Forwarding the original title “Yang Ge Gary: The GENIUS Act and on-chain shadow currency”

Written in Washington on May 26, 2025

As the 25Q2 coincides with several Crypto conferences in North America, on the 19th, the U.S. Senate passed the GENIUS Act (Guiding and Establishing the National Innovation Act for Stablecoins) with a vote of 66 in favor and 32 against. Within less than a week, various financial and Crypto institutions rushed to iterate with each other, and in the words of a friend, the entire market has become restless.

The uniqueness of this bill lies in its potential to significantly impact the global financial economy in both the short and long term, with many levels of complexity that build up gradually, much like a major earthquake occurring close to the earth’s surface. If the GENIUS bill is successfully implemented, it will cleverly mitigate the impact of Crypto on the current financial status of the US dollar and US Treasury bonds, while also promoting the growth of the value and liquidity of the Crypto Market linked to the US dollar. Essentially, it transforms the existing advantage of the US dollar as a price anchor into a long-term advantage as a value anchor, truly earning the name Genius.

Based on the discussions at the conference in New York last week, the following relevant issues have been initially summarized:

tl;dr

1. The fundamental reason for the decline of traditional dollar dominance
2. Recognizing the trade-offs and retreating to advance decisions under the trend of Crypto driving a dramatic change in the global monetary system.
3. The nominal purpose and substantive purpose of the GENIUS Act
4. The Insights of DeFi Restaking for the Fiat Currency World and the Currency Multiplier of Shadow Currencies
5. Gold, USD, and Crypto stablecoins
6. The global market feedback and the dramatic changes in financial transactions and assets after the bill takes effect.

1. The fundamental reason for the decline of traditional dollar control.

The decline in the control of the US dollar’s influence on the global economy has numerous dimensions. From a long-term perspective, the various resource dividends have been largely exhausted since the Age of Discovery to World War II. In the short term, the regulatory capabilities of economic policies are gradually becoming ineffective. However, the essential factors contributing to the current situation mainly include the following four points:

i) The global economy and the rapid rise of national powers have reduced the necessity of using the US dollar as the sole global trade and financial settlement currency. More countries and regions are establishing their own trade and currency settlement systems independent of the US dollar.

ii) During the COVID19 period (2020-2022), the United States excessively issued more than 44% of the dollar supply, with M2 growing from $15.2 trillion to $21.9 trillion (Federal data), leading to an irreversible process of declining dollar credit after the pandemic.

iii) The internal Federal system in the United States has a rigid entropy increase regarding monetary and fiscal policy controls, with serious asymmetry in capital efficiency and wealth distribution, which is not compatible with the needs of the digital and AI new paradigm for driving economic growth.

iv) The decentralized cryptocurrency financial system is rapidly rising, adding to the aforementioned environmental background, and disruptively overturning the traditional financial economic system based on national credit globally since the Bretton Woods Rules.

It is worth mentioning that traditional financial entrepreneurs represented by Ray Dalio and some politicians have shown a dogmatic inertia error in their understanding of the Thucydides Trap when facing the above environment. Many have believed for the past decade that the Thucydides Trap still exists or is about to occur between China and the United States, even using this topic as a basis for lobbying or investment strategies. In fact, the problems faced by China and the United States are completely consistent and should belong to the same side representing the Thucydides Trap, while the other side is the Crypto financial system and the production relations of decentralized governance in the era of digital currencies. How to face this inevitable trend of transformation is the transitional issue that the upgraded paradigm of the Thucydides Trap in the new era should address. Clearly, the GENIUS Act has gotten the point this time.

2. Recognize the trade-offs and the decision to retreat in order to advance under the trend of Crypto driving dramatic changes in the global monetary system.

Based on the above, the decision of the GENIUS bill is essentially a trade-off and a sacrifice to advance: it marks the Federal’s acceptance of the reality that the influence and control of traditional U.S. dollars under the original financial system is declining, and it actively further delegates the issuance and settlement rights of the dollar (Note: Most of the fiat offshore dollars also come from the Federal’s off-balance-sheet offshore bank credit expansion, which belongs to shadow currency. The authenticity of issuance and clearing is controlled based on the access system and compliance network, and is backed and filtered by sovereign-level central banks). In the face of the inevitable trend of Crypto financial development, we will take the opportunity, drawing on the advanced practices of DeFi Restaking combined with the experience of off-balance-sheet extension of fiat offshore dollars in the offshore banking system’s credit expansion, to encourage compliant institutions to issue stablecoins, forming a new “on-chain offshore structure” model of “on-chain shadow currency”, further amplifying the currency multiplier effect of circulating dollars.

