The stablecoin market has exploded with activity following the recent passing of the GENIUS Act, a groundbreaking piece of US legislation providing clear rules for fiat-backed digital currencies. In just one week since the bill became law on July 18, the overall stablecoin supply surged by $4 billion, pushing the market cap beyond $264 billion.
This rapid growth highlights the strong demand for regulatory certainty in the crypto space. For years, banks and crypto firms hesitated to enter the market due to fear of enforcement actions by regulators like the Securities and Exchange Commission (SEC). But with a formal federal framework now in place, institutional players are finally stepping in.
What Is the GENIUS Act?
The GENIUS Act sets legal standards for fiat-backed stablecoins, digital tokens tied 1:1 to government-issued currencies like the US dollar. To comply with the law, issuers must:
- Maintain full reserves in cash or short-term assets like US Treasurys
- Submit to regular audits
- Operate under federal or state licenses
These rules apply only to fiat-backed stablecoins, which currently make up around 85% of the market. The largest examples are USDT (Tether) and USDC (Circle), which together hold over $227 billion in market cap.
The law leaves out other categories of stablecoins such as crypto-backed, algorithmic, and commodity-backed, though future legislation is expected to address these types separately.
Understanding the Different Types of Stablecoins
Not all stablecoins are built the same. While they all aim to maintain price stability, the way they do so varies:
- Fiat-Backed Stablecoins
Pegged to traditional currencies like the US dollar, these are backed by cash or safe government securities. This category is the most trusted and now regulated under the GENIUS Act. - Crypto-Backed Stablecoins
Backed by cryptocurrencies like Ethereum or Bitcoin, these are often overcollateralised to handle market volatility. DAI, backed by a mix of crypto assets, is the leading example with a market cap around $4.35 billion.
- Algorithmic Stablecoins
These try to keep their value stable using smart contracts and supply-demand logic. However, they’ve faced major failures, most notably the Terra/LUNA crash. The GENIUS Act excludes these from its regulatory scope. - Commodity-Backed Stablecoins
Linked to physical assets like gold, these are rare and complex due to custodial and liquidity issues. Pax Gold is one of the few notable examples.
Banks and Asset Managers Join the Race
Regulatory clarity has opened the floodgates. Within days of the GENIUS Act passing, several major financial institutions announced new stablecoin ventures:
- Anchorage Digital, the only federally chartered crypto bank in the US, launched a platform to issue compliant stablecoins with Ethena Labs, starting with USDtb.
- WisdomTree, a prominent asset manager, released USDW, a fiat-backed stablecoin designed to work with tokenised investment products. It complies fully with the GENIUS Act.
- Bank of America, JPMorgan, and Citigroup are all reportedly developing their own dollar-backed stablecoins, waiting only for complete regulatory alignment.
In a recent interview, Coinbase CEO Brian Armstrong welcomed the competition, stating: “I think everybody should be able to create stablecoins.” His comment signals growing confidence in a broader, regulated stablecoin economy.
Why It Matters
The GENIUS Act is more than just a crypto policy, it’s a turning point in digital finance. By giving banks and fintechs a green light to issue stablecoins, it paves the way for:
- New financial products like tokenised bonds or dividend-paying tokens
- Greater trust in the crypto sector from retail and institutional investors
- Heightened competition, likely driving innovation in stablecoin design and utility
As the market adjusts to these changes, one thing is clear: the stablecoin space is no longer just for crypto startups. With Wall Street and Washington now actively involved, digital dollars may soon become as mainstream as physical ones.
