Lawmakers think stablecoins are GENIUS: Inside the new US stablecoin bill

The US Senate’s Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act is poised to become the first comprehensive federal framework for payment stablecoins, digital tokens pegged to a fixed value (usually $1) and redeemable on demand. In June 2025, the GENIUS Act cleared a key Senate procedural hurdle with bipartisan support (68–30) after weeks of intense debate.

The bill has drawn praise and fire: proponents tout it as a historic step to modernize payments and cement US dollar dominance in crypto finance, while critics warn of loopholes and potential corruption tied to the Trump administration’s crypto ventures.

CryptoSlate examines the GENIUS Act’s proposed actions, from issuer requirements and reserve mandates to oversight of foreign stablecoins, and analyzes its broader implications for investors, regulators, and the crypto market.

At its core, the GENIUS Act creates a regulated path for issuing US dollar-backed stablecoins in the United States. Any entity wishing to issue a payment stablecoin must become a “permitted payment stablecoin issuer” (PPSI) under one of two regimes (federal or state) with robust obligations to ensure stability and transparency. Every stablecoin must be fully collateralized 1:1 with high-quality liquid assets, and issuers face strict scrutiny of their reserves and operations. Below is an overview of major provisions:

Permitted issuers & licenses: Only regulated financial institutions can issue stablecoins as chartered banks (or their subsidiaries) or licensed nonbank issuers. All issuers must register with a federal banking regulator (e.g., the Federal Reserve, OCC, or FDIC) or operate under a comparable state framework. Nonbank fintechs are eligible, but big tech or other firms cannot bypass licensing; issuing a payment stablecoin without approval as a PPSI is unlawful.

Reserve backing: For every stablecoin token in circulation, at least $1 of designated reserve assets must be held. Permissible reserves are cash and equivalents, US coins and currency, insured bank deposits, short-term US Treasury bills, Treasury-backed repo agreements, money market funds holding government securities, central bank reserves, and similar safe assets approved by regulators. Riskier instruments are excluded. These reserves may only be used for limited purposes like redeeming coins or as collateral in short-term lending markets (repos): issuers can’t leverage the reserve to finance unrelated adventures.

Redemption and transparency: Issuers must guarantee redemption of stablecoins at par (e.g., 1 token = $1) and publicly disclose their redemption policies. They must issue regular reports on outstanding stablecoin supply and the composition of reserves, certified by executives. Larger issuers (over $50 billion in coins) must undergo annual independent audits of their financial statements. All issuers’ reserve holdings and certifications would be subject to examination by registered public accounting firms, providing a high level of transparency to users and regulators.

Capital and compliance: While stablecoin issuers would not be bound by traditional bank capital adequacy rules, regulators are directed to craft tailored capital, liquidity, and risk management requirements suited to stablecoin risks. Issuers fall under Bank Secrecy Act (BSA) anti-money-laundering laws, and the Treasury’s FinCEN must develop new methods to police illicit crypto activity.

Issuers must certify they have effective AML and sanctions compliance programs, and any person convicted of serious financial crimes is barred from serving as an officer or director of a stablecoin issuer. Consumer protection measures in the bill also prohibit tying stablecoin issuance to other commercial products or misrepresenting that stablecoins are FDIC-insured.

Federal vs. state regulation: The Act sets up a two-tier regulatory structure. Larger issuers (those with >$10 billion in stablecoins outstanding) must operate under federal supervision. Smaller nonbank issuers may opt into a state-based regulatory regime if their state’s rules are deemed “substantially similar” to federal standards by the Treasury Secretary, Federal Reserve, and FDIC chairs. In practice, this means states can maintain their own stablecoin licensing (as some already have), but only under federal blessing.

A qualifying state-licensed issuer under the $10B threshold would be primarily supervised by state authorities. However, federal regulators (the Fed or OCC) retain backstop enforcement power and can step in during “unusual and exigent” circumstances if a state-regulated stablecoin poses systemic risks. Any issuer that grows beyond $10B in circulation must transition to a federal license (absent a special waiver) to ensure uniform oversight at scale.