The decision and initiative of the GENIUS Act will significantly and effectively help the US dollar to “re-anchor,” not only restoring confidence among holders of US Treasuries and dollar-denominated assets but also further allowing off-balance-sheet dollars to quickly expand with the growth of the Crypto Market, achieving the dual effect of turning danger into safety and hitting two targets with one action.

3. The nominal and substantive purposes of the GENIUS Act

The nominal purpose and the substantive purpose of the GENIUS Act are clearly different. Simply put: internally it is called compliance regulation, while externally it serves as a model for publicity. It provides a policy template for financial management departments in other countries and regions around the world, and uses the US market as an example to offer an execution template for financial institutions in other countries and regions, allowing the global market to use US dollar-pegged stablecoins in the Crypto Market more quickly.

From a short-term internal perspective, the direct purpose is compliance management, ensuring stability during the transformation period as the Crypto Market rapidly impacts the traditional financial market. This is a routine operation of the U.S. financial legal system. From a long-term external perspective, this has achieved an absolute promotional effect, maximizing the inherent advantages of the dollar as a price anchor in the traditional financial system. It also cleverly addresses the pain point that there are no other stablecoin price anchors in the Crypto Market besides the dollar, using a semi-compliant and semi-open approach—specifically mentioning restrictions on offshore issuers in the legislation: foreign stablecoin issuers that have not been approved by U.S. regulatory agencies are not allowed to operate in the U.S. market. This essentially implies that operations can occur in foreign markets, thereby stimulating and confirming the global reliance on and use of dollar stablecoins during the upgrade process of Crypto Finance.

On May 21, the Hong Kong Legislative Council passed the , and it is believed that the Japanese Financial Services Agency (JSA), the Monetary Authority of Singapore (MAS), and the Dubai Financial Services Authority (DFSA) will soon respond with their policies. Due to the special importance of the stablecoin ecosystem, coupled with the rapid iterative changes triggered by the GENIUS Act, this poses a significant challenge to countries and regions with prior legislation, making it crucial to balance boundaries and flexibility. Too loose could lead to market chaos and management difficulties, while too tight could quickly leave the Crypto Market behind, losing competitive advantages in finance, payments, and asset management in the next stage. Additionally, the quality of the regulations directly determines the peg level with USD stablecoins in the next phase; if the peg is too deep, it could rapidly lose the financial market independence of its own stablecoin. (Note: Due to the globalization, high liquidity, and high interactivity characteristics of the Crypto Market, the independence of other fiat stablecoins relative to USD stablecoins may be more challenging to establish, and the peg may become more rigid.) Furthermore, countries with subsequent legislation will not fare any better, facing the dilemma of market chaos due to rapid paradigm shifts and the risk of losing competitiveness due to conservatism and backwardness.

4. Insights from DeFi Restaking for the Fiat World and the Currency Multiplier of Shadow Currencies

A partner from an asset management firm told me last week that the next stage of global finance faces significant challenges, requiring dual understanding and cross comprehension of traditional finance and Crypto; otherwise, one will soon be eliminated by the market. Indeed, in the past two cycles of DeFi development, the Crypto Market has independently evolved a set of digitally protocolized professional economic scientific systems, from protocol logic, Tokenomics, financial analysis methods and tools, to the complexity of business models, which far exceed that of traditional financial systems. Although Crypto DeFi is different from traditional finance, it still continually requires the experience systems of traditional finance for calibration and comparison during its development. Both sides learn from each other, develop rapidly, and continuously couple, forming a new financial system.

The introduction of the GENIUS bill is highly similar to the Staking, Restaking, and LSD in previous cycles of DeFi, or it can be said that it is another extension of the same set of methodologies in the fiat currency world.

In DeFi, an example is: using ETH to obtain rebase stETH through Lido, then staking stETH on AAVE to receive 70% of its staking value in USDC, and then using the obtained USDC to enter the market to continue purchasing ETH. The ideal model of this repeated operation process is a geometric series cycle with a ratio of q=0.7, which will ultimately yield a currency multiplier of 3.3 times.

The above process can soon be realized on the basis of the Fabby stablecoin under the GENIUS Act: assuming a Japanese financial institution outside the United States issues USDJ by pledging U.S. Treasury bonds based on compliance conditions, acquiring JPY through off-ramp and exchanging it for USD, and then purchasing U.S. Treasury bonds to form a loop. In the repeated operations of this process, there are several assumed multipliers: one is the pledge rate (which could be full, discounted, or overvalued), the second is the on/off-ramp and exchange loss, and the third is the market loss rate. When all of these are calculated, a geometric multiplier q for a single cycle can also be obtained, and ultimately the monetary multiplier 1/(1-q) can be calculated. This multiplier represents the ideal financial amplification monetary multiplier that the GENIUS Act and subsequent stablecoin legislation in various countries regarding U.S. dollar and U.S. Treasury bond holdings may achieve.

