GENIUS Act Sparks $4 Billion Surge in Stablecoin Market

The GENIUS Act has only just become law, but its impact on the crypto landscape is already evident. In just a week, the stablecoin market gained nearly $4 billion, pushing its total market cap above $264 billion. 

This surge is closely tied to the regulatory clarity the Act provides, encouraging banks, asset managers, and institutional players to step into the stablecoin sector without fear of sudden enforcement actions from the Securities and Exchange Commission (SEC).

Prior to the law’s passage, discussions around institutional involvement in stablecoins were gaining momentum. In a May interview with Yahoo Finance, Coinbase CEO Brian Armstrong noted that he welcomed banks entering the stablecoin market, stating, “I think everybody should be able to create stablecoins.”

Understanding Stablecoin Varieties

As institutions prepare to enter this expanding market, attention is turning toward the design and backing of stablecoins. While all stablecoins share the goal of maintaining a stable value, they differ significantly in their methods. These tokens generally fall into four categories: fiat-backed, crypto-backed, algorithmic, and commodity-backed.

Fiat-backed stablecoins, pegged 1:1 to fiat currencies like the US dollar and backed by cash or short-term government securities, dominate the market, comprising roughly 85% of the total stablecoin supply. This is the primary category targeted by the GENIUS Act, which mandates full reserves, regular audits, and licensing for issuers. The two largest fiat-backed stablecoins, USDt by Tether and USD Coin by Circle, together hold a market cap exceeding $227 billion.

Crypto-backed stablecoins, such as DAI, use overcollateralized crypto assets like Ethereum and tokenized Bitcoin to maintain stability and currently represent around $4.35 billion in market capitalization. Meanwhile, algorithmic stablecoins, which adjust supply automatically to maintain their peg, have struggled with stability issues, highlighted by the collapse of Terra, and are set for separate review under the GENIUS Act. 

Commodity-backed stablecoins, like Pax Gold, offer backing by assets such as gold and appeal to those seeking an inflation hedge, but they face challenges related to liquidity and custody.

GENIUS Act Drives Institutional Stablecoin Adoption

The GENIUS Act has opened the doors for institutional players to enter the stablecoin space confidently, creating a pathway for banks and asset managers to develop and manage fiat-backed stablecoins under a clear regulatory framework. 

This is likely to fuel further growth, innovation, and scrutiny within the stablecoin ecosystem, setting the stage for stablecoins to become a central pillar in the evolving financial system while maintaining consumer protections and transparency.