Key takeaways
- The GENIUS Act, introduced in early 2025, seeks to regulate US stablecoins, ensuring their legal use for payments and maintaining the dollar’s dominance.
- The bill establishes a dual oversight system, allowing stablecoin issuers to register under federal or state regulations based on market capitalization.
- Issuers must adhere to 1:1 reserve backing, AML protections and regular audits to ensure financial stability and consumer protection.
- The act could set a precedent for stablecoin regulations worldwide, similar to the EU’s MiCA framework, influencing global financial policies.
In early 2025, there was a bipartisan initiative in the US toward regulating stablecoins, which stand out for their potential to streamline payments and hold the dollar’s predominant position. This was the Guiding and Establishing National Innovation for US Stablecoins Act, popularly known as the GENIUS Act.
This landmark bill aims to set up a regulatory framework for payment stablecoins while integrating them into everyday finance. This article explains what the GENIUS Act entails and how it might transform the landscape of stablecoin regulation in the US and the world. It explores the key provisions of the act, its implications for issuers and consumers, and its broader impact on the future of digital finance.
What is the GENIUS Act?
On Feb. 4, 2025, the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act was introduced in the US Senate by Senators Bill Hagerty, Tim Scott, Kirsten Gillibrand and Cynthia Lummis. The legislation aims to set up a legal framework for using stablecoins legally for payments in the US.
The Senate Banking Committee passed a revised bill on March 17, 2025, in a bipartisan 18–6 vote, thus taking the first step toward becoming a law. The legislation seeks to give stablecoin issuers based in the US a competitive advantage over those operating overseas. The reason is that the US government sees stablecoins as a tool to maintain the dollar’s leading role in international payments.
The bill has been approved by the committee with amendments that impose stricter rules, including enhanced Anti-Money Laundering (AML) protections, reserve requirements, liquidity rules and sanctions compliance checks.
Payment stablecoin issuers would be subject to the Bank Secrecy Act (BSA) as financial institutions. The act would also limit the issuance of payment stablecoins to the approved entities.
As of March 27, 2025, prevalent federal and state laws are applied to various aspects of the stablecoin industry in the US, depending on the nature of activities and the features of the specific stablecoin.
Did you know? If the GENIUS Act becomes law, it will require Tether to implement rigorous AML/KYC. It will be required to maintain transaction records, verify customer identities, and report suspicious activity. Tether has already been forced to exit the EU market.
Key provisions of the GENIUS Act
The bill is a significant step toward integrating digital assets into the US financial system under a cohesive regulatory framework. Here are the key provisions of the act:
- Definition of payment stablecoin: The bill defines a payment stablecoin as a digital asset designed for payment or settlement. It is pegged to a fixed monetary value and fully backed on a 1:1 basis by US dollars or other approved high-quality liquid assets.
- Licensing and oversight: The legislation establishes clear procedures for institutions seeking licenses to issue stablecoins. It introduces a dual regulatory framework, allowing issuers to register with either state or federal authorities. Issuers with more than $10 billion in market capitalization would be subject to federal regulation, while those under this threshold could opt for state regulation, provided the state’s standards are substantially similar to federal requirements. This approach provides flexibility while maintaining rigorous oversight.
- Reserves requirements: Stablecoin issuers are mandated to maintain a 1:1 reserve ratio, backing the issued stablecoins with high-quality liquid assets such as cash, short-term US Treasury securities or central bank deposits. They need to segregate these reserves from operational funds and undergo monthly certifications to attest to their sufficiency. This measure ensures holders can redeem stablecoins at face value, enhancing consumer confidence.
- Transparency: Issuers are required to publicly disclose their reserve holdings and redemption policies. Additionally, these reserves must undergo regular audits by registered public accounting firms to verify compliance and solvency.
- Anti-Money Laundering (AML) compliance: Stablecoin issuers are classified as financial institutions under the Bank Secrecy Act. This brings them under comprehensive AML obligations, including consumer identification, due diligence and reporting of suspicious activities.
