On July 17, 2025, the US Congress passed the Guiding and Establishing National Innovation for US Stablecoins Act (Genius Act or Act) by 308–122 vote, a landmark piece of legislation establishing the first federal regulatory framework for “payment stablecoins.” The Genius Act was signed into law by President Donald Trump on July 18, 2025.
With the Genius Act now law, Congress’ focus will be on passing the Digital Asset Market Clarity Act (the Clarity Act) which will create a more fulsome crypto framework (and interestingly is likely to also include amendments to the Genius Act). The Clarity Act passed the House on the same day as the Genius Act and is now being considered by the Senate Banking and Agriculture Committees. The White House and GOP leadership are aiming to wrap up the second key crypto bill by October.
Stablecoins may prove to be one of the most transformative innovations in finance in recent years. As stablecoins gain traction, existing business models – for example, cross-border payments or transactions among merchants and small enterprises will move toward a system of instant settlement with little or no credit risk. This will help reduce reliance on intermediaries, lower associated transaction fees and enhance working capital efficiency. New industries are likely to emerge that capitalize on real-time payroll solutions or pay-per-use consumption models. Stablecoins are bearer instruments, similar to cash, meaning that whoever holds it, owns it, which creates a new category of security risk. These capabilities are also likely to restructure global supply chains by minimizing fraud and increasing transparency. Further, the data generated by stablecoin flows may offer central banks insight into monetary dynamics, influencing policy decisions.
This client alert is the first of a series of DLA Piper alerts which will address the different aspects and implications of the Genius Act.
Summary
The Genius Act establishes a comprehensive legal framework for the issuance and regulation of “payment stablecoins,” defined as a “digital asset” designed to be used as a means of payment or settlement. A “digital asset” is defined as any digital representation of value that is recorded on a cryptographically secured distributed ledger. The Act creates both Federal and State pathways for obtaining a license as a “permitted payment stablecoin issuer.” Once effective, it will be generally unlawful for any person other than a permitted payment stablecoin issuer to issue a payment stablecoin in the US, subject to safe harbors/limited exceptions (eg, for de minimis transactions and direct peer-to-peer transfers) as specified in Section 3(h) of the Act. Further, after a three-year transition period, digital asset service providers will be prohibited from offering or selling a payment stablecoin to a person in the United States unless the payment stablecoin is either issued by a permitted payment stablecoin or is subject to safe harbors set forth in the Act or to be established by new regulation.
The Act directs the relevant regulators, including the Board of Governors of the Federal Reserve System (the Board), Comptroller of the Currency (OCC), National Credit Union Administration (NCUA) and State payment stablecoin regulators (the relevant State agency with primary regulatory and supervisory authority), to implement rules and regulations regarding a permitted payment stablecoin issuer’s capital, liquidity and risk management. The Genius Act mandates strict reserve asset requirements to ensure redeemability of the payment stablecoins.
Among other things, the new legislation
- Removes payment stablecoins from the definition of “security,” providing regulatory clarity for market participants
- Prohibits the payment of interest or yield by the stablecoin issuer in connection with the holding, use or retention of a payment stablecoin (but interest or yield could by paid by a digital asset service provider)
- “Treats” permitted payment stablecoin issuers as financial institutions under the Bank Secrecy Act (BSA) requiring them to implement anti-money laundering (AML) compliance programs as required of traditional financial institutions and creates an expectation that payment stablecoin issuers will be subject to US economic sanctions (which apply to all US persons and activity within the jurisdiction of the US in any event)
- Amends the Bankruptcy Code to prioritize payment stablecoin holders’ claims arising directly from holding payment stablecoins above all other unsecured creditors if reserves are insufficient
- Creates a Stablecoin Certification Review Committee (SCRC) comprised of the Secretary of the Treasury (who serves as the Chair of the SCRC), the Chair of the Board and the Chair of the Federal Deposit Insurance Corporation (FDIC). The SCRC has the authority to, among other responsibilities, to certify whether state-level regulatory regimes are substantially similar to the federal regulatory framework
- Prohibits public companies that are not predominantly engaged in one or more financial activities, as well as their wholly owned subsidiaries and affiliates, from issuing payment stablecoins unless the public company obtains a unanimous vote of approval from the SCRC. This approval must be based on specific criteria outlined in the Act, which are designed to uphold the traditional separation between banking and commerce in the US bank regulatory system
- Enables the federal regulators to grant certain state-qualified payment stablecoin issuers waivers from having to transition to the Federal framework when such issuers reach certain size market capitalization thresholds
- Provides for certain operating safe harbors for pending applications
- Creates a Federal application approval process with timelines
- Provides specific requirements for custodians of payment stablecoins and collateral with respect to among other things comingling, ownership and priority
- Continues to treat payment stablecoins for tax purposes as property
The Genius Act, and any amendments thereto, will take effect upon the earlier of (i) 18 months after enactment or (ii) 120 days after the primary federal payment stablecoin regulators issue final regulations implementing the Act. This translates into the earlier of January 18, 2027, or 120 days after the final regulations are issued by the primary Federal regulators. The Act requires that the Federal and each state regulator, and the Secretary of the Treasury promulgate regulations no later than one year after the date of enactment. If for example, final Federal regulations were issued in December 2025, the Act would be effective for Federal payment stablecoin issuers in April 2026.
