Can the three US encryption bills change the "game rules"?

Authors: luke Song, Sam, Li Zhongzhen, Pang Meimei

Recently, the U.S. House of Representatives passed three legislative proposals on crypto 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 described as "an important step to consolidate the United States' dominant position in the global financial and crypto technology fields," 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 between the SEC and CFTC as outlined in the 'Clarity Act'?", "Why is the U.S. against CBDCs?", "Will the three acts inspire other countries in their approach to crypto regulation?", "How will they affect the operations of crypto startups?"

Let's get to the point.

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

Luke:

The "Genius Act" simply means that the U.S. government has established 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 using stablecoins.

The main part consists of three sections.

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

Second, it has strictly mandated stablecoin issuers to manage consumer redemptions of stablecoin principal in a 1:1 high liquidity manner. Moreover, they must publicly disclose their ledger every month to ensure this 1:1 high liquidity. Additionally, if the market capitalization of the stablecoin issuing company exceeds $50 billion, it must also submit an annual audit report and undergo dual regulation by state and federal authorities to prevent a "depeg" collapse like Terra/Luna.

The third point is that it explains that if the company issuing the stablecoin goes bankrupt, users' funds have priority for compensation, which is equivalent to providing a safety net for users. There are also requirements for anti-money laundering (AML) and know your customer (KYC), similar to banks, to ensure transaction transparency and prevent bad actors from taking advantage of loopholes.

Sam：

The purpose of the Genius Act is to regulate the issuance and trading of stablecoins in compliance, and it is currently 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 regulated financial institution. This means that to continue operating in the stablecoin business, one must be fully backed, disclose information, and comply with AML regulations.

This wave is completely aimed at Tether, with its current market cap around 1,600. In the past two rounds, there have been daily risks of explosions in the industry cycle, mainly due to the opacity of Tether's reserves and the audits being conducted by the same entities. As a result, Tether is often ridiculed by industry insiders, with the annual KPI being to hype up its own explosions and then buy back the 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 achieve this scale, which undoubtedly makes some consortiums envious. However, for consortiums to enter the market, they must first design the market rules properly, so that they can legally obtain profits. Therefore, the essence of the Genius Act is to provide entry tickets for new players or what you might call Old Money.

The nature of stablecoins outside North America is the same because the mainstream stablecoins are still pegged to fiat currencies. When fiat currencies are strong, the corresponding stablecoins are strong; when fiat currencies are weak, the corresponding stablecoins have little competitive opportunity, like the Naira in West Africa, which is a lost cause. However, as long as there are sufficient dollar reserves, anyone can issue dollar-pegged stablecoins. Ultimately, it depends on whether people trust your foreign exchange reserves, and there's also the issue of migration costs; the educational and migration costs of stablecoins 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 reserve assets at a ratio of at least 1:1, and the reserve assets can only be strong liquidity dollar assets such as U.S. dollars or U.S. Treasury bills 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 enhance dollar liquidity, establish the dominance of on-chain dollars, and consolidate the hegemony of the dollar.

②Do stablecoins from countries outside the United States still have competitive opportunities? This question actually depends on the overall 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 explain what stablecoins are, what threshold requirements the issuing entities have, who is responsible for regulating stablecoins, and what to do when problems arise? The "Genius Act" is designed to end the regulatory vacuum and address these issues.

Of course, while the "Genius Act" further strengthens the dominance of the US dollar in the global reserve and payment system by mandating stablecoin reserves in US Treasury bonds and dollar assets, it also consolidates the US dollar's international monetary hegemony. However, the main role of stablecoins is to serve as a means for cross-border payments and settlements, allowing for increased flexibility and efficiency in trade settlements without altering national monetary policies. Many countries around the world are now laying out plans for the development of stablecoins, and as the world's largest goods trading country, China has a natural strategic demand for optimizing cross-border settlement efficiency and costs. We have a huge opportunity, and that opportunity lies in Hong Kong. On May 21 of this year, the Hong Kong Legislative Council passed the "Stablecoin Conditions Draft", becoming the world's first jurisdiction to implement full-chain regulation of stablecoins. In promoting the trend of stablecoin development, Hong Kong plays a key role, 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 "Clarity Act"? What impact will the definition of "mature blockchain" have on the industry?

