In a significant move towards establishing a comprehensive regulatory framework for stablecoins, Senators Tim Scott, Bill Hagerty, Cynthia Lummis, and Kirsten Gillibrand introduced the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act on February 4, 2025. This bipartisan legislation aims to provide the much-needed clarity and structure to the rapidly growing stablecoin market, ensuring that the United States keeps pace with other countries in financial innovation while protecting consumers and maintaining the global dominance of the U.S. dollar.
Despite previous unsuccessful attempts, Congress is refocusing on stablecoin regulations. Senate Banking Committee Chairman Tim Scott (R-SC) pledged this month that the GENIUS Act will be passed by both chambers and signed into law within the first 100 days of President Donald Trump’s administration. The GENIUS Act may be seen as long overdue by some, as global private sector competition in the digital payments ecosystem intensifies. Many jurisdictions have been outpacing the U.S. by establishing comprehensive stablecoin regulations.
Stablecoins, a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve of assets like the U.S. dollar, have emerged as a key component of the digital financial ecosystem. They offer the potential for faster, cheaper, and more efficient transactions, both domestically and internationally. However, the lack of a clear regulatory framework has hindered their widespread adoption and raised concerns about consumer protection and financial stability. With a robust regulatory framework in place, stablecoins have the potential to rival traditional credit card companies in the future of payments, offering lower transaction fees and faster processing times, which could potentially revolutionize the way consumers and businesses conduct transactions. “Stablecoins offer the promise of programmable money and could drive new payments use cases and economic activity,” according to Davis Polk lawyer Justin Levine. “A clear regulatory framework is critical to unlocking stablecoins’ full potential while protecting consumers and markets.”
The GENIUS Act addresses these concerns by establishing stringent requirements for stablecoin issuers. It mandates that issuers maintain segregated one-to-one reserves and compliance with U.S. anti-money-laundering and sanctions rules.1 This ensures that stablecoins are backed by real assets, providing a level of security and trust that is essential for consumer confidence. Importantly, the Act does not prohibit stablecoin issuers from offering interest on their holdings, allowing for innovation in financial products while maintaining regulatory oversight.
One of the key features of the GENIUS Act is its emphasis on transparency and accountability. Issuers are required to undergo regular audits and public disclosures of their reserves, ensuring that they operate with high standards of financial integrity. This level of scrutiny is crucial in preventing the kind of market manipulation and fraud that has plagued other areas of the cryptocurrency market. The Act also indicates that stablecoins are not securities or commodities.
It comes at a time when the U.S. is facing increasing competition from other countries in the digital asset space. The European Union's Markets in Crypto-Assets (MiCA) law and recent approvals of stablecoins by the Dubai Financial Services Authority highlight the global race to regulate and integrate digital assets into the financial system. By establishing a clear regulatory framework, the GENIUS Act could help position the U.S. as one of the leaders in this rapidly evolving market.
In addition to the GENIUS Act, the House of Representatives, introduced a discussion draft of a companion bill, the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act. While both bills share common goals, there are notable differences in their approaches. A key difference between the GENIUS Act and STABLE Act is that while the GENIUS Act requires the Treasury Department to prepare a written study on “endogenously collateralized stablecoins,” also known as algorithmic stablecoins, the STABLE Act imposes a two-year moratorium on their issuance.
Another key aspect of the GENIUS Act is its clarification on the classification of stablecoins. The Act defines a payment stablecoin as a digital asset used for payment or settlement that is pegged to a fixed monetary value. It makes clear that payment stablecoins are not securities subject to SEC regulation but are instead subject to banking-like examination, supervision, and enforcement.
Further, the GENIUS Act combines federal oversight with state-level flexibility, representing a balanced approach to regulation. This dual approach allows smaller issuers to operate under state supervision, as long as the regulatory framework is substantially similar to the federal framework, while placing larger stablecoin providers under federal oversight. Large issuers with over $10 billion in market capitalization would be regulated by the Federal Reserve and the Office of the Comptroller of the Currency, while smaller issuers could opt for state-level regulation with “substantially similar” federal oversight.
The GENIUS Act may enable firms like Meta, Google, Home Depot and others to issue stablecoins, potentially allowing these companies to enter the banking sector without facing the same regulatory scrutiny as traditional banks. This development raises concerns regarding data privacy, market concentration, and potential conflicts of interest.
The regulation of stablecoins has significant implications for the future of the U.S. dollar as the global reserve currency. By integrating stablecoins into the U.S. financial system, the GENIUS Act may strengthen the dollar's position in the global economy and promote its use in digital transactions.1 This is particularly important as other countries explore the development of their own digital currencies, potentially challenging the dollar's dominance.
Stablecoin issuers have become significant holders of U.S. Treasuries. According to a report by Bernstein, stablecoin issuers are now the 18th largest holders of U.S. Treasuries, with the total circulation of stablecoins reaching an all-time high of $170 billion. “You look at the billions of people on the planet for whom holding dollars is very hard... Stablecoins denominated in US dollars have been this under-estimated, under-foreseen use case for blockchain technology”, said Timothy Spangler, Partner at law firm Practus LLP. For many people around the world, holding U.S. dollars can be both expensive and challenging due to high transaction fees, limited access to banking services, and currency exchange restrictions. Stablecoins significantly lower these barriers by providing a digital alternative that is pegged to the U.S. dollar, allowing individuals the benefits of holding a stable currency without the associated costs and nothing more than a mobile phone.
As the regulatory landscape for stablecoins continues to evolve, it is essential to engage with policymakers, industry stakeholders, and the public to ensure that the framework is both effective and adaptable. “The technology isn't a freeze frame... Planes look considerably different today than the one that first took flight at Kitty Hawk in 1903... The new generation of stablecoin solutions will do more and more,” Spangler explained. “The technology is evolving, and the next generation of blockchain innovation, like the Franklin Templeton’s OnChain Money Fund launched in 2021 and the recently approved YLDS by Figure Markets, will continue to do more. This technology is going to keep advancing and offering new solutions.”
The CFTC recently announced the Crypto CEO Forum to launch Digital Asset Markets pilot program, which will explore the use of tokenized non-cash collateral, such as stablecoins, within U.S. digital asset markets. “I’m excited to announce this groundbreaking initiative for U.S. digital asset markets,” said Acting Chairman Caroline D. Pham. “Legislation like the GENIUS Act, combined with strong regulatory guidance, is critical to bridging traditional and crypto markets, unlocking new use cases, and driving the next wave of financial innovation,” said Justin Levine.
The GENIUS Act will likely be a critical step in providing a foundation for the responsible growth and integration of stablecoins into the financial system. It marks a pivotal moment in the regulation of stablecoins. By establishing clear guidelines and oversight, the Act paves the way for safe and innovative use of stablecoins, ensuring that the U.S. does not fall behind in the digital financial landscape. As this new frontier is navigated, it is imperative to balance the need for innovation with the responsibility to protect consumers and maintain financial stability
