Stablecoin Legislation: A Stroke of GENIUS?
In Short
The Situation: President Trump's recent executive order "Strengthening American Leadership in Digital Financial Technology" promoted the development of dollar-backed stablecoins as official U.S. policy. To facilitate this policy, Congress needs to provide regulatory clarity to stablecoin issuers.
The Solution: The Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 ("GENIUS Act"), introduced in the Senate, and the Stablecoin Transparency and Accountability for a Better Ledger Economy Act of 2025 ("STABLE Act"), circulated as a discussion draft in the House, respectively, aim to create a regulatory structure for payment stablecoins. These legislative efforts seek to balance federal oversight with state-level flexibility, ensuring that payment stablecoin issuers operate under predictable, but "light touch," rules.
Looking Ahead: While Congress is moving ahead quickly on stablecoin regulation, it will need to reconcile provisions that vary between the two alternative bills to finalize the law. As part of this effort, Congress might also want to consider addressing lingering concerns about whether the bills will attract payment stablecoin issuers to the United States.
State of the Legislation
Introduced in the Senate on February 4, 2025, by Senator Bill Hagerty and other lawmakers, the GENIUS Act represents a comprehensive effort to regulate payment stablecoins in a manner that preserves financial innovation while ensuring market stability. The GENIUS Act defines "payment stablecoins" as digital assets pegged to a fixed amount of monetary value.
White House Crypto & AI Czar David Sacks and several congressional committee chairmen described the GENIUS Act as a top priority during the current Congress and said that they intend to move quickly to enact it. Another bill, the STABLE Act, was discussed during the House Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence hearing on February 11, 2025.
Many industry participants have called on Congress and the new administration to provide a clear legal pathway for payment stablecoin issuance and use. The GENIUS Act would integrate digital assets that are payment stablecoins into existing legal frameworks. Both the GENIUS Act and the STABLE Act seek to establish a federal regulatory framework that acknowledges "substantially similar" state-level regulatory regimes.
What Does the Proposed Legislation Do?
The GENIUS Act lays out a licensing framework for payment stablecoin issuers. Payment stablecoin issuers must be either federally approved or regulated by state authorities, provided that the state's regulatory framework meets federally-defined standards.
Under the federal regime, the "primary federal payment stablecoin regulator" for most types of entities will be the entity's preexisting primary federal regulator (either the Federal Reserve System, the Federal Deposit Insurance Corporation, or the National Credit Union Administration, as applicable). But nonbank entities without a preexisting primary federal regulator will be regulated by the Office of the Comptroller of the Currency ("OCC").
The GENIUS Act sets out several baseline requirements for payment stablecoin issuers: (i) to maintain 1:1 reserves and to publicly disclose their composition; (ii) to publicly disclose redemption policies; (iii) to submit monthly certifications from a public accounting firm to its regulator; and (iv) to maintain specified standards around capital, liquidity, risk management, operations, and information technology. Both the GENIUS Act and the STABLE Act specify high-quality liquid assets that qualify to be used as reserves, but they differ slightly in categories of assets that qualify.
The acts further temporarily ban algorithmic stablecoins by requiring studies on algorithmic stablecoins to be complete before they can be issued in compliance with the statute. Algorithmic stablecoins are instruments which seek to maintain a stable price through automated algorithms and smart contracts without being backed by traditional assets.
In addition to the monthly public disclosures of reserve compositions and third-party audits discussed above, the STABLE Act gives broad discretion to federal and state regulators to set capital, liquidity, and risk management requirements.
The GENIUS Act also presents stablecoin issuers with an alternative path to regulation via the states. Any entity issuing more than $10 billion in payment stablecoins will have a federal regulator: for most issuers that are banks or credit unions, their preexisting primary federal regulator; and for nonbank issuers, the OCC. But smaller issuers may opt for state regulation if their state-level regulatory framework is substantially similar to federal standards—a determination that will be made by the Department of Treasury. If the Treasury determines that a state's regulatory framework is inadequate, it can require state-regulated payment stablecoin issuers to move to federal oversight. In contrast, the STABLE Act does not mandate federal oversight at any particular market capitalization, but rather permits all approved payment stablecoin issuers to be state-regulated, so long as the state-regulatory framework aligns with federal standards.
In addition to financial-stability measures, the GENIUS Act includes consumer protection provisions which align with federal prudential and market regulators' requirements. For instance, payment stablecoin issuers must segregate customer assets from proprietary assets for protection in case of insolvency. The GENIUS Act also restricts issuers from engaging in lending or other high-risk financial activities using reserves. These provisions in the bill reinforce the role of payment stablecoins as instruments for payments rather than investments.
The GENIUS Act also gives payment stablecoin holders "first priority over any other claim against the debtor" in the event of the payment stablecoin issuer filing for bankruptcy. The STABLE Act, however, is silent on bankruptcy.
Additionally, the GENIUS Act requires agencies to develop standards of interoperability for the market generally. In this regard, the GENIUS Act directs regulators to confer with experts to improve standards of compatibility across different payment stablecoins.
Finally, the GENIUS Act clarifies that payment stablecoins are not securities by updating key federal securities laws to exempt "payment stablecoin" from their respective definitions of a "security." However, it is less clear, as drafted, that payment stablecoins are not commodities. The STABLE Act likewise provides that payment stablecoins are not securities but is silent on whether payment stablecoins are commodities.
Reactions to the Proposed Legislation
Although there is growing bipartisan recognition of the need for payment stablecoin legislation, some lawmakers and economists remain concerned about the potential risks payment stablecoins pose to monetary policy, financial stability, and illicit finance.
Industry reaction to the GENIUS Act has been mixed. Some analysts view the GENIUS Act as a positive step toward regulatory clarity, which could encourage broader adoption of payment stablecoins and reduce legal uncertainty. By providing a clear pathway for both state and federal oversight, the GENIUS Act acknowledges the role that existing state regulators have played in supervising digital asset firms while also ensuring mandatory federal regulation for larger issuers. Furthermore, the act's focus on interoperability and improving standards of compatibility could bolster U.S. payment stablecoins in competitive digital asset markets globally.
On the other hand, some commentators have expressed concerns that the licensing and reserve requirements under the GENIUS Act could impose undue regulatory burdens on some issuers, particularly issuers of some already existing and widely used stablecoins.
All said, if implemented effectively, the GENIUS Act could reinforce the U.S. dollar's role as the dominant global reserve currency by promoting demand for payment stablecoins which are backed by U.S.-dollar-denominated assets.
Four Key Takeaways
- Both the GENIUS Act and STABLE Act mark a significant step forward in payment stablecoin regulation. By establishing a clear licensing framework, strict reserve and disclosure requirements, and consumer protections, the proposed legislation would provide long-awaited regulatory clarity for payment stablecoin issuers and users.
- Both the GENIUS Act and STABLE Act preserve a role for state regulators, and the GENIUS Act introduces federal oversight for certain large issuers. This dual-framework approach balances innovation with risk mitigation but could lead to challenges in ensuring consistency between state and federal regulations. Challenges surrounding consistency would arise under both acts, even though the STABLE Act does not mandate federal regulation.
- The legislation could reinforce the U.S. dollar's importance in digital finance. By providing a regulatory foundation for payment stablecoins backed by U.S.-dollar-denominated assets, both acts could enhance global trust in digital dollars, benefiting the broader U.S. financial system and encouraging payment stablecoin issuers to remain in the United States.
- Potential challenges remain. Concerns remain regarding regulatory burdens under the GENIUS Act and STABLE Act. Discussions about whether the bills do enough to keep payment stablecoin issuers in the United States will continue to shape debates as the bills progress through the Congress.