Luke:

In simple terms, the Clear 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, allowing the crypto industry to develop in a more orderly manner. Simply put, the SEC primarily oversees digital assets that have investment return expectations similar to stocks (such as certain tokenized securities), while the CFTC is responsible for things that are more like "commodities," such as Bitcoin or Ethereum, which derive their value mainly 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 landing and innovation of DeFi projects.

It is necessary to mention the definition of 'mature blockchain' in the bill. The bill defines 'mature blockchain' as a network confirmed through a certification process submitted to the SEC that meets legal conditions (such as decentralized governance, distributed ownership, and no single entity control). 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 passed (typically defaulting to effective after a certain period following submission unless the SEC objects), this blockchain is regarded as 'mature'.

Sam:

Dividing boundaries and managing separately is just typical decentralization. The SEC manages security tokens, POS algorithms, and DeFi types; decentralized and classified as commodities that meet the definition of mature blockchain fall under the jurisdiction of the CFTC.

Mature blockchain projects generally favor POW algorithms, as POW is the most original cryptocurrency, fully 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 equate to the success of the blockchain, and various regulatory measures related to securities often arise, leading to a contraction in the entry channel for technical personnel. Those with real technical skills are hesitant to enter, fearing a heavy blow. Now, however, everyone can write code with peace of mind without worrying about the SEC knocking on their door. Miners can also expand production without restraint, alleviating some pressure on the chip industry, hardware prices will decrease somewhat, and the payback period for POW has doubled from the previous cycle to the most recent year, and it currently seems likely to decline.

Then everyone will do their own thing, the SEC takes POS to the financial market to roll out APY, while the CFTC brings POW back to the original intention of blockchain.

Lawyer Li Zhongzhen:

① The "Clarity Act" has resolved the chaotic division of regulatory responsibilities between the SEC and CFTC in the cryptocurrency sector, clarifying that digital commodities fall under the CFTC's jurisdiction while restricted digital assets are handled by the SEC. This further improves the regulatory framework for cryptocurrencies in the United States, and a clear regulatory environment will help the development of the crypto industry. Any emerging industry is not afraid of regulation; what it fears is the anxiety caused by unclear regulatory responsibilities.

②The 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, etc. "Mature blockchain" allows projects initially issued as securities to transition to commodities after meeting the "mature blockchain" criteria, moving from SEC regulation to CFTC regulation. This is very friendly to the crypto industry; it should be noted that if a project is defined as a security and regulated by the SEC, the compliance costs are too high, and many startups simply cannot afford it. However, if defined as a commodity and regulated by the CFTC, the compliance costs will be significantly reduced.

Fat Meimei:

In simple terms, the bill is about labeling digital assets. The "Clear Act" clearly categorizes digital assets into different types and clearly delineates the regulatory scope of the SEC and CFTC. The CFTC primarily regulates securities-type products, which have higher and stricter requirements, while the SEC's regulation is much more lenient. Therefore, I believe that the division of regulatory responsibilities provides a more flexible compliance path for projects genuinely committed to blockchain. The most ingenious design of this bill lies in creating an evolutionary path for digital assets from securities to commodities, offering these projects 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 "securities" to "digital goods." Nowadays, blockchain technology is becoming increasingly widespread, and the industry is undergoing a paradigm shift, specifically regarding the standards or dimensions and characteristics used to distinguish whether a blockchain is reliable and has entered a mature phase. The legislation provides a clear definition and specifies the details and evaluation criteria, which helps entrepreneurs better understand how to meet these standards and offers greater certainty for ICOs and IDOs.

▍Q3: The U.S. "Anti-CBDC Act" seems to contrast sharply with the attempts of some countries to promote CBDCs. Why is there a stance against CBDCs? 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 gaining further power over the privacy of personal financial assets. Second, there are worries about the stability of the financial system. Third, there are concerns about the centralization of global currency.

First, privacy and surveillance risks are core objections. CBDC is essentially a digital banking system directly issued by central banks (similar to stablecoin issuers, but CBDC operates at the national level), capable of tracking every transaction in real-time. This could be misused for government surveillance or various human error risks, infringing on individual financial privacy and freedom. Proponents of the bill argue that this would create a 'surveillance state', akin to China's digital yuan, which, while convenient, also enhances the central bank's ability to monitor transactions. In contrast, the United States emphasizes the protection of constitutional rights and individual privacy rights, avoiding excessive government intervention in private financial property.

