- US stablecoin law risks displacing private issuers, strengthening traditional banks.
- China limits stablecoins to protect currency sovereignty and financial security.
- Stablecoins’ global 24/7 flow raises AML, KYC, and fraud compliance risks.
The United States’ new stablecoin legislation could ironically undermine the very industry it seeks to protect. Wang Yongli, former vice president of the Bank of China and first Chinese mainland member of the SWIFT board, highlighted the risks in a detailed WeChat analysis.
Signed into law on July 18, the GENIUS Act establishes America’s first federal framework for stablecoins. Wang argues the law, while aiming for regulatory clarity, may empower traditional banks to dominate the space and displace private issuers.
The GENIUS Act requires stablecoin issuers to maintain reserves equal to their token value in dollars or short-term Treasuries. Additionally, the law mandates monthly audits, strict anti-money laundering compliance, and prohibits stablecoin issuers from paying interest.
Wang believes these measures could unintentionally strengthen the U.S. dollar’s global dominance. “The introduction of legislation in that space has not only increased demand for the US dollar and US Treasury bonds, strengthening the dollar’s international status, but also brought huge profits to the Trump family and their cryptocurrency associates,” he noted.
Banks Could Replace Private Stablecoins
Wang warns that the legislation may backfire for crypto companies. He explained that once crypto assets receive legal protection, banks and financial institutions will fully enter the market. Consequently, banks can directly tokenize fiat deposits on-chain, effectively replacing stablecoins as the bridge between crypto and traditional finance.
Moreover, this shift could challenge smaller private issuers who originally benefited from the regulatory framework. Wang emphasized, “Payment institutions such as banks can directly promote the on-chain operation of fiat currency deposits, completely replacing stablecoins as a new channel and hub connecting the crypto world and the real world.”
China’s Strategic Approach to Stablecoins
China, in contrast, has restricted stablecoins while accelerating its digital Yuan. Wang explained that American firms control over 99% of the global stablecoin market, making any RMB-backed stablecoin dependent on U.S. systems. He added that stablecoins operate 24/7 globally, beyond traditional oversight.
This creates risks in KYC, AML, and FTC compliance, along with potential money laundering, fraud, and illegal fund transfers. Hence, China prioritizes currency sovereignty, foreign exchange control, and national security over efficiency or lower transaction costs.