Foreign issuer restrictions: Perhaps most striking is how the GENIUS Act would wall off the US market from unregulated foreign stablecoins. Within three years of enactment, it becomes illegal to offer or sell a stablecoin to US users unless it’s issued by a permitted (US-regulated) issuer. This grace period gives foreign players time to come into compliance.

The Treasury may negotiate “reciprocal” deals with other jurisdictions that have comparable stablecoin rules; if a foreign stablecoin comes from a jurisdiction with equivalent regulation, and if that coin has technical capabilities like the ability to freeze illicit transactions and comply with lawful orders, it can be approved for use in the US. Even then, the foreign issuer must register with the US OCC, submit to US supervision, and maintain sufficient reserves in US financial institutions to meet redemptions by US holders.

These provisions put heavy pressure on leading non-US stablecoins, effectively barring the likes of Tether or offshore USD tokens from American markets unless they play by equivalent rules. The law also empowers US authorities to waive certain requirements on foreign issuers or intermediaries as needed, giving some flexibility for international cooperation.

Custody and investor protections: The bill introduces guardrails to protect stablecoin users in worst-case scenarios. Custodians of stablecoin reserves (whether the issuer itself or a third-party bank or trust) must be a regulated entity and segregate customer stablecoin assets from their own funds. Commingling of reserve assets with proprietary assets is largely forbidden, preventing the kind of risky mixing that could endanger customer funds.

Critically, stablecoin holders’ claims are given priority in bankruptcy: if an issuer fails, redeemers of the stablecoin rank senior to all other creditors on the issuer’s assets. This essentially firewalls users’ money from corporate insolvency, akin to how customer securities are protected in a broker-dealer bankruptcy. Finally, the Act explicitly clarifies that a payment stablecoin is neither a security nor a commodity under US law nor a form of deposit or legal tender.

This classification would remove stablecoins from the SEC’s purview and from most CFTC regulation, ending the ambiguity over whether tokens like USDC or USDT might be deemed securities in the future. (They also won’t carry federal deposit insurance: users rely on the backing assets, not an FDIC guarantee.)

In effect, the GENIUS Act sets a high bar for stability and oversight. Stablecoin issuers must hold ultra-safe reserves, provide transparency, obey liquidity and risk rules, and comply with federal or equivalent state supervision. In exchange, they gain legitimacy: a defined legal status and access to US markets, including potentially direct Federal Reserve services (the bill uniquely allows stablecoin issuers to hold central bank reserves as backing, something only a Senate version like GENIUS would permit).

By formalizing “payment stablecoins” in law, Congress would integrate them into the financial system while aiming to prevent another Terra-style collapse or unbacked coin run.

The GENIUS Act emerged at a politically charged crossroads of crypto policy. Backed mainly by Republicans (notably bill sponsor Sen. Bill Hagerty (R-TN)) and a faction of moderate Democrats, the proposal aligns with the priorities of President Donald Trump’s administration, which has openly championed blockchain innovation.

The White House strongly supports the bill, calling it a “clear, pro-growth, and secure” framework that enhances US dollar dominance and “removes regulatory uncertainty that has hindered innovation” in digital assets. Administration officials argue America’s payment infrastructure is “outdated” and that blockchain-based dollar rails can modernize payments and reduce reliance on slower, costlier legacy systems. In an official Statement of Policy, the White House lauded the GENIUS Act for leveling the playing field for all stablecoin issuers (bank or nonbank) under consistent rules and predicted that well-regulated dollar stablecoins will reinforce the dollar’s global role and spur demand for US Treasuries.

On Capitol Hill, Republican leaders framed the legislation as historic and necessary. Senate Majority Leader John Thune urged colleagues to support the GENIUS Act, echoing Trump’s vision of making the US “ the crypto capital of the world.” “We want to bring crypto into the mainstream, and the GENIUS Act will help us do that,” Thune said on the Senate floor. Hagerty, the bill’s author, emphasized in prepared remarks that it will protect consumers, promote innovation, facilitate cross-border payments, increase capital market efficiencies, and drive demand for US Treasuries.

