On September 19, 2023, the U.S. Senate passed a landmark piece of legislation to regulate stablecoins – the Guiding and Enhancing New Initiatives in Understanding Stablecoins (GENIUS) Act. This monumental act is poised to recalibrate the regulatory terrain for payment stablecoins. The Act, approved on May 19, 2025, by a vote of 66-32, introduces a comprehensive, layered framework designed to foster innovation while safeguarding consumers and maintaining financial stability. Now, lawmakers are uniting in a bipartisan agreement. They understand the pressing need for straightforward and stable rules in the rapidly evolving digital asset space.
Specifically, the GENIUS Act establishes a two-tiered regulatory framework for stablecoin issuers. It creates a big enough delta between the mom-and-pop market participants and the more consequential players that could be a larger systemic threat. The Act empowers all qualified state regulators to supervise the smaller majority of issuers in the universe. This approach lowers the barriers to entry and spurs innovation while maintaining larger players still under the watchful eye of the federal government. The legislation increases transparency by mandating quarterly public disclosures. It requires that the biggest issuers disclose how they make up their reserves and provide audited financial statements.
The enactment of the GENIUS Act is a significant achievement. By taking this step, it continues to lead the effort to create a regulatory and consumer protection framework for these digital assets in the U.S. With its focus on balancing innovation and consumer protection, the Act could serve as a model for other jurisdictions seeking to regulate the stablecoin market.
Key Provisions of the GENIUS Act
The GENIUS Act would take a comprehensive approach to payment stablecoin regulation. It features a number of important provisions that aim to address the unique risks and opportunities these digital assets pose. The new provisions introduce a two-tiered regulatory framework. They further add new transparency standards and priority claims for stablecoin holders in the event of an issuer’s insolvency.
Indeed, the Act’s approach is built on a multi-layered regulatory structure. GENIUS Act takes us a step closer towards a level playing field by recognizing the important difference between small and large issuers. This new approach promotes innovation at all levels. This approach recognizes that smaller issuers may have limited resources and may be less likely to pose a systemic risk to the financial system, while larger issuers require more stringent oversight due to their potential impact on the broader economy.
To further enhance oversight and public accountability, the GENIUS Act requires the issuing banks to publicly disclose their reserve composition on a regular basis. This provision is intended to provide holders of stablecoins with clear and up to date disclosure regarding the assets backing their stablecoins. By raising the bar on due diligence, it contributes to preventing runs and other market destabilizing events.
Two-Tiered Regulatory Framework
Central to the GENIUS Act is a two-tiered regulatory framework for stablecoin issuers. This ranking system then ranks issuers by their total market cap. It subjects each tier to different levels of oversight and compliance requirements. This approach recognizes the need to balance spurring innovation with ensuring that consumers are sufficiently protected.
We believe that under the GENIUS Act, state regulation would be appropriate for stablecoin issuers. This landing requirement applies only to foreign issuers with a market capitalization under $10 billion. Experienced state regulators would market the issuers. This is a critical loophole that only holds up if the state’s regulatory structure is virtually identical to the federal one. This provision gives states the flexibility to tailor their regulatory approaches to meet the specific needs of their local markets. Simultaneously, it ensures that all stablecoin issuers adhere to fundamental safety and soundness standards.
Issuers above this threshold are subject to federal oversight. This higher level of regulation is warranted considering the potential systemic risk that larger stablecoin issuers could pose. With these provisions, federal regulators will have the authority to impose capital requirements. They will make proactive inspections and enforce adherence to federal laws and regulations.
Transparency and Disclosure Requirements
Supplementing this two-tiered regulatory framework, the GENIUS Act contains important transparency and disclosure provisions. These provisions have the effect of empowering holders of stablecoins with the ability to discern important facts and materially affect whether they are making a sound investment. They want to limit the possibility for prospective fraud and manipulation.
The Act requires a reporting bank to make monthly public disclosures of the reserve makeup of any notes issued. Issuers need to validly report at required intervals what kinds and quantities of assets they have backing underlying their stablecoins. This transparency allows investors to ascertain the level of risk, stability, and liquidity associated with the stablecoin. This requirement is clearly intended to address issues regarding whether stablecoins are backed by assets that are safe or not easily marketable. Even the promise of such backing could undermine confidence and spark a run on the stablecoin.
Second, the GENIUS Act requires tougher disclosure standards for issuers who have a market capitalization greater than $50 billion. For one, they need to deliver annual audited financial statements. This provision injects independent scrutiny into evaluating the financial condition of the largest stablecoin issuers. This additional layer of oversight serves to further protect stablecoin holders.
Bankruptcy Protections for Stablecoin Holders
The GENIUS Act goes further still, with critical protections for stablecoin holders in the event that the issuer is forced into bankruptcy. These provisions grant stablecoin holders super-priority over every other creditor. If an issuer does become insolvent, they would be first in line to recoup their money.
