Crypto Clarity or State Capture?

Nothing in this article constitutes financial advice. Please always conduct your own research.

The U.S. government is rolling out the red carpet for blockchain innovation. Or so it seems. Mainstream headlines portray recent legislation as a protective shield for Bitcoin, stablecoins, and decentralized finance (DeFi), suggesting that crypto is becoming mainstream and more widely accepted.

Cryptocurrency supporters lauded the rules, including the Genius Act, which President Trump signed into law. The Clarity for Payment Stablecoins Act and the CBDC Anti-Surveillance State Act are also pending.

This move allegedly signals a coming of age for the crypto industry. It validates public support for the technology, provides regulatory clarity, and reinforces President Trump’s stance against central banking digital currencies (CBDCs).

But beneath the veneer of pro-crypto rhetoric lies a disturbing question.

What if these bills aren’t about legitimizing crypto, but rather about controlling the blockchain ecosystem and enhancing the state’s surveillance capabilities? Before addressing that claim, we must first understand stablecoins.

Cryptocurrency or Digital Dollar?

Stablecoins are a class of “cryptocurrency” designed to maintain a stable value by being pegged to a reserve asset—usually the U.S. dollar.

Unlike traditional cryptocurrencies such as Bitcoin or Ethereum, stablecoins offer the price stability of fiat currency while retaining their programmability and utility. They are widely used for trading, remittances, and decentralized finance applications because they allow users to move money quickly while mitigating volatility risk.

Developers can program stablecoins with different pegging mechanisms. Some choose to back them with reserves held by centralized entities (e.g., USDC, USDT). Others maintain the peg algorithmically or through on-chain collateralization.

You may have noticed that I wrote cryptocurrency in quotes above. I did this because most stablecoins are not cryptocurrencies. Cryptocurrencies, by definition, share specific characteristics: they are decentralized, permissionless, and censorship-resistant. No one can modify or alter transactions, and coins cannot be frozen or seized.

However, the popular stablecoins USDC and USDT are centralized, surveillable, and freezeable assets, characteristics that are the opposite of an actual cryptocurrency. The organizations that operate USDC (Coinbase) and USDT (Tether Limited) can treat these coins like banks treat depositor money. They can, for example, seize these assets. These funds are as “innovative” as a digital dollar living in an Excel spreadsheet.

In this regard, promoting stablecoins over a CBDC is not a win. It is a Pyrrhic victory (or a Trojan Horse). Stablecoins under the recent legislation will not be decentralized or innovative. One would be hard-pressed even to call them “crypto.” Effectively, stablecoins under the government will be CBDCs masquerading as cryptocurrency.

To understand why, let’s examine the recent bills, especially the Genius Act.

Reigning in an Industry

“(A) IN GENERAL.—A permitted payment stablecoin issuer shall be treated as a financial institution for purposes of the Bank Secrecy Act.”

The Genius Act is a coup pretending to be a handshake. At its core, the bill wraps stablecoins in the language of innovation while trapping them in regulatory la-la land.

Under the bill, stablecoin issuers are legally redefined as financial institutions, subject to the Bank Secrecy Act (BSA), know-your-customer (KYC), and anti-money laundering rules (AML). The same laws underpin all of America’s banking system. Issuers must identify customers, conduct ongoing due diligence, and implement robust transaction monitoring.

This rule doesn’t stop at identity verification and spying on crypto traders. The Act demands technical infrastructure to “block, freeze, and reject” transactions deemed impermissible or risky under federal or state law.

These mandates neuter the most valuable features of cryptographic money: privacy, permissionlessness, and resistance to political censorship. For most people, such measures sound responsible and appropriate. But the legalese conceals the crux of the matter: the government isn’t trying to make stablecoins more palatable and usable. It’s hijacking them and defanging an industry.

Incoming Legislation: Clarity or Capture?

Politicians have drafted other legislation, namely, the Clarity Act and the Anti-CBDC Act.

Defenders frame the Clarity Act as the vaunted solution to the crypto industry’s regulatory uncertainty. It proposes shifting oversight from the SEC to the CFTC, a move many see as more favorable to innovation.

The bill imposes frameworks that elevate KYC-compliant, state-aligned actors while sidelining the decentralized, anonymous, and privacy-focused protocols that embody crypto’s original ethos. By drawing lines around regulatory jurisdictions, the act paves the way for the beginning of a crypto apartheid, potentially criminalizing anonymous development and marginalizing privacy-enhancing tools.

Then there’s the Anti-CBDC Act—arguably the most devious rug-pull. It is still pending in Congress and will likely be folded into a larger legislative package. At face value, it appears to be a libertarian-influenced initiative: a rebuke of centralized currencies issued by the Federal Reserve.

Who in crypto wouldn’t oppose this?

But here’s the catch: stablecoins are CBDCs by proxy. They are state-sanctioned, privately issued, surveillable instruments that obey the same rules. The Anti-CBDC Act doesn’t ban centralized control but instead outsources the effort. It replaces a fed-issued govcoin with a corporate-controlled govcoin.

Far from liberating crypto, these laws dupe the industry into blind compliance with state functionaries.

Crypto: The Case for Sovereignty

Together, these bills form the scaffolding for a crypto surveillance and capture paradigm. They do not support a move toward stronger encryption, decentralization, and borderless payments. Instead, they attempt to hamstring the industry’s most critical areas of research and development.

If cypherpunks conceived crypto as an act of rebellion, this legislation marks the counter-insurgency: the state’s attempt to cage the protocols of economic freedom and rebrand submission as adoption. The Genius Act, the Clarity Act, and the Anti-CBDC bill are not victories. They are acts of crypto-colonization, designed to tether the crypto ecosystem to compliance regimes and centralized chokepoints.

But the fight is far from over. Crypto can still deliver on its original promise.

Privacy projects like Monero, Zcash, and Zano can act as counterweights to the faux stablecoin hegemony. These are tokens and projects that uphold civil liberties and protect financial autonomy. Furthermore, a truly private stablecoin project called Freedom USD (FUSD) has recently emerged. It was created on top of the Zano blockchain. It is anonymous, permissionless, uncensorable, and unstoppable. For those who desire a liberty-focused stablecoin, FUSD appears to be one of the few.

All these privacy-centric tokens may be sidelined initially, but their value will grow as attempts to control the industry increase. Their use will evolve while governments vie for oversight. The beautiful thing about the crypto ecosystem is that it’s not all easily controllable. It is antifragile. Rules, laws, and legislation cannot stop truly decentralized blockchain currencies. It is freedom-oriented money for everyone. Anonymizing techniques, such as zero-knowledge cryptography and anonymized bridges, are emerging. The nature of the payment rails is changing, and legacy finance is being offboarded in piecemeal fashion.

Here’s the truth: the more the state tries to stop crypto, the more it reveals where sovereignty thrives. Not in licensed stablecoins. Not in Fed-approved wallets. But in the underground current of unstoppable code, where economic freedom flourishes without permission or apology.