- Consumer protection: In the event of insolvency, holders of payment stablecoins are granted priority over other claims against the issuer. This provision safeguards consumers and enhances trust in stablecoins.
- Clarification of regulatory jurisdiction: The bill explicitly excludes payment stablecoins from being classified as securities, commodities or investment companies under federal laws. This clarification delineates the regulatory boundaries and provides certainty for issuers and investors.
Did you know? USDC (USDC) was launched on Sept. 26, 2018, as a joint initiative between Circle and Coinbase. The issuance and redemption of USDC coins are managed through an ERC-20 smart contract.
The current state of stablecoin regulations in the US
As of March 28, 2025, stablecoin regulations in the US remain fragmented, with no comprehensive federal framework governing their issuance and operation. This regulatory ambiguity has led to overlapping jurisdictions among federal agencies and inconsistencies across state laws.
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) assert authority over the stablecoin market. The SEC views many stablecoins as similar to money market mutual funds and states they fall under securities regulations.
The CFTC, on the other hand, classifies certain stablecoins as commodities. It imposed a fine of $41 million over claims that Tether’s USDt (USDT) stablecoin was fully backed by US dollars.
On June 28, 2024, the US District Court for the District of Columbia ruled in favor of Binance, dismissing the SEC’s claim that the stablecoin, Binance USD (BUSD), is a security. BUSD is regulated by the New York State Department of Financial Services (NYDFS) and issued by Paxos in partnership with Binance.
The decision of the US District Court aligns with previous court rulings regarding stablecoins and underlines that stablecoins backed 1:1 with fiat currency, like BUSD and USDC, do not inherently qualify as investment contracts under SEC jurisdiction.
Dual oversight by different regulatory agencies has resulted in regulatory gaps and challenges. The absence of a unified legal framework complicates compliance for stablecoin issuers and potentially exposes investors to financial stability risks. Bringing stablecoins under the same regulatory standards as banks could mitigate systemic risks.
Competing stablecoin bills to the GENIUS Act
Lawmakers have introduced competing stablecoin bills, reflecting different regulatory perspectives. These include the likes of the Financial Innovation and Technology for the 21st Century Act (FIT 21), the Clarity for Payment Stablecoins Act of 2024 and the Lummis-Gillibrand bill.
Representative French Hill’s draft
On Feb. 6, 2025, Representative French Hill put forward a discussion draft similar to Senator Hagerty’s GENIUS Act. Hill has advocated for a regulatory framework balancing federal and state oversight. His proposal would allow stablecoin issuers with a market capitalization below $10 billion to operate under state regulation, while larger issuers would be overseen by the Federal Reserve and the Office of the Comptroller of the Currency.
Representative Maxine Waters’ bill
On the other hand, Rep. Maxine Waters has proposed a stricter, federally controlled approach. Her bill mandates that all stablecoin issuers, regardless of size, be regulated at the federal level, removing state oversight. It also explicitly bars major tech companies such as Meta, Amazon and X from issuing stablecoins, citing concerns over corporate dominance. Additionally, it strengthens restrictions on offshore firms to prevent regulatory evasion.
FIT 21
FIT 21 was introduced in the House of Representatives on July 20, 2023. According to the bill, centralized stablecoins would be overseen by the SEC, while decentralized ones would fall under the CFTC’s purview. While the bill was passed by the House of Representatives in May 2024, it is still with the Senate, where it was read twice and then referred to the Committee on Banking, Housing and Urban Affairs (as of March 28, 2025).
The Clarity for Payment Stablecoins Act of 2024
The Clarity for Payment Stablecoins Act of 2024, introduced by Senator Bill Hagerty, seeks to establish a comprehensive regulatory framework for payment stablecoins in the US. Building upon the 2023 bill by Representative Patrick McHenry, this legislation introduces key provisions, such as allowing state-level regulation for stablecoin issuers with market capitalizations under $10 billion. Larger issuers may seek waivers to remain under state oversight. The bill specifies that permitted payment stablecoins are not considered securities under securities law.
