POLICY & REGULATIONS REPORT I

May 20, 2025

Executive Summary

As expressed, we believe that understanding the regulations and policy landscape is not optional - it's a core driver of our investment process and a key differentiator in delivering long-term value to our limited partners.

We closely monitor the policy developments that impact digital assets. We believe the advancement of the GENIUS Act is one of the most important regulatory moments to date.

On May 19, 2025, the U.S. Senate voted to advance the GENIUS Act, legislation that, if signed into law, would establish the first true federal framework for the issuance and regulation of stablecoins. For years, the stablecoin market - despite being the backbone of on-chain liquidity - has existed in a regulatory vacuum, creating risk for investors, platforms, and protocols alike. That era is ending.

Key Provisions of the GENIUS Act

Federal Oversight of Stablecoin Issuers

Stablecoin issuers will be subject to federal regulation, including requirements for full 1:1 dollar-denominated reserves, independent audits, and operational controls.

Coordination Between Federal and State Regulators

The bill preserves the ability for stablecoin issuers to operate under state charters, provided they meet national standards, creating a streamlined but flexible oversight model.

Clear Consumer Protections

Requirements include full disclosure of reserves and redemption rights, and bans on false representations such as “FDIC-insured” unless explicitly approved.

Restrictions on Big Tech and Foreign Issuers

To limit systemic risk, large technology platforms and foreign issuers face added scrutiny and restrictions when issuing U.S.-linked stablecoins.

Ban on Yield-Bearing Stablecoins

The issuance of yield-bearing or interest-accruing stablecoins is prohibited to ensure stablecoins do not evolve into unregulated quasi-bank products.

What Does This All Mean?

Stablecoins are on the verge of being regulated like money market funds - transparent, fully reserve-backed, and institutionally viable. That may sound like a niche financial tweak, but it’s a structural shift with wide-reaching implications for both crypto and the broader U.S. financial system.

Here’s why that matters:

• Regulation transforms stablecoins from speculative tools into trusted digital dollars

• Backing them with Treasuries creates a new, structural source of demand for U.S. government debt

• Stablecoins become a monetary policy extension tool, embedding the dollar into the digital economy

Shift to national economic strategy: 

As Scott Bessent, head of the U.S. Treasury, put it:

We are going to put a lot of thought into the stablecoin regime, and as President Trump has directed, we are going to keep the U.S. [dollar] the dominant reserve currency in the world — and we will use stablecoins to do that.”

How the U.S. Turns Crypto into Fiscal Infrastructure:

The U.S. intends to leverage stablecoins to reinforce dollar dominance at a time of rising debt and global competition. By turning stablecoins into wrappers for T-bills, the government doesn’t just regulate crypto, it recruits it.

•  Treasury-backed stablecoins become a buyer base for U.S. debt

•  The digital dollar gains utility and reach in global commerce

The takeaway is simple: stablecoins aren’t just a crypto use case, they’re becoming a core component of U.S. financial infrastructure.

Why It Matters For Investors

The GENIUS Act gives digital assets something they’ve never had: regulatory clarity at the base layer of capital movement. That clarity translates into investable confidence and strategic alignment.

• Liquidity Confidence: Stablecoins power the majority of crypto settlement activity. With regulation now requiring transparent, liquid reserves (just like money markets), the risk of failure is dramatically reduced - making them a safer backbone for market infrastructure.

• Institutional Onboarding: Institutions have largely stayed on the sidelines due to unclear stablecoin oversight. This bill opens the door for banks, funds, and various types of traditional asset managers to enter with confidence.

• Macro Alignment: Regulated, dollar-backed stablecoins as defined by the GENIUS Act reinforce the U.S. dollar's role in digital markets.

For Traditional Digital, these developments are not abstract. This is a clear step towards the mainstreaming of digital assets, beginning with the USD/payment base layer.  This is very meaningful over time for crypto and broad US economic interests in the macro sense.