The U.S. Senate is considering the "Guaranteeing, Robust, and Innovative, but also, New, Uniform, and Stablecoins (GENIUS) Act," a bipartisan bill designed to regulate stablecoins and provide consumer protection in the digital currency market. Republican Senator Bill Hagerty of Tennessee and Democrat Senator Kirsten Gillibrand of New York recently introduced the GENIUS Act. This legislation is intended to establish a clear regulatory framework for stablecoins, which are digital currencies tied to stable assets such as the U.S. dollar. The bill mandates transparency and reserve requirements for stablecoin issuers, aiming to foster trust and stability in the burgeoning digital economy.
As of mid-October 2024, the overall stablecoin market has grown to well over $161 billion. This rapid growth further reflects the increasing importance of these digital assets. The GENIUS Act addresses the risks associated with stablecoins. In particular, it zeros in on the risk of a “run” on these assets should users lose confidence about what’s backing them. By requiring companies to maintain substantial reserves and provide regular disclosures, the legislation aims to mitigate these risks and ensure that stablecoins remain a safe and practical option for everyday Americans.
The GENIUS Act took another step toward a Senate floor vote earlier this week when the bill easily cleared replication hurdles. This important progress demonstrates that there is increasing consensus among lawmakers about the necessity of regulation in the digital currency space. Despite having bipartisan support, the bill witnessed obstructions and delays from opponents. These hurdles showcase the intricacies and difficulties of crafting market-oriented legislation in this fast-paced industry.
Key Provisions of the GENIUS Act
In order to increase transparency and stability in the stablecoin market, the GENIUS Act includes a number of important provisions. These more stringent provisions call for more rigorous mandatory disclosures and place reserve requirements. They further limit the kinds of assets that can back stablecoins. The legislation would provide real protections for consumers and help guard against a new wave of financial instability. It further encourages responsible innovation in the digital currency space by taking these steps.
One of the most important principles of our GENIUS Act is transparency. Second, it requires that issuers of stablecoins provide additional transparency regarding the reserves backing their coins. Specifically, the bill mandates that companies release a "monthly public disclosure of reserve composition," offering investors and regulators insights into the assets backing each stablecoin. This increased transparency is intended to help investors assess the risk associated with holding a particular stablecoin and make more informed decisions.
Beyond just monthly disclosures, the GENIUS Act requires issuers of large stablecoins to publish “annual audited financial statements.” Beyond this, it seeks to provide additional oversight and accountability through its provision. In other words, it prevents stablecoin issuers from having any third-party check on their financial condition and reserve management policies. By requiring regular audits, the legislation seeks to deter fraudulent or irresponsible behavior and maintain confidence in the stablecoin market.
The GENIUS Act would prevent the growth of new forms of unregulated private money. This greatly reduces potential for volatility and risk in the crypto market. This restriction benefits stablecoins by ensuring that their value remains constant over time. Another reason is that it provides them with insulation against the extreme volatility we’ve come to expect from other cryptocurrencies. For example, the legislation severely restricts the types of assets that may back stablecoins. This risk-averse approach prioritizes lessening boom-and-bust cycles and safeguarding consumers who could lose out when markets spiral profitably and uncontrollably.
Legislative Progress and Political Debate
The GENIUS Act has made significant progress in the Senate, overcoming procedural hurdles and garnering support from both Democrats and Republicans. See our post on how the legislation got one step closer to passing in the Senate. In all, 18 Democrats joined most Republicans to vote to cut off debate on the measure. On both sides of the aisle, lawmakers are finding it difficult to ignore that there are significant regulatory gaps in our fast-evolving digital currency market. They are very happy to set bright lines for stablecoins.
Despite this broad bipartisan support, the GENIUS Act has seen significant opposition and delays. In fact, some conservative Republicans are leading the charge to stop Big Tech companies from developing their own stablecoins. Senator Hawley is certainly not alone in raising this alarm given the proposed regulatory framework. These worries have prompted significant debate and efforts to change the legislation—including the bill’s sponsor—which have delayed its passage through the Senate even further.
"It's a huge giveaway to Big Tech." - Sen. Josh Hawley (R-MO)
"It allows these tech companies to issue stablecoins without any kind of controls." - Sen. Josh Hawley (R-MO)
Big tech concerns have made that all more complicated. On the GENIUS Act delays are mounting on the GENIUS Act as its supporters seek to attach supplementary language to the bill. Vice President JD Vance and numerous trade organizations including America’s Credit Unions expressed extreme opposition to these attempts. Yet their backlash forced amendment of the legislative language and postponed hearing consideration of the bill. Senator Kirsten Gillibrand, pictured above, is hopeful for a final vote on the GENIUS Act. When and how it will happen, and the result, remain up in the air.
Potential Impact on the Digital Economy
The GENIUS Act would have a huge impact on the future of the digital economy. Its purpose is to establish a consistent regulatory standards framework for stablecoins. Supporters of the controversial legislation argue that it will spur innovation and bring investment in. They contend that it will help stimulate broader adoption of digital currencies in the United States. The GENIUS Act lays out nondiscriminatory ground rules and consumer protections. That would pave the way for stablecoins to become the preferred form of digital money, expediting transactions and fostering economic growth.
Democrat Senator Kirsten Gillibrand of New York has stated the bill:
"cement U.S. dollar dominance, protect customers, increase demand for U.S. treasuries, and ensure that innovation in the digital asset space is in the hands of the United States of America, not our adversaries."
Senator Cynthia Lummis (R-Wyo) supports the GENIUS Act, highlighting the broad support for the legislation among lawmakers who recognize the importance of regulating stablecoins. This is what GENIUS Act seeks to do – establish a level playing field. It creates a predictable framework to promote responsible innovation, while ensuring that stablecoins cannot be abused to facilitate crime and corruption.
"will provide regulatory clarity to this important industry, keep innovation on shore, add robust consumer protection, and reaffirm the dominance of the U.S. dollar."
In addition to these improvements, the GENIUS Act has the potential to lay the groundwork for digital currency to further revolutionize the U.S. and global economy. By providing a safe and reliable means of transacting in digital assets, stablecoins could facilitate cross-border payments, reduce transaction costs, and expand access to financial services for underserved populations. By implementing registrations and audits, the legislation should increase consumer confidence in ongoing use of new forms of digital money. It demands that every coin be fully backed by tangible assets, like U.S. dollars or Treasury bonds.
The GENIUS Act could also set the stage for digital currency to further revolutionize the U.S. and global economy. By providing a safe and reliable means of transacting in digital assets, stablecoins could facilitate cross-border payments, reduce transaction costs, and expand access to financial services for underserved populations. The legislation helps ensure that consumers can trust the value of the digital money they hold by requiring that each coin be backed by real assets like U.S. dollars or Treasury securities.
