Should Southeast Asian Regulators be Awed by the GENIUS Act?

On 18 July 2025, US President Donald Trump signed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act. The legislation mandates a one-to-one backing of stablecoins with low-risk assets. This has generated excitement among many crypto investors and firms who see the GENIUS Act as a stamp of regulatory approval and backing for stablecoins. 

Policymakers in Southeast Asia are pondering whether the GENIUS Act will have adverse spillover effects on the region. While GENIUS may pose regulatory challenges for regional governments, its importance should not be underestimated.

Stablecoins differ vastly from their more volatile counterparts such as Bitcoin and Ethereum. There are two key questions to be addressed here. Will the GENIUS Act change the way investors in this region evaluate stablecoins? What are the contagion risks associated with this change? 

An understanding of the risks will require an appreciation of the nature of the GENIUS Act.  In the Act, “payment stablecoins” (hereafter, stablecoins) are digital assets that can be used as a means of payment or settlement. The Act obligates stablecoin issuers to convert, redeem, or repurchase for a fixed amount of monetary value while maintaining a stable value relative to its pegged asset.

To maintain a stable value, stablecoins must — under the GENIUS Act — be backed by reserves comprising the US dollar, treasury bills, securities, and monies from reverse repurchase agreements. Stablecoins have been previously used as a medium of exchange between more volatile cryptocurrencies, cross-border payments and for more nefarious purposes in crime and money laundering. The Act would permit stablecoin issuers to directly and legally issue their own coins subject to adherence to anti-money laundering laws.

Some critics have posited that the current regulatory climate eerily brings to mind the strong advocacy for the removal of regulatory oversight of over-the-counter (OTC) derivatives under the Commodity Futures Modernisation Act (CFMA) of 2000. Subsequently, this featured heavily in the lead-up to the 2008 Global Financial Crisis (GFC). However, the crux of CFMA heavily centres around deregulation of OTC derivatives, while the GENUIS Act brings the issuance of stablecoins under regulatory purview. Moreover, OTC derivatives added leverage to the financial system as riskier products were not sufficiently collateralised. Stablecoins, as mentioned, are backed one-to-one by low-risk assets with little to no leverage as stipulated in Section 4 of the Genius Act.

Whether stablecoins will lead to another financial crisis depends on their impact on systemic risk in the global financial ecosystem. Under the Act, stablecoin issuers are allowed to opt for regulation under a state-level (rather than a federal) regime if they have less than US$10 billion in total outstanding issued stablecoins. This could lead to a scenario where different states have varying standards in regulatory oversight which could create vulnerabilities in the overall financial system. Moreover, under the current GENIUS Act, questions still remain over who would be responsible for a bailout in the case of a large-scale currency run.

Another thorny issue that regulators have to face is the risk of heightened and more rapid confidence spillovers between different types of cryptocurrencies and asset classes. While the GENIUS Act deems that stablecoin issuers are responsible for maintaining an expectation of stability, confidence spillovers have never been easily quelled and are not easily reversed. In the age of instant communication, investor panic can trigger a cascade of events that may happen even more rapidly than that experienced during the 2008 GFC.

The Act serves as an urgent but timely reminder for these countries to not only understand and regulate their domestic cryptocurrency landscapes but also increase regional cooperation in digital finance to enhance regulatory surveillance.

The panic that surrounded fintech company Circle in 2023 illustrates these concerns most clearly. Its stablecoin, USDC, broke its peg to the greenback after Circle revealed that it had nearly 8 per cent of its US$40 billion in reserves tied up at Silicon Valley Bank (SVB). The latter had collapsed, after a drop in its bond values led to a run on its deposits. Panic responses saw the stablecoin fall to a low of US$0.87. Similar to the 2008 GFC, the risks of further panic responses and bank runs were avoided with a combination of a tweet by the firm reassuring investors of a one-to-one redemption and assurances by regulators. Yet, with the potential increased number of firms releasing stablecoins, regulators and firms should be concerned about sentiment management. This is on top of the current lack of tools regulators are able to wield to prevent stablecoin runs.

How relevant are such concerns of economic contagion to Southeast Asia? While the region’s banks did not have significant direct exposure to these assets previously, many of its retail investors are directly participating in cryptocurrency markets. Aside from investing, stablecoins have been increasingly used for merchant payments, remittances and even savings due to their relatively stable US dollar peg. Currently, Indonesia, Vietnam and Philippines have the world’s highest cryptocurrency adoption rates. Given its popularity, Southeast Asian countries’ lack of coordination and uniformity for cryptocurrencies will only make the task of regulatory oversight all the more challenging. A continued vacuum and leniency towards cryptocurrency regulations could lead to higher prevalence of stablecoins that are backed by riskier assets held by users and market participants.

The GENIUS Act may pose increased challenges for regulatory bodies. Yet, its significance for Southeast Asian countries cannot be understated. The Act serves as an urgent but timely reminder for these countries to not only understand and regulate their domestic cryptocurrency landscapes but also increase regional cooperation in digital finance to enhance regulatory surveillance. In the current climate of economic uncertainty, careful management of cryptocurrency markets is all the more pertinent.

2025/293