The ink on the GENIUS Act has only just dried, yet its effects are already evident throughout the crypto sector. Within just seven days, the industry saw an increase of nearly $4 billion, elevating the stablecoin market capitalization above $264 billion and stimulating corporate interest in associated initiatives.
The rise is hardly unexpected. The landmark legislation offers banks, asset managers, and various institutional investors a federal framework for fiat-backed stablecoins, free from the imminent threat of enforcement actions from the Securities and Exchange Commission (SEC).
With regulatory clarity comes fresh investment, new competitors, and heightened rivalry. Indications of this transformation were already apparent even prior to the enactment of the GENIUS Act.
In a May conversation with Yahoo Finance, Coinbase CEO Brian Armstrong was queried about his thoughts on banks venturing into the stablecoin domain. “No,” he answered. “I believe everyone should have the ability to produce stablecoins.”
Traditional finance appears to concur, and as new participants flood the market, the focus is shifting to stablecoin design and the enterprises behind them.
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Not all stablecoins hold the same status
While all stablecoins seek to uphold a consistent value, they can vary considerably in how they accomplish that stability. These tokens usually fall into four classifications: fiat-backed, crypto-backed, algorithmic, and commodity-backed.
Fiat-backed stablecoins are the most prevalent, pegged at 1:1 to a fiat currency, such as the US dollar, and secured by cash or short-term assets, like US Treasurys. As of this writing, they constitute roughly 85% of the stablecoin landscape.
The GENIUS Act specifically focused on this type of stablecoin. The largest fiat-backed stablecoins are USDt (USDT) by Tether and USD Coin (USDC) by Circle, boasting a combined market capitalization exceeding $227 billion. Under the GENIUS Act, compliant fiat-backed issuers are mandated to maintain full reserves, undergo audits, and possess the appropriate licenses.
Crypto-backed stablecoins consist of tokens overcollateralized with crypto assets like ETH or tokenized Bitcoin. The foremost example is DAI (formerly MakerDAO), which is underpinned by a mixture of crypto collateral and holds a market cap of approximately $4.35 billion, according to DefiLlama.
The last two categories are less prominent but still significant. Algorithmic stablecoins maintain their peg by automatically adjusting supply, but they have demonstrated fragility, particularly highlighted by the collapse of the Terra ecosystem. Algorithmic stablecoins are excluded under the GENIUS Act and are set for separate treatment.
Commodity-backed stablecoins, such as Pax Gold (PAXG), are secured by commodities like gold and may serve as a hedge against inflation, although their adoption remains limited due to liquidity and custodial complexities.
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Here come the institutions
Following the enactment of the GENIUS Act on July 18, the influx of businesses, institutions, and banks entering the stablecoin domain is escalating.
On Tuesday, Anchorage Digital, the sole federally chartered crypto bank in the US, introduced a stablecoin issuance platform in collaboration with Ethena Labs. This initiative will bring Ethena’s USDtb stablecoin onshore under the new regulatory framework established by the GENIUS Act.
On the same occasion, Wall Street asset manager WisdomTree launched USDW, a dollar-backed stablecoin designed to facilitate dividend-paying tokenized assets. This product also aligns with the GENIUS Act standards, positioning WisdomTree as one of the pioneering asset managers to penetrate the regulated stablecoin market.
The largest banks worldwide are also taking steps. On July 16, just days prior to the GENIUS Act being signed, Bank of America CEO Brian Moynihan mentioned that the bank is investigating the issuance of dollar-backed stablecoins, awaiting full regulatory clarity under the GENIUS Act. Earlier in July, JPMorgan and Citigroup confirmed their intentions to enter the stablecoin market as well.
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