Secondly, CBDC will strengthen 'disintermediation' and affect the implementation of the Federal Reserve's monetary policy. Allowing central banks to serve individual consumers directly will weaken the role of commercial banks, potentially leading to a loss of deposits for commercial banks, intensified 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 insufficient to offset the potential harms.

There are also concerns about power concentration 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 status of the dollar through opposition to CBDC and promotes private stablecoins (such as USDC) as an alternative to foster market-driven innovation.

Sam:

The Federal Reserve is not affiliated with any political party, and thus there is no operation of political donations; it will certainly prioritize those who have paid the "protection fee". Once the Federal Reserve takes action, no one else should participate. Moreover, stablecoins at least retain some decentralized attributes, such as algorithmic stablecoins and cryptocurrency-pegged stablecoins. In the future, with new technologies, algorithms, or solutions, there is still room for development. On the other hand, CBDCs are completely centralized, which fundamentally contradicts the crypto philosophy. Decentralized assets are the core of these three bills, with demands for privacy, financial freedom, and censorship resistance. Releasing CBDCs would have a significant impact overall.

Simply put, the Federal Reserve issuing currency is like taking off pants to fart; these three bills will all become mere decorations.

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 is pushing the "Genius Act" is to bypass the Federal Reserve to expand the dollar. Allowing a CBDC would greatly benefit the Federal Reserve, but it wouldn't provide much practical advantage to the U.S. government. Only by restricting the Federal Reserve can the government achieve financial freedom.

In some countries that are attempting to promote CBDC, the issuance rights of their national currency are 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 country has been promoting it. In fact, this is an example of a CBDC. The CBDC itself has clear advantages, such as convenience and efficiency in payment settlements. Since the advantages are so obvious, why is there opposition? 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 a mediating role in this process. CBDC is a blockchain-based online banking service system operated by the central bank. If every individual can connect directly with the central bank for storage and loans, over time, commercial banks may become unnecessary. I believe a significant number of commercial banks may be forced to close, and such a situation would directly harm the stability of the existing economic and financial system. Furthermore, the CBDC system is not completely decentralized. If the CBDC is issued and has circulability, how can personal financial assets be protected? KYC and AML still need to be implemented, so what is the difference from the online banking we use now?

It is equivalent to merely adding blockchain technology to an already digitized banking system, without any essential improvements. The final result may be that there is neither an enhancement nor a resolution, creating a multitude of potential problems. Isn't it a case of losing the chicken while trying to catch it? Personally, I lean towards moving forward steadily, rather than blindly implementing CBDC on a large scale, or learning from Hong Kong's "sandbox" approach.

▍Q4: Will this prompt regulatory references in regions such as the EU and Asia? How will this move by the U.S. affect the global Web3 regulatory landscape?

Luke:

The "Genius Act," "Clarity Act," and "Anti-CBDC Act" passed in the United States in 2025 may inspire the EU and Asian countries to adopt similar cryptocurrency regulatory models. The EU's MiCA regulation may be refined to match U.S. standards, while Japan and Singapore could follow suit with stablecoin regulations. India may seek to balance innovation with compliance, and China might leverage the opportunity against CBDCs to expand the influence of the digital yuan. It is also possible that, like the U.S., China will vigorously develop the use of a renminbi stablecoin.

The global Web3 regulatory landscape will move towards standardization, encouraging private stablecoins and DeFi, but the U.S. anti-CBDC stance may lead to it ‘falling behind’ in CBDC payment systems, while simultaneously elevating the status of other private crypto asset platforms. This may trigger global regulatory competition, with capital flowing to regulation-friendly regions, while also potentially intensifying geopolitical friction and testing U.S. leadership in the digital economy.

Sam:

The EU is not necessarily the case; there is a need for some Asian countries to draw lessons from crypto regulation 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's statistics showed that there were more than 2,700 crypto licenses across Europe, and Canada's licenses and regulations have been earlier and more numerous than those in North America. However, Asia does indeed need to learn from this, as the entire region currently has the fewest licenses, with Poland alone having more. From this data, it can be seen that in terms of crypto regulation or crypto-friendliness, the U.S. can only be considered to have kept pace with the mainstream, as they themselves are also large, making it difficult for a big ship to turn around.