If America “fails to act now” on stablecoins, he warned, the US would “fall behind in global competitiveness,” as innovation “will proliferate overseas, not in America!”. This sentiment of “act or be left behind” resonates with many in the crypto industry who view clear rules as overdue. Crypto executives and some lawmakers have cheered the Senate’s passage as “historic,” with industry analysts predicting the Act could “legitimize” stablecoins for global institutional adoption.

However, the bill’s journey has been anything but smooth. Powerful Democratic critics led by Senator Elizabeth Warren (D-MA) have been vocally opposed, arguing the current GENIUS Act is riddled with weaknesses and conflicts of interest. Warren, a longtime skeptic of crypto, delivered speeches charging that the bill “poses a threat to the country’s system, national security, and democracy.”

She alleges that GENIUS would “facilitate corruption” and “allow conglomerates to take over the money supply”, all while making it easier for illicit actors to move money and scam consumers. In Warren’s legislation, the stablecoin market is turbocharged in a way that “drains deposits from community banks” and concentrates power in the hands of Big Tech and crypto insiders.

The Trump family’s involvement in a stablecoin venture has also become a flashpoint. In early 2025, a firm backed by Trump family members launched “USD1,” a “new dollar “stablecoin aimed at the crypto markets. Shortly after, an Abu Dhabi fund announced a $2 billion deal via Binance to use USD1 for an investment transaction, a move Warren called out as evidence of potential self-dealing.

“A fund backed by a foreign government is making a $2 billion deal using Donald Trump’s name,” she notes. “Meanwhile, the Senate is gearing up to pass the GENIUS Act, stablecoin legislation that will make it easier for the President and his family to line their own pockets. This is corruption, and no senator should support it.”

Beyond the Trump angle, she highlighted specific gaps: a perceived “massive loophole that allows [foreign stablecoin] Tether to evade basic safeguards, given that Tether could qualify via a friendly overseas regime.

Other Democrats have echoed concerns that GENIUS isn’t tough on consumer protections and could facilitate money laundering, pointing to incidents like a recent $530 million crypto laundering case involving stablecoins as cautionary tales.

This partisan split delayed the bill’s passage. In May 2025, an initial attempt to invoke cloture on GENIUS fell short of the 60 votes needed, amid Democratic resistance over these issues. The Trump stablecoin controversy in particular forced Republican leaders to make some concessions, including inserting language to clarify that existing ethics laws bar senior government officials from issuing stablecoins (implicitly addressing fears of a sitting President directly profiting from an issuance).

By early June, enough Democrats were swayed (or at least willing to advance debate) to clear the filibuster threshold, especially after >120 proposed amendments were whittled down in negotiations.

Moderate and crypto-friendly Democrats like Senators Mark Warner (VA) and Kirsten Gillibrand (NY) ultimately joined Republicans to push GENIUS forward. Even with that bipartisan cloture vote, final passage in the Senate was not guaranteed at the time, as the GOP holds only a slim majority, and last-minute additions (such as an unrelated amendment capping credit card fees) threatened to peel away support. But the momentum is clearly in favor: “We have every expectation now that it’s going to pass,” said David Sacks, President Trump’s “crypto tzar” and Web3 advisor.

Sacks, a former tech investor, has become a prominent industry-aligned voice within the administration. He argues that a regulated stablecoin framework will unlock huge economic benefits and “trillions” of dollars of new demand for US Treasuries, as stablecoin issuers hold their reserves in government bonds. “We already have over $200 billion in stablecoins, it’s just that it’s regulated,” Sacks told CNBC, noting that providing legal clarity will “create enormous demand for Treasurys practically overnight.”

By mandating that reserves be kept in assets like T-bills and bank deposits, the law effectively channels crypto liquidity into the traditional banking system and US debt markets. Crypto lobby groups and some fintech companies have similarly emphasized that clear rules will keep the US dollar at the center of the digital asset economy, thwarting the risk of stablecoin activity migrating to less-regulated currencies or jurisdictions.

On the other side, banking industry lobbyists have raised alarms that an explosion of regulated stablecoins could eat into bank deposits or payment revenues. NYU adjunct professor Austin Campbell (formerly of Paxos) quipped that banks are “panicking“ because “interest-bearing stablecoins threaten their business model: banks profit from low-yield deposits, but if consumers can park money in stablecoins that pay Treasury rates, it undercuts that advantage.