Lummis-Gillibrand bill
The Lummis-Gillibrand bill takes a balanced approach to regulating crypto stablecoins, aiming to provide clarity while ensuring financial stability. Proposed by Senators Cynthia Lummis and Kirsten Gillibrand, the legislation seeks to establish a clear regulatory framework by defining stablecoins as a form of payment instrument. It emphasizes strong consumer protections, requiring issuers to maintain adequate reserves and comply with strict transparency standards.
The GENIUS Act represents a more recent and comprehensive federal effort to regulate the stablecoin industry. Here is a quick comparison of the GENIUS Act and the Clarity Act:
Potential impact on the US stablecoin landscape
If the GENIUS Act indeed receives congressional and presidential approval, it will have far-reaching implications for various stakeholders in the stablecoin and broader digital asset markets.
Opportunities and challenges for stablecoin issuers
For established issuers, such as Circle and Tether, the issuers of USDC (USDC) and USDt (USDT), respectively, the act poses both opportunities and challenges.
On one hand, compliance with strict reserve and disclosure requirements could enhance consumer confidence and attract institutional adoption. On the other hand, issuers that do not meet the new standards may need to restructure their asset portfolios.
For instance, if a stablecoin issuer’s current reserves do not fully qualify under the act’s criteria, they may be forced to exchange non-compliant assets for US Treasury securities or other approved instruments. This transition could be costly and time-consuming but is likely to enhance transparency over the long term.
Altering competitive dynamics
The GENIUS Act will create a more level playing field within the stablecoin market. The legislation will only allow compliant players to stay in the market, thus fostering transparency and consumer trust in the market. Smaller or less transparent issuers might struggle to meet the stringent regulatory demands, potentially reducing market fragmentation and promoting industry consolidation.
Companies with established banking relationships and robust compliance frameworks are likely to benefit from regulatory clarity, potentially gaining a competitive edge over competitors who operate on less stringent models.
Consumer and investor protection
At its core, the GENIUS Act is designed to protect consumers and maintain financial stability. The act aims to minimize risks associated with a stablecoin losing its peg by enforcing strict reserve requirements and mandating regular, independent audits.
In the event of issuer insolvency, the legislation also establishes provisions that give stablecoin holders priority over other creditors. This added layer of protection is intended to prevent consumer losses and reduce the potential for systemic financial crises.
Global Implications
While the GENIUS Act is a US-based initiative, its influence is likely to extend globally. Many other jurisdictions are actively developing or have already put in place their own digital asset regulatory frameworks. These include the European Union’s Markets in Crypto-Assets Regulation (MiCA) and national efforts in Asia and Latin America.
Successful implementation of the GENIUS Act could position the US as a global leader in stablecoin regulation, potentially setting a benchmark for international regulatory standards. This, in turn, might attract foreign investment and encourage cross-border cooperation in the oversight of digital assets.
How GENIUS Act compares with MiCA
The objective of both the GENIUS Act and MiCA is to provide regulatory clarity in the world of digital assets. Still, they differ significantly in scope, structure and focus, particularly regarding stablecoins and central bank digital currencies (CBDCs).
The US-based GENIUS Act focuses specifically on payment stablecoins, aiming to bolster the dollar’s global dominance by establishing a federal framework for US-based issuers. It mandates 1:1 reserves with high-quality assets, imposes strict licensing, and excludes CBDCs.
Regarding algorithmic coins, the GENIUS Act takes a different approach. Rather than drafting a regulation right away, it recommends a study by the US Treasury Department to understand their potential risks.