However, the regulation of stablecoins will refer to North American legislation, as compliance with this area is required. After all, mainstream stablecoins are mainly pegged to the US dollar, which is itself heavily regulated. The recent actions in North America will also accelerate the implementation of regulations in various places, mainly concerning stablecoins, with the possibility of a cryptocurrency tax. The regulatory standards of major countries and regions will quickly align, making the entire industry more standardized and transparent. It will be difficult to see the hundredfold coins of earlier years. Web3 is no longer a path to sudden wealth, but it will develop in a more long-term manner.

Lawyer Li Zhongzhen:

① On the issue of stablecoin regulation, Hong Kong is leading the way, but in terms of 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 referring to the U.S. regulatory model, such as implementing a tiered classification system for crypto assets and clarifying regulatory agencies and regulatory systems.

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

Fat Meimei:

The Genius Act establishes a solid regulatory framework for stablecoins, clearly defining the categories of digital assets, the 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 has been uncertainty in U.S. regulation. On one hand, the regulatory standards vary between different states, and on the other hand, there has been ongoing debate over 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 may help the U.S. seize the initiative in digital asset innovation, and the regulatory framework could become a global reference template. It may also prompt other countries to accelerate the improvement of laws related to crypto assets. The digital asset ecosystem in the U.S. and even globally may face significant changes.

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

Luke:

It is evident that the three bills will push the U.S. crypto industry from "wild growth to rule domination," significantly impacting the compliance costs and operational models of Web3 startup projects. In the short term, compliance costs will rise due to stablecoin disclosures, audit, and KYC/AML requirements, increasing startup expenditures (legal costs can account for 40% of financing), which may lead small projects to relocate due to heavy burdens. However, in the long term, clear regulations will reduce litigation risks and attract VC investments. Operational models will shift from ambiguous to compliant. Emphasis will be placed on decentralized governance and RWA tokenization to obtain exemptions (such as the ICO cap of $75 million), transitioning from rapid iteration to innovation within legal rules.

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

Sam:

Marks a new era in which Web3 entrepreneurship transitions 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 coins casually, and licenses becoming a standard requirement; compliance costs will also rise sharply, with lawyers, audits, KYC/AML, etc., becoming essential budget items; 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 Bitcoin. Only compliant businesses can scale up, and only compliant businesses can sustain in the long term, while also avoiding the situation where bad currency drives out good currency.

However, for the "Crypto Native" original group, Web3 is Web3, it is business, crypto is crypto, it is technology, native crypto is permissionless, and true crypto will find where it can occur.

Lawyer Li Zhongzhen:

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

① Projects issuing stablecoins must invest a significant amount of funds to obtain the necessary licenses, and also establish an independent auditing system and bankruptcy isolation mechanism. Especially regarding the requirement for reserve assets, a 1:1 reserve ratio places high demands on the financial strength of the project parties.

② For non-stablecoin projects, project parties need to clearly understand whether they are dealing with securities or commodities. In the past, without regulation, project parties might only need to assemble a technical development team, a security protection team, and a marketing team to tell their narrative, raise funds, and go on-chain, but that is no longer feasible. Therefore, at the initial stage of the project, project parties must establish a professional compliance team to respond to SEC or CFTC regulations, 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 cryptocurrency industry. The lack of clear rules in the past few years has led to unpredictable regulation for legitimate entrepreneurs, while speculators have profited from the legal ambiguity. These three bills will change this situation.

The legislation has detailed requirements for stablecoin issuers, trading platforms, and DeFi projects, and has outlined many prohibitive actions. The asset reserve requirements and fund segregation system have increased the cost of funds and management costs, while financial information disclosure and auditing have raised operational costs. For digital assets that were originally in a gray area, more resources need to be invested to determine regulatory attributes, which has increased compliance costs. Additionally, countries or institutions planning to issue central bank digital currencies may need to readjust their strategies and plans, further increasing compliance costs and uncertainty. The rise in compliance costs may lead some smaller projects to withdraw from the market due to unaffordability, but it also provides a clear path for high-quality projects to establish long-term operational models based on legal regulations, ensuring the stable and lasting operation of the projects.