From a macroeconomic and market perspective, the GENIUS Act’s impact would be far-reaching. Stablecoins today underpin a huge swath of crypto trading and digital commerce; over $250 billion in stablecoins circulate globally, facilitating trillions in annual transaction volume. By formally bringing these dollar-pegged tokens into the US, the law could reshape the landscape of digital dollar settlement, innovation, and global competition.

Dollar consolidation in digital finance

If GENIUS becomes law, any stablecoin accessible to US users would effectively need to be USD-backed (or linked to a foreign currency but issued under comparable rules). This could accelerate a trend toward the “dollarization” of blockchain networks, with USD stablecoins crowding out lesser-used tokens or more volatile crypto as the preferred medium of exchange. For example, with legal clarity, major US fintech and banking players may issue their own stablecoins, making USD the default currency on-chain.

On the flip side, foreign-currency stablecoins and unregulated USD tokens could face marginalization. Any stablecoins pegged to other currencies might find little uptake in platforms compliant with the US laws, given the dollar’s entrenched network effects and the GENIUS Act’s implicit preference for USD backing.

The bill doesn’t ban non-USD stablecoins, but any that are offered in the US would need comparable oversight, which, in practice, only a handful of major economies could satisfy. This could entrench the USD as the main “stable” value in global crypto markets, reinforcing the dollar’s reserve currency status through a new digital conduit.

Bottlenecks and boosts to stablecoin innovation

The regulatory rigor of the GENIUS Act is a double-edged sword for innovation. On the one hand, official legitimacy and standardized rules could spur a wave of new stablecoin offerings and use cases. Firms that were waiting on the sidelines may jump in now that the legal path is defined. Bank of America’s CEO has said the bank would issue a stablecoin if Congress authorized it, likening stablecoins to money market funds and indicating that “if they make that leap, we’ll go into that business.”

With the bill’s passage, we could see household names like banks, payment processors, retailers, or tech giants launching their own stablecoins or integrating existing ones into their platforms. This mainstream entry could expand the stablecoin user base beyond the current crypto trading sphere, driving adoption in e-commerce, remittances, and everyday payments.

However, heightened regulatory costs and compliance obligations might stifle smaller innovators or alternative designs. The Act’s 1:1 reserve requirement and asset restrictions effectively rule out “algorithmic” stablecoins or those backed by riskier assets,eliminating, by law, the kind of experimental models that aren’t fully collateralized. Some would argue that’s a feature, not a bug, given the collapse of unbacked stablecoins like TerraUSD.

But it means the creative envelope for stablecoin innovation is constrained to fully reserved models. New entrants will need deep pockets and regulatory expertise to become licensed issuers, which could favor large, established players over crypto-native startups.

Interoperability with DeFi

The DeFi market is heavily reliant on stablecoins as a source of liquidity and a unit of account. Regulated stablecoins under GENIUS would remain fully interoperable with DeFi protocols, as there’s nothing in the law that limits where stablecoins can flow (other than restricting foreign coins that don’t comply). The Act explicitly allows stablecoins to be used in “international transactions” and to be interoperable with each other across borders if certain conditions are met.

Yet, DeFi may also face new constraints when interacting with these regulated coins. One requirement for foreign stablecoins to be permitted is having the “technical capacity to freeze transactions” and comply with law enforcement. US-issued stablecoins like USDC already have blacklisting capabilities at the smart contract level, which have been used (under court orders) to freeze stolen or illicit funds.

As regulation formalizes, such control features are likely to become standard, meaning participants in DeFi have to accept that certain assets in their pools could be frozen by issuers if tied to sanctioned activities.

A significant part of the crypto community worries that this compromises DeFi’s censorship resistance. Liquidity pools might need to filter assets, and fully decentralized stablecoins (like DAI, which is partially backed by other crypto) might be deemed non-compliant and see less usage if investors and exchanges favor the officially sanctioned coins. Interoperability could also suffer if US rules differ from those of Europe or others.