This new priority claim helps shield stablecoin holders. It reduces the chance that their investment dollars are lost if the issuer defaults. The GENIUS Act makes stablecoin holders first in line for repayment, ahead of all other creditors! This approach increases public trust in the stability of stablecoins and furthers their wider use.
Legislative Support and Industry Impact
No wonder the GENIUS Act got such strong bipartisan support in the Senate. This is indicative of bipartisan agreement among lawmakers on the need for regulatory clarity and consistency in the digital asset space. A handful of important senators were on the forefront of crafting and pushing the bill to passage. The Act is an exciting development that is sure to upend the entire stablecoin industry. On one hand, it’ll increase federal adoption and innovation but on the other, it will increase regulatory scrutiny and compliance costs.
Senator Angela Alsobrooks of Maryland voiced her support for the GENIUS Act, calling it a "sensible regulatory approach" that would protect consumers and foster innovation in the digital asset space. Her support would highlight the bipartisan nature of the legislation and the widespread recognition of the need for stablecoin regulation.
Senator Cynthia Lummis of Wyoming, who now chairs the Senate’s first ever Subcommittee on Digital Assets. She was a major force in drafting the GENIUS Act. Her passion and knowledge of digital assets really shined through and it was contagious. Through her commitment to responsible innovation, she was able to facilitate a bill that provides clear regulatory guidelines while promoting a space for innovation. Senator Bill Hagerty of Indiana led the charge for passage of numerous fintech-friendly provisions. He advocated fiercely for the advancement of innovation in digital assets. His work was instrumental in creating a GENIUS Act that wouldn’t kill innovation or push jobs out of the country. Senator Kirsten Gillibrand of New York has been a longtime advocate for reasonable crypto legislation. As a coauthor of previous digital asset bills, she has been incredibly important in keeping support for the GENIUS Act. Her participation was key to presenting the bipartisan feel of the bill. It also demonstrated its ability to build a more predictable and clearer digital asset landscape.
Industry Response and Future Outlook
The GENIUS Act is expected to have a significant impact on the stablecoin industry, potentially leading to greater adoption and innovation. The Act creates regulatory certainty and sets understandable rules of the road. This moves more banks and fintechs to adopt stablecoins for payments and other P2P transactions.
The Act will probably heighten regulatory scrutiny and compliance costs for stablecoin issuers. As such, the new two-tiered regulatory framework and the increased transparency requirements will necessitate that these issuers allocate resources to compliance infrastructure and expertise. Innovative at first glance, this move could have the unintended effect of accelerating consolidation in the industry, with smaller issuers unable to meet the increased bar.
While we appreciate the long-term impact that the GENIUS Act could have, all of that depends upon how regulators implement it. It’s about how the industry responds to the new regulatory landscape. If regulators are willing to hit that sweet spot of flexibility and pragmatism, the Act has the potential to promote innovation and growth in the stablecoin market. If regulators go too far or get too rigid, the Act will end up killing innovation and pushing companies abroad.
Contrasting Approaches: The GENIUS Act vs. The Stable Act
Congress has previously attempted to pass various proposals aimed at establishing a regulatory framework for stablecoins. The GENIUS Act is one compelling option among them. Another leading proposal, the Stable Act, offers a stark contrast to the above proposals’ approach to stablecoin regulation.
The Stable Act would push financial activity back towards banks and the Federal Reserve. That’s exactly what the GENIUS Act would avoid. All stablecoin issuers need to be chartered as banks. This move will effectively centralize stablecoin issuance even more to a small number of well-capitalized institutions. This reasoned approach has unfortunately drawn the ire of some in the industry as too heavy-handed and innovation-inhibiting.
The GENIUS Act would implement a two-tiered regulatory framework. For one, it prioritizes state regulation, presenting a less centralized and more adaptive alternative to extensive federal stablecoin regulation. To address this, the GENIUS Act authorizes experienced state regulators to supervise these smaller issuers. This step is meant to encourage innovation and increase competition in the potential stablecoin market.
Addressing Misleading Marketing and Brand Misuse
The GENIUS Act targets bad actors’ misleading stablecoin marketing and brand misuse. It explicitly prohibits issuers from engaging in deceptive or misleading advertising or marketing practices, ensuring that consumers are not misled about the nature or risks of stablecoins.
This provision is particularly important given the pace of stablecoin market expansion. It prevents/notifies clueless investors from participating in possible frauds and all other illegal acts conducted by shady operators. The GENIUS Act bars deceptive marketing practices, defending consumers from bad actors who seek to exploit them. This legislation helps ensure that consumers know they’re getting accurate, complete, and reliable information regarding stablecoins.
Besides trademark dilution and the like, the Act takes brand misuse head on. Second, it prevents issuers from using names or branding that would confuse consumers into believing that their stablecoins are backed by government agencies or other reliable institutions. This provision’s express purpose is to prevent issuers from misleadingly implying that their stablecoins are more secure. It further makes sure that the promise of stability for these coins is not misleading.
