Market watcher Colin Wu says the U.S. push to bring fiat-backed stablecoins into the regulatory mainstream — crystallized in the GENIUS Act enacted in July under President Donald Trump — is reshaping both crypto markets and global finance, for better and worse. Why the GENIUS Act matters - The bill is widely seen as a win for digital assets because it clears a path for wider adoption of USD-backed stablecoins. That promise of broader use has already pushed up global demand for U.S. dollars and short-term Treasury securities. - Wu flags a controversial side effect: this surge in demand has, he says, indirectly benefited the Trump family and associates tied to crypto — and it has made monitoring global dollar flows more difficult, raising questions about the stability and oversight of the U.S. financial system. How stablecoins are shifting capital flows - Wu argues that trading enabled by USD stablecoins has become a less transparent channel for moving and extracting value internationally. That dynamic, he warns, can undermine other countries’ monetary sovereignty and financial security. Technical and regulatory friction points - The GENIUS Act specifies permissible reserve assets for stablecoins — bank deposits, short-term Treasuries, and repo agreements. But those assets’ market values fluctuate. If Treasury prices fall, reserves could become insufficient, creating solvency or liquidity risks for stablecoins. - Because fiat stablecoins are a plumbing layer for much of crypto trading and tokenized finance, Wu expects lawmakers to extend regulation beyond stablecoins to other crypto categories — including Bitcoin and Real-World Assets (RWAs) — since these markets rely heavily on stablecoin liquidity. Banks, unregulated firms, and the race for custody - Today, many licensed banks still lack clear legal standing to trade, clear, or custody crypto, leaving those functions to unregulated private firms. That gap has reportedly boosted profits for unregulated players and put pressure on traditional banks and the broader financial ecosystem. - Wu sees that imbalance as a key reason authorities are accelerating stablecoin rules: once crypto assets receive full legal recognition, banks are likely to enter the market decisively — tokenizing deposits and directly linking deposit tokens to conventional financial instruments. A regulated future — and its trade-offs - The U.S. trend appears to favor a banking-centered model: “same business, same regulation” aims to lower systemic risks by subjecting crypto-like activities to traditional prudential oversight. - But Wu cautions this regulatory consolidation could also upend the current stablecoin industry. Heavy regulation that funnels activity into banks may effectively hollow out the independent stablecoin ecosystem that developed under looser rules. Global takeaway - Given the trade-offs — stronger oversight and systemic stability versus reduced independence for the stablecoin sector — Wu argues other countries should be cautious about copying the U.S. approach verbatim. Image credit: DALL·E. Chart: TradingView.com. Read more AI-generated news on: undefined/news

#BTC