Though GENIUS attempts to bridge regimes via “reciprocity,” not all jurisdictions will line up exactly in practice. There’s a scenario where global stablecoin markets fragment: US-approved coins dominate in some venues, EU-regulated MiCA stablecoins in others, with limited cross-pollination until standards harmonize.

Pressure on foreign issuers

A major macro implication of the Act will be its reverberations abroad. By shutting out unregulated foreign stablecoins after a grace period, the US is effectively exporting its regulatory standards. Non-US issuers like Tether (USDT), widely used on offshore exchanges, will face a choice: comply with US oversight or retreat from the US user base.

This is not trivial, as even though Tether’s official line is that it doesn’t operate in the US, American users can and do access it via crypto platforms. If Tether cannot or will not meet the GENIUS criteria (full transparency of reserves, OCC registration, freeze ability, holding reserves in US banks), US exchanges and wallets would likely be barred from offering USDT. That could shift liquidity toward coins like USDC or whatever new regulated stablecoins emerge.

Foreign jurisdictions might also accelerate their own frameworks in response to ensure their stablecoin projects aren’t locked out. The UK, EU, and others are already rolling out rules (the EU’s MiCA includes stablecoin provisions); the GENIUS Act’s reciprocity clause suggests that if those rules are strict, similarly, trans-Atlantic stablecoin activity could continue relatively seamlessly.

The foreign issuer rules also highlight national security considerations. Lawmakers have been especially wary of stablecoins that could be used to evade sanctions or launder funds across borders. By demanding foreign coins have freeze mechanisms and US oversight, the Act tries to extend US financial controls into crypto transactions globally.

However, it could also create geopolitical friction<: some countries might see US rules as overreach, especially if the US starts approving or disapproving other nations’ digital currencies.

Beyond the crypto markets, the GENIUS Act carries implications for traditional banking, capital markets, and the structure of US dollar liquidity. Stablecoins are, in essence, an alternative form of short-term money, functionally akin to bank deposits or money market fund shares but operating on blockchain rails.

Under the Act, banks and credit unions are not sidelined. In fact, they are invited to participate. A depository institution can issue a stablecoin through a ring-fenced subsidiary, and the bill explicitly permits banks to custody stablecoin reserves and even to use distributed ledgers for payment activities. This means banks could leverage blockchain tech to move dollars around more efficiently, perhaps offering 24/7 stablecoin-based transfers to customers as an alternative to ACH or wire transfers.

The integration cuts both ways: just as banks can issue stablecoins, stablecoin issuers (including nonbanks) could gain access to central banking services. The Senate bill uniquely allows stablecoin reserves to be kept as deposits at Federal Reserve Banks, a privilege normally reserved for regulated banks.

If implemented, a nonbank like Circle could potentially hold its customers’ stablecoin cash in a Fed master account, earning interest and enjoying the Fed’s full faith and credit on those funds. That would minimize credit risk in reserve management and tie stablecoins directly into base money.

It’s a monetary policy and plumbing consideration: stablecoins en masse could become a new category of Fed liabilities (analogous to deposits or central bank digital currency). While that detail might be subject to further policy decisions, it points to the Federal Reserve’s role in supervising stablecoins. Notably, Fed officials (along with Treasury and FDIC) get a say in approving state regimes and can intervene with state issuers.

The Act incorporates several features to contain risks and protect the wider financial system. Stablecoin holders rank first in bankruptcy claims on reserves, ensuring that even if an issuer collapses due to fraud or operational failure, the stablecoin’s backing assets aren’t up for grabs by other creditors: they’re earmarked for redemption. This reduces the chance of a messy run where users lose money. It is analogous to customer segregation rules in brokerages or MF Global-style cases, aiming to keep customers whole.

Additionally, reserve assets are restricted to safe instruments; stablecoin issuers cannot gamble with reserves on high-yield bets. This is a direct response to past incidents where stablecoin reserves included risky corporate debt or exotic instruments. By limiting reserves to cash, Treasuries, and the like, the Act makes a collapse of the stablecoin itself (due to asset failure) highly unlikely.

