The U.S. Senate Passes the GENIUS Act: A Regulatory Framework for Stablecoins Takes Shape
On May 19, 2025, the U.S. Senate voted in favor of invoking cloture on S.1582 — the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025, also known as the GENIUS Act. This legislative step followed an earlier setback on May 8, when the bill initially failed to gain sufficient support. With the successful cloture motion, the Senate effectively ended debate and advanced the GENIUS Act toward a final vote.
This milestone marks the most comprehensive effort to date by the U.S. federal government to craft a national regulatory framework for stablecoins. The bill aims to balance innovation with oversight, establish clear guidelines for market participants, and respond to the growing influence of digital assets in the global financial system. Here’s a breakdown of the key provisions — and what they mean.
What Is a “Payment Stablecoin”?
The GENIUS Act defines “payment stablecoins” as digital assets that are:
Issued with the intent to be used for payments or settlements;
Redeemable at a fixed face value (e.g., 1 USD).
Unlike algorithmic or volatile crypto assets, these stablecoins must be backed 1:1 by qualified reserve assets to ensure redemption stability and minimize systemic risk.
Reserve Requirements: A Narrow List, Tightly Controlled
To issue a payment stablecoin, entities must hold reserves equivalent to 100% of the issued amount. But not just any reserve will do.
The bill limits eligible reserves to:
U.S. coins and cash;
Insured deposits at banks or credit unions;
Short-term U.S. Treasury bills;
Treasury-backed repos and reverse repos;
Government-only money market funds;
Central bank reserves;
Other government-issued instruments approved by regulators.
Issuers may use reserves only for redemption, as collateral in repo operations, or other regulator-sanctioned activities. The goal: no speculation, no yield-chasing with customer funds.
This is a clear legislative signal: payment stablecoins are meant to be stable, not profit-generating. The separation between commercial risk-taking and monetary stability is foundational to the GENIUS framework.
Reporting and Transparency: A Duty to Disclose
Issuers must publicly disclose:
Redemption procedures;
Reserve composition and outstanding stablecoin volume;
Regular attestations reviewed by public accounting firms;
Annual audited financials (required if circulation exceeds $50 billion).
These transparency requirements aim to restore trust in an industry that has been plagued by opacity and questionable reserve practices. The auditing threshold, set at a relatively high $50 billion, reflects a tiered approach to oversight — large players will face more stringent scrutiny.
AML, Compliance, and Executive Integrity
All issuers must comply with the Bank Secrecy Act (BSA), and the Financial Crimes Enforcement Network (FinCEN) is directed to draft new AML rules specific to digital asset activity.
FinCEN is also tasked with:
Innovating new tools to detect illicit crypto activity;
Reviewing compliance programs;
Mandating formal certifications from issuers that they maintain effective AML and sanctions frameworks.
Furthermore, individuals convicted of specific financial crimes are barred from serving as executives or board members of stablecoin issuers.
This emphasis on executive integrity reflects lessons from past failures in both traditional finance and crypto, where unqualified or unethical leadership led to significant losses.
Who Can Issue Stablecoins? A Dual-Track System
Under the GENIUS Act, stablecoins may be issued by:
Banks or credit unions (via subsidiaries);
Nonbank entities, including tech firms and fintech startups.
All issuers must register with the appropriate federal agency. If an agency fails to respond within 120 days, approval is granted automatically — a pro-innovation feature intended to prevent bureaucratic deadlock.
Nonbank issuers with less than $10 billion in circulation may opt for state-level regulation if the Treasury Secretary, Federal Reserve Chair, and FDIC Chair deem that state’s framework “substantially comparable” to the federal standard. This clause preserves room for regulatory experimentation at the state level — especially for smaller, emerging players.
Federal Oversight and Enforcement
Issuers that:
Choose federal oversight, or
Exceed $10 billion in circulation,
will be supervised by:
Their primary federal bank regulator (if they are banks);
The Office of the Comptroller of the Currency (OCC), for nonbank issuers.
These regulators will examine the issuer’s:
Financial health;
Risk to institutional and systemic stability;
Risk management protocols.
Federal regulators may conduct examinations and compel reporting. If violations occur, they are authorized to suspend issuance or take other enforcement actions.
State Regulation: A Flexible Framework for Startups
Nonbank issuers under $10 billion may stick with a state-based regulatory approach — but only if the state’s regime meets federal equivalence standards.
Once an issuer crosses the $10 billion mark, it must transition to the federal system, unless granted a waiver. States may delegate enforcement power to the Federal Reserve, and in “extraordinary emergencies,” the Fed or OCC may intervene directly.
This blend of flexibility and escalation balances innovation and national financial integrity.
Foreign Issuers: A Three-Year Countdown
The bill introduces a transitional barrier to foreign-issued stablecoins. Within three years of enactment, only U.S.-based, compliant entities may issue or sell stablecoins within the U.S.
Foreign stablecoins can remain operational only if:
Issued from jurisdictions deemed “comparable” by U.S. regulators;
Registered with the OCC;
Backed by sufficient U.S.-based reserves;
Equipped with transaction-freezing capabilities and enforceable legal obligations.
This section clearly echoes concerns about dollar dominance, financial sovereignty, and national security. It also sets the stage for future bilateral agreements between the U.S. and other major jurisdictions like the EU, UK, Singapore, or Japan.
Custody, Tokenized Deposits, and Bankruptcy Protections
The GENIUS Act lays down rules for stablecoin custodians:
They may be banks, credit unions, broker-dealers, or other regulated entities;
They may not commingle customer funds with their own;
They are permitted to use blockchain infrastructure and issue tokenized deposits.
Notably, stablecoin holders receive seniority in bankruptcy proceedings, ahead of other creditors. This legal clarity marks a turning point in user protection and liability definitions.
Stablecoins Are Not Securities or Commodities
The bill clearly states:
Payment stablecoins are not securities;
Nor are they commodities;
And they are not FDIC-insured instruments.
By doing so, the GENIUS Act avoids regulatory overlap with the SEC and CFTC, preserving their jurisdiction for other classes of crypto assets.
What the GENIUS Act Really Means
The GENIUS Act is not perfect. Critics say it favors large institutions and entrenches federal power. Others argue that it could stifle innovation with compliance burdens or create conflicts between federal and state agencies.
But in a broader context, GENIUS signals three critical shifts in U.S. policy:
Digital Dollarization With Guardrails: The bill legitimizes dollar-backed stablecoins as a permanent fixture of the financial ecosystem — provided they follow strict rules.
Regulatory Clarity at Scale: For the first time, stablecoin issuers can operate under a clear, codified framework with enforceable expectations.
A Strategic Response to Global Crypto: The law positions U.S. stablecoins as reliable, interoperable payment rails in a multipolar financial world.
Whether GENIUS becomes the gold standard or just a stepping stone, its passage reflects a maturing regulatory attitude toward crypto.