Of course, this does not account for the excessive issuance by some informal institutions, as well as the other types of shadow assets obtained from the restaking of asset tokens after stablecoins are invested. The flexibility of stablecoins will far exceed that of the derivatives market in the fiat currency world, and the “stablecoin asset nesting doll” will undoubtedly bring unimaginable impacts to the traditional financial market.

5. Gold, US Dollar, and Crypto Stablecoins

In the previously written article , it mentioned the faith replacement of the three generations of financial system anchor assets, which are: gold, US dollars, and Bitcoin, from a macro perspective. From a micro perspective, all three generations of finance need a daily settlement unit that can be held in hand; in the past, it was a gold bar, a US dollar bill, and what will it be in the future?

As mentioned earlier, the pain point in the Crypto Market is that apart from the US dollar (stablecoin), there is no (native Crypto) currency or asset that can serve as a stablecoin price anchor. The reason is: pricing is very important. In real-world transactions, for a product or service, there needs to be a relatively stable amount as an intuitive reference price. It cannot be that a cup of Americano was 0.000038 BTC yesterday and is 0.000032 BTC today, as this would cause consumers and traders to lose their ability to judge value. The most important characteristic of a stablecoin is stability, which helps consumers and traders to judge and understand value through price. Then, price fluctuations act as a dynamic regulator that satisfies the balance between purchasing power and economic development.

Why the US Dollar (stablecoin)?

First of all, the US dollar has established a relatively universal presence in the fiat currency world. Secondly, it is difficult to redefine a better consensus. Of course, I have discussed this issue with a few friends: global currency stablecoins. Suppose its issuance is based on a more reasonable pricing mechanism related to the total global historical GDP and the annual GDP growth; even if it has a more optimized economic and financial efficiency than the current US dollar, it would still be difficult to gain consensus in social development to replace the position of the US dollar stablecoin. This is similar to the invention of Esperanto 140 years ago; even with the greatest comprehensive optimization algorithmically, it is hard to replace the first-mover market share advantage of English worldwide. Many countries with native languages ultimately chose English as their official language in their later development, such as India, Singapore, and the Philippines. Although they use English, their standards have long been independent of British English norms; it can be said that these “shadow Englishes” operate completely independently. The current indirect impact control rights expanded by the decentralized issuance of US dollar stablecoins after the GENIUS Act are very similar to this example of English.

The proposal of the GENIUS Act accurately aligns with the demand at this historical turning point, leveraging the current irreplaceable advantage of the US dollar as a price anchor globally. By transforming it into the long-term advantage of a value anchor for the future Crypto Market in the form of a US dollar stablecoin, it is a clever innovative design that maximizes historical advantages to leverage future advantages. Essentially, the idea of staking US dollars and issuing US dollar stablecoins through US Treasuries is actually a bold attempt to upgrade and convert US dollars and US Treasuries into a second-order gold.

6. Global market feedback after the bill goes into effect and the upheaval of financial transactions and assets

The implementation of the GENIUS Act will take some time, and the same goes for stablecoin legislation in other countries and regions. Some markets are beginning to respond to preliminary feedback on short-term sentiment based on asset prices.

In the short term, the introduction of the stablecoin bill will trigger significant changes in financial institution assets, RWA, and Crypto assets, with opportunities coexisting alongside restructuring, chaos, and development expectations. The uncertainty of adjustments in traditional finance further increases, making price corrections of some assets a normal phenomenon. Meanwhile, the confidence in the re-anchoring of U.S. Treasury bonds will inversely enhance and support the current market, and the advantage of open decision-making will lead to a second curve development for dollar assets, complementing the growth of Crypto. The expectations gained from this will also offset some of the panic from short-term restructuring, resulting in a relatively complex superposition state environment.

From the perspective of the Crypto Market, this is undoubtedly a great window to open further asset management and financial innovation. RWAFi will have more landing channels and asset forms, which is beneficial for long-term institutional projects like CICADA Finance that are engaged in Real Yield Asset Management, facilitating rapid transition and development in the DeFi, PayFi, and RWAFi industries.

Declaration:

1. This article is reproduced from [Yang Ge Gary] The original title is ‘Yang Ge Gary: The GENIUS Act and On-chain Shadow Currency’, copyright belongs to the original author [ Gary Yang], if there are any objections to the reprint, please contactGate Learn teamThe team will process it as soon as possible according to the relevant procedures.
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