One big implication for the broader capital markets is the demand for short-term US government debt. As the market grows, stablecoin reserves could become a significant category of investors in Treasury bills and overnight repo markets.

All new stablecoin dollars would effectively be new dollars invested in T-bills. Some economists might note that this is a form of synthetic bank deposit: instead of money sitting in checking accounts at JPMorgan, it might sit in a Circle reserve account invested in Treasury bills. The interest earned on those T-bills flows to the issuer (and possibly to stablecoin holders if issuers choose to share yield).

There’s a redistribution here: banks could lose some deposits (and the cheap funding those provide) while the US Treasury gains another reliable buyer for its debt, and stablecoin users potentially get higher yields than bank accounts if competition forces issuers to pay out interest. It’s telling that banks are nervously eyeing yield-bearing stablecoins precisely because they could expose how low the banks’ deposit rates are.

Even if the GENIUS Act faces further hurdles (in the Senate or when it moves to the House), it clearly signals a long-term regulatory trajectory: stablecoins are likely to be brought under the umbrella of the traditional financial system, not banned or left in limbo.

This is a clear sign of the industry’s maturation. The rules of the road are being written, which can unlock broader adoption and capital inflows but also weed out those unable or unwilling to meet compliance standards.

If a regulatory regime like GENIUS becomes law, we can expect well-capitalized, compliant stablecoin issuers to thrive. Companies like Circle (issuer of USDC) or Paxos (issuer of USDP), which have already emphasized transparency and sought regulatory approval, would gain certainty and likely larger markets.

Traditional financial institutions could be big winners, too: Major banks and payment firms can enter the stablecoin space and leverage their trusted brands and customer bases to issue coins, possibly overtaking crypto-native firms. Exchanges and trading platforms also benefit: they will have a wider variety of legally compliant dollar tokens to list, drawing more institutional traders waiting for regulatory clarity.

There’s also a macro bet here: if stablecoins drive trillions into Treasury bills, it could modestly push down short-term US borrowing costs and provide a new avenue for foreign investors to easily hold dollar exposure (via stablecoins). That might cheer bond markets and strengthen the dollar, benefiting US assets in general.

On the other hand, incumbents who rely on gray areas of regulatory authority may struggle. The most obvious are offshore stablecoin issuers like Tether if they cannot meet the US requirements. They could lose access to US dollar on-ramps, shrinking their dominance.

Some foreign trading venues that primarily use such coins might lose US clientele or have to pivot to approved alternatives. Within the US, smaller crypto projects or DAOs aiming to create their own algorithmic or hybrid stablecoins will find the bar raised significantly.

It will be difficult to compete with a federally licensed stablecoin unless you play by similar rules. Decentralized stablecoins (like DAI, Frax, etc.) could face diminished usage if exchanges and big DeFi protocols gravitate toward assets that won’t get them into regulatory trouble.

Additionally, community banks and credit unions might be on the losing end if large amounts of deposits flow into stablecoins (which then sit in T-bills at the Fed).

In the medium term, greater regulatory clarity tends to be bullish for adoption. It reduces legal risk and opens the door for big institutional players (who were sitting on piles of cash waiting to deploy into digital asset ventures once rules were clearer).

We’ve already seen signals of market optimism: news of the Senate’s advancement of the bill coincided with Circle’s stock (CRCL) surging after its IPO, jumping nearly 250% in two days, reflecting hopes that regulated stablecoins will flourish. Likewise, crypto markets generally may benefit from a sense that the US is not going to ban stablecoins but rather embrace them under oversight.

Bitcoin and Ethereum, for instance, historically react positively when regulatory fears subside in favor of clarity.

It’s worth noting that legislation can still stall or evolve; the GENIUS Act must reconcile with whatever the House does (the House’s own bill, the STABLE Act of 2025, shares many features but could diverge on nuances).

Even so, the direction seems set: there is broad bipartisan agreement that stablecoins need a framework, even if the fight is over specifics. The concept of fully reserved, well-regulated stablecoins enabling a “larger role in the mainstream economy” is now White House doctrine, and few in Congress are arguing to kill stablecoins outright.