On July 18, 2025, the President signed the GENIUS Act into law, setting clear rules for who can issue payment stablecoins in the U.S. Only permitted issuers and registered foreign issuers are allowed, and they must follow strict operational standards. The law offers three paths for prospective issuers — federal, state and foreign — and aims to reconcile overlapping and ambiguous state and federal regulations that have previously impeded the growth of stablecoins. Regulators, however, will still need to finalize application, capital and anti-money laundering rules, among others. It is also not yet clear which state and foreign regulatory regimes will be deemed sufficiently comparable to relevant federal standards. Even so, the GENIUS Act represents a significant step toward establishing clear and consistent digital asset rules in the U.S.
What Does the GENIUS Act Do?
The GENIUS Act makes it illegal to issue payment stablecoins in the U.S. unless you are either a permitted issuer or a registered foreign issuer. Breaking this requirement can result in fines of up to $1 million and up to five years in prison. Starting three years after the law takes effect, exchanges and other digital asset service providers can only offer stablecoins from permitted or registered foreign issuers.
All issuers must comply with the act’s requirements, including reserve and capital requirements, as well as anti-money laundering standards. The law also impacts other market participants, setting requirements for digital asset service providers and standards for collateral custodians. The GENIUS Act will take effect either 18 months after enactment or 120 days after regulators finish writing the rules, whichever comes first.
What is a Payment Stablecoin?
The act defines a payment stablecoin as a blockchain-based digital asset intended for use as a means of payment. To qualify as a payment stablecoin, the issuer must promise to exchange it for a fixed amount of money and represent or create an expectation that it will maintain a stable monetary value. Further, the digital asset cannot be:
- A national currency, such as a form of money issued by a foreign central bank;
- A deposit as defined under federal law, including a deposit recorded using a blockchain; or
- A security, provided that if a digital asset satisfies the other requirements it will qualify as a payment stablecoin even if it otherwise represents an investment contract or a note.
Who Can Issue Payment Stablecoins?
The act sets up three paths for companies to issue stablecoins: federal, state and foreign.
- Federal Track: Subsidiaries of insured depository institutions (IDIs) and nonbank companies, as well as uninsured national banks and federal branches of foreign banks, can apply for federal approval to issue stablecoins. Subsidiaries, other than those of an insured credit union, would have to apply to the appropriate federal banking agency of their IDI affiliate (such as the OCC for national banks and the FDIC for state nonmember banks). Nonbanks, uninsured national banks and federal branches of foreign banks always apply directly to the OCC. After receiving a substantially complete application, regulators must render a decision within 120 days. Approved issuers are closely supervised to make sure they follow rules on reserves, anti-money laundering and safe operations.
- State Track: Companies formed under state law, including depository institutions, can seek approval from a state regulator to issue a stablecoin if the regulator certifies that the state’s regime is “substantially similar” to federal standards. A state regulator must submit initial certification to a federal committee for review within one year of the GENIUS Act’s effective date, with annual recertifications thereafter. The committee will approve the initial certification within 30 days if the relevant standards are met. Once approved, such issuers are primarily supervised by their state regulator, with federal regulators providing “backup” supervision. If a state issuer’s stablecoins total more than $10 billion in value, they must switch to federal oversight, subject to possible waivers from federal regulators.
- Foreign Track: Foreign issuers can operate in the U.S. if they (i) are subject to a “comparable” foreign regulatory and supervisory regime, (ii) register with the OCC (deemed approved 30 days after filing unless the OCC objects) and (iii) keep U.S. customer reserves in a U.S. bank, unless otherwise permitted pursuant to certain reciprocal arrangements. A prospective issuer can request that the Department of the Treasury review a foreign regime, with a decision following within 210 days. Foreign issuers cannot be based in countries under U.S. sanctions. Once registered, issuers are subject to reporting, supervision and examination requirements as determined by the OCC.
What are the Requirements for Issuing Payment Stablecoins?
All stablecoin issuers — whether approved or registered under federal, state or foreign tracks — must follow similar requirements under the act.
- Reserves: Issuers must maintain reserves backing their stablecoins at a 1:1 ratio using eligible reserves, such as cash or short-term Treasuries. Issuers must disclose reserve details on their website, and monthly reserve reports must be examined by a registered public accounting firm and certified by the issuer’s top executives.
- Redemption: Issuers must have a clear, public policy explaining how users can redeem stablecoins, how long it takes and any associated fees.
- Rehypothecation: Issuers generally cannot pledge, rehypothecate or reuse reserves, except in limited cases, including for the purpose of creating liquidity for redemptions with regulatory approval.
- Capital: Regulators will set capital requirements based on each issuer’s business model and risk profile. Regulators are expected to create reserve asset diversification and interest rate risk management standards.
- AML and Sanctions: Issuers are treated as financial institutions and must comply with anti-money laundering and sanctions laws, including establishing and maintaining compliance programs and reporting suspicious activity. The Financial Crimes Enforcement Network (FinCEN) will create relevant rules for issuers to follow.
- Operational Restrictions: Issuers may only engage in activities related to stablecoins, as well as incidental activities authorized by regulators. They are not permitted to offer interest payments on stablecoins just for holding stablecoins, use misleading names or represent that their stablecoins are backed by the government.
- Audits: Issuers with over $50 billion in stablecoins must publish annual audited financial statements, unless they already report to the SEC.
What are the Impacts on Market Participants?
The GENIUS Act primarily regulates stablecoin issuers, but it also establishes rules for digital asset service providers and custodians, as well as outlines the procedures in the event of an issuer’s bankruptcy.
- Digital Asset Service Providers: These are businesses in the U.S. that exchange, transfer or hold digital assets, or provide related financial services. After three years, they may only offer or sell payment stablecoins that are issued by permitted issuers or registered foreign issuers. Further, digital asset service providers may be required to cease facilitating secondary trading when a foreign issuer is found to be noncompliant with lawful orders, such as a federal court order requiring the issuer to seize stablecoins.
- Custodians: Companies that hold stablecoin reserves must be supervised by federal or state regulators. They must not commingle customer property (e.g., a stablecoin issuer using their services) with their own assets and must take steps to protect such property from the claims of creditors.
- Bankruptcy and Claims: If a stablecoin issuer goes bankrupt, stablecoin holders have priority claims on reserves, ahead of the issuer’s other creditors. If reserves are insufficient to fully redeem all outstanding stablecoins, stablecoin holders’ claims still take precedence. The OCC or state regulators may intervene in insolvency proceedings to protect customer interests.
Concluding Thoughts
While the GENIUS Act marks a significant step toward regulatory clarity for payment stablecoin issuers, several important questions remain. Key details — including the final rules on application processes, anti-money laundering standards and capital requirements — are yet to be determined by regulators. It is also unclear how state and foreign regulatory regimes will be evaluated for equivalence, how existing issuers will transition to the new framework and how enforcement will be coordinated across jurisdictions. In addition, the practical impact on consumer protections, innovation and market dynamics will depend on how these rules are implemented and enforced. As the regulatory process unfolds, we will continue to monitor developments and provide updates to help clients navigate the evolving landscape.
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