GENIUS Act Changes Could Threaten US Dollar, Crypto Exec Warns

Pro-crypto lawyer John Deaton has raised significant concerns regarding proposed modifications to the GENIUS Act, warning that such changes could constitute a "national security trap" for the United States.

The core of the argument centers on a proposal to ban the generation of yield on stablecoins. Deaton contends that this prohibition would effectively eliminate a key incentive for users to hold US-based digital assets. Without the ability to earn interest, these stablecoins would become less attractive compared to alternative financial instruments.

Specifically, Deaton argues that this regulatory shift would inadvertently drive users toward China's interest-bearing digital yuan. By offering a yield-bearing state-sponsored digital currency, China could capture market share that would otherwise support the US dollar's hegemony in the digital asset space.

The potential outcome, according to this analysis, is a direct weakening of the US dollar's position in the global economy. As users migrate to the Chinese digital currency for better returns, the dominance of the dollar could be eroded, creating a strategic disadvantage for the United States in the realm of digital finance.

The debate surrounding the GENIUS Act has intensified following warnings from prominent pro-crypto lawyer John Deaton. The proposed legislation includes specific language that would prohibit the payment of yield on stablecoins issued within the United States. While proponents of this ban may argue for consumer protection or financial stability, Deaton views the move through a geopolitical lens.

According to Deaton, banning yield creates a distinct competitive disadvantage for American digital assets. In a global marketplace, capital naturally flows toward the highest returns. If US regulations strip stablecoins of their earning potential, investors and users will look elsewhere for similar financial products that offer growth.

This regulatory gap, Deaton argues, would be quickly filled by foreign adversaries. Specifically, he points to China as a primary beneficiary of such a policy. The Chinese government has been actively developing its Central Bank Digital Currency (CBDC), the digital yuan. Unlike the proposed restrictions on US stablecoins, the digital yuan is designed to function as a tool of statecraft, potentially including interest-bearing capabilities to attract users.

The warning highlights a growing concern in Washington regarding the intersection of financial technology and national security. By restricting the utility of US-based crypto assets, the government may inadvertently hand a strategic victory to China in the race to define the future of digital currency.

To understand the gravity of Deaton's warning, one must look at the trajectory of China's digital currency initiatives. The digital yuan is not merely a cryptocurrency; it is a state-backed instrument designed to internationalize the Renminbi and challenge the dominance of the US dollar.

Unlike decentralized stablecoins often associated with the crypto industry, the digital yuan offers the full faith and credit of the Chinese state. If this currency offers interest-bearing features, it becomes a formidable competitor to traditional savings and investment vehicles.

Deaton's argument suggests that the GENIUS Act changes would act as a catalyst for the adoption of this foreign currency. The logic follows a clear economic path:

• US regulations remove yield incentives from domestic stablecoins.
• Users seek yield-bearing digital assets to preserve and grow wealth.
• China's digital yuan fills this void with state-sponsored incentives.
• The US dollar loses market share in the digital economy.

This scenario represents a significant shift in financial power. If the digital yuan becomes the preferred medium for yield-generating digital transactions, the utility of the dollar in international trade and finance could diminish.

The ultimate concern raised by John Deaton is the long-term stability of the US dollar. The dollar's status as the world's reserve currency grants the United States immense economic leverage, including the ability to enforce sanctions and influence global markets. However, this status is not guaranteed.

By characterizing the proposed changes as a "national security trap," Deaton suggests that the legislation could have unintended consequences that far outweigh the intended regulatory benefits. The erosion of dollar dominance begins with the erosion of its utility in the digital realm.

If the GENIUS Act passes in its current form, it could signal to the global market that the United States is unwilling to compete on yield. This perception would allow competitors like China to set the standards for the next generation of finance.

Ultimately, the argument posits that the US must foster an environment where domestic stablecoins can thrive, including offering competitive yields, to effectively counter the rise of foreign state-sponsored digital currencies. Failure to do so, according to this analysis, risks ceding the future of money to geopolitical rivals.

The controversy over the GENIUS Act underscores the complex challenges facing regulators as they attempt to govern the rapidly evolving crypto industry. While the desire to regulate stablecoins is clear, the specific mechanisms chosen could have profound geopolitical ramifications.

John Deaton's warning serves as a stark reminder that financial regulation does not happen in a vacuum. In a competitive global environment, restrictive policies in one jurisdiction often benefit rival nations. By potentially banning yield on stablecoins, the United States risks pushing users toward China's digital yuan, thereby undermining the very currency the legislation may seek to protect.

As the legislative process continues, policymakers will need to weigh the benefits of strict regulation against the risks of stifling innovation and ceding ground to international competitors. The debate highlights the urgent need for a comprehensive US strategy on digital assets that balances domestic concerns with global economic realities.