The EU’s MiCA, effective from June 2024, takes a broader approach, regulating all crypto assets, including stablecoins, asset-referenced tokens (ARTs) and e-money tokens (EMTs). MiCA requires stablecoin issuers to be EU-authorized, maintain adequate reserves (not strictly 1:1), and meet transparency standards while effectively banning uncollateralized algorithmic stablecoins.
Unlike the GENIUS Act, MiCA does not reject CBDCs but leaves them outside its scope, allowing them to coexist with private stablecoins and other cryptocurrencies. Christine Lagarde, president of the European Central Bank, is keen on launching the digital euro in October 2025.
US President Donald Trump has vocally opposed CBDCs, arguing they threaten financial privacy and give governments excessive control over transactions. As a result, he favors private-sector innovations like stablecoins over state-backed digital money.
Conversely, Europe has embraced CBDCs, with the European Central Bank working on the digital euro to enhance payment efficiency, maintain monetary sovereignty, and counter private cryptocurrencies. This divergence highlights a transatlantic rift in balancing innovation, privacy and control in the digital currency landscape
Criticism of the GENIUS Act
The GENIUS Act has faced criticism from consumer protection groups, who argue that it could legitimize high-risk crypto ventures. Public Citizen, a well-known advocacy organization, has expressed concerns that the legislation might weaken consumer safeguards and introduce financial instability. In a statement, the group warned that the bill could lead to increased price manipulation, cryptocurrency failures, and greater use of digital assets in illicit activities.
Bartlett Naylor, a financial policy advocate at Public Citizen, has cautioned lawmakers that the act fails to impose necessary restrictions under the Bank Holding Company Act, potentially allowing major commercial firms like Amazon, Walmart and Meta to enter the financial sector without adequate oversight. Critics fear this could blur the lines between tech giants and banking institutions.
This criticism has come amid reports that the Trump family has explored acquiring a stake in Binance.US, a move that has raised ethical concerns, given the exchange’s legal troubles and its founder’s past conviction.
Moreover, reports from The Guardian highlight the close relationship between Trump’s commerce secretary, Howard Lutnick, and Tether. Lutnick is the CEO of Cantor Fitzgerald, the firm that acts as Tether’s primary banker and holds billions of dollars in US Treasury securities as Tether’s reserves.
There have also been arguments that the bill’s strict reserve and licensing requirements could stifle innovation, making it harder for smaller or emerging stablecoin issuers to compete with established players like Circle and Tether.
They also point out that the dual regulatory model — federal oversight for issuers with over $10 billion in market cap and state-level regulation for smaller entities — could lead to inconsistencies.
Furthermore, classifying stablecoin issuers as financial institutions under the Bank Secrecy Act may impose an excessive compliance burden on the issuers, potentially discouraging innovation.
Did you know? Commerce Secretary Howard Lutnick has publicly expressed strong support for cryptocurrencies, particularly Tether’s role within the sector. During his Jan. 29, 2025, Senate hearing, he faced pointed inquiries from senators regarding Tether, with Senator Maria Cantwell specifically questioning him regarding the auditing of Tether’s holdings.
Looking ahead — The future of stablecoin regulation
If implemented, the GENIUS Act will bring transformative changes not only to the US stablecoin landscape but even to the wider crypto market. It will also influence the shaping of stablecoin regulation across the world, though the impact will depend on key factors.
Both regulators and crypto industry stakeholders globally will be watching how the GENIUS Act plays out after turning into a law. Smooth implementation could accelerate market adoption, while delays or inconsistencies may introduce uncertainty.
With the emergence of stablecoin-specific regulation, it will be interesting to watch how stablecoin issuers adjust their business models and asset portfolios to comply with the new requirements.
While this may be challenging in the short term, the long-term benefits of a transparent and secure market are expected to outweigh the transitional hurdles.
As other countries work on their own stablecoin regulations, the GENIUS Act could serve as a benchmark for international best practices. Collaborative efforts and cross-border regulatory harmonization could help create a more integrated global financial system that accommodates digital assets.