretary Bessent explicitly stated at the White House Crypto Summit that stablecoins will be leveraged to secure the dollar’s global dominance.
Then, the Drawbacks
Risk of politicizing monetary policy: large-scale issuance of dollar-backed stablecoins gives Trump a backdoor “printing press” power, enabling him to indirectly achieve economic stimulus through de facto rate cuts without confronting Powell. When monetary policy is no longer constrained by central bank expertise and independent judgment, it risks becoming a tool for politicians to serve short-term interests. Historical experience shows that politicians often favor monetary easing to boost the economy and win voter support, ignoring long-term inflation risks.
Hidden inflation risk: when a user spends $1 to buy a stablecoin, it seems like no new money is created—but in reality, that $1 splits into two components: $1 in stablecoin held by the user and $1 in short-term Treasuries purchased by the issuer. These Treasuries function as quasi-money within the financial system—highly liquid, usable as collateral, and employed by banks for liquidity management. Effectively, the monetary utility of $1 has been duplicated, increasing the financial system’s effective liquidity, inflating asset prices and consumption demand, and inevitably pushing inflation upward.
Lessons from Bretton Woods: in 1971, facing insufficient gold reserves and mounting economic pressure, the U.S. unilaterally severed the dollar’s link to gold, fundamentally altering the international monetary system. Similarly, as the U.S. confronts worsening debt crises and rising interest burdens, there may emerge strong political incentives to decouple stablecoins from Treasuries—ultimately passing the losses onto the market.
DeFi: The Risk Amplifier
Stablecoins are highly likely to flow into the DeFi ecosystem after issuance—used in liquidity mining, lending, collateralization, and various yield farming strategies. Through DeFi lending, staking, restaking, and investing in tokenized Treasuries, risks are amplified layer by layer.
Restaking mechanisms are a prime example: repeatedly leveraging assets across protocols multiplies risk with each additional layer. If the value of restaked assets plummets, it could trigger cascading liquidations and panic-driven sell-offs.
Although the underlying reserves remain U.S. Treasuries, post-DeFi layering transforms market behavior entirely, diverging sharply from that of traditional Treasury holders—and this entire risk structure operates completely outside the reach of traditional regulatory frameworks.
Trump’s Money-Making Scheme: Monetizing Presidential Power
Given Trump’s past antics, it’s hard to believe his push for stablecoins is purely about saving the U.S. economy. I’m more inclined to see dollar-backed stablecoins as a wealth extraction tool for the Trump conglomerate.
World Liberty Financial: the Trump family launched the cryptocurrency project World Liberty Financial (WLFI), raising at least $550 million through sales of $WLFI tokens—most of which occurred after Trump’s November election victory. WLFI also introduced USD1, a dollar-pegged stablecoin. MGX, an Abu Dhabi-backed investment firm, announced a $2 billion investment in Binance using USD1.
Launching $TRUMP: in January this year, Trump issued his personal meme coin $TRUMP, setting a precedent for presidents issuing their own tokens. The Trump Organization controls 80% of the token supply. Since its launch, over 813,000 crypto wallets have lost approximately $2 billion. Last week, Trump hosted a private dinner at his National Golf Club for the top 25 $TRUMP holders, sparking widespread controversy.
Frequent social media pump-and-dumps: Trump’s social media activity has raised concerns about market manipulation. On April 2, Trump signed a tariff executive order at the White House, triggering a sharp drop in U.S. stocks. On April 9, he announced a pause in the policy, sending markets soaring. Just four hours before the announcement, he posted on Truth Social: “This is a great time to buy.” That day, DJT stock surged 22.67%, increasing Trump’s personal wealth by $415 million.
Dollar-backed stablecoins intersect monetary policy, financial regulation, technological innovation, and political maneuvering. No single perspective can fully capture their complexity. The ultimate trajectory of stablecoins will depend on how regulations evolve, how technology advances, how market participants behave, and shifts in the broader macroeconomic environment. Only through sustained observation and rational analysis can we truly understand the profound implications of dollar-backed stablecoins for the global financial system.
But one thing is certain: in this game, ordinary people will most likely end up footing the bill.
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