Key aspects of the Genius Act
Definition of payment stablecoin
A “payment stablecoin” means a digital asset (i) that is, or is designed to be, used as a means of payment or settlement; and (ii) the issuer of which (a) is obligated to convert, redeem, or repurchase for a fixed amount of monetary value, not including a digital asset denominated in a fixed amount of monetary value; and (b) represents that such issuer will maintain, or create the reasonable expectation that it will maintain, a stable value relative to the value of a fixed amount of monetary value. The definition excludes digital assets that are national currencies, bank deposits or securities. The Act directs further study of endogenously collateralized stablecoins – stablecoins with values stabilized by collateral that is generated or maintained within the same ecosystem or protocol as the stablecoin itself, such as digital assets.) This study will include the current use of other non-payment stablecoins beyond this directive. As the Act does not otherwise explicitly cover activities involving non-payment stablecoins, absent the adoption of new legislative or regulatory guidance that suggests otherwise, activities involving non-payment stablecoins are likely to remain subject to the complex pre-Genius Act legislative and regulatory framework for digital assets.
Permitted issuers and foreign issuers
Both bank and non-bank entity-stablecoin issuers may satisfy the definition of “permitted payment stablecoin issuer.” A “permitted payment stablecoin issuer” includes (i) a subsidiary of an insured depository institution that satisfies the regulatory requirements to issue payment stablecoins, (ii) a federally qualified non-bank payment stablecoin approved by the primary federal payment stablecoin regulator, and (iii) state qualified payment stablecoin issuers approved by a State payment stablecoin regulator. If a payment stablecoin issuer has an issuance over $10 billion, the issuer must be federally regulated unless granted a waiver. State-qualified issuers with less than $10 billion in outstanding stablecoins may opt for state-level regulation if the SCRC certifies that the applicable state regime is substantially similar to federal framework. State issuers exceeding $10 billion in issuance must transition to federal oversight, with possible waivers for continued state supervision under strict criteria. This framework and potential time lag for implementation may prompt stablecoin issuers to seek bank charters with the OCC to expedite getting to the market.
For foreign issuers, issuing payment stablecoins in the US would require establishing or acquiring a US-regulated entity and obtaining the necessary approvals. Alternatively, foreign-issued stablecoins may be recognized for certain cross-border purposes through reciprocal arrangements; however, such recognition does not equate to being a permitted issuer under US law.
Regulators
- Federal regulators: The OCC, the Board, the US Department of the Treasury (including the Financial Crimes Enforcement Network (FinCEN)), the FDIC, and other relevant agencies will be used to ensure consistent oversight, systemic risk management, and compliance with the Genius Act’s core requirements.
- State regulators: A payment stablecoin issuer with a total market capitalization of less than $10 billion may opt for regulation under a State-level regulatory regime, provided that the State-level regulatory regime is “substantially similar” to the Federal regulatory framework.
Reserve assets and prohibition on rehypothecation
All payment stablecoins must be backed 1:1 by high-quality, liquid reserve assets, such as US dollars, US Treasury bills with short maturities, and other cash-equivalent instruments. Reserves must be held separately from the issuer’s corporate assets and be available for redemption at par (ie, $1 per stablecoin) at any time and must publicly disclose the issuer’s redemption policy, fees, and composition of the issuer’s reserves. Monthly certifications by the issuer’s CEO or CFO and PCAOB-registered public accounting firm attestations are required to ensure transparency and maintain user trust with criminal penalties for knowingly false certifications. Reserve assets cannot be pledged or rehypothecated, except in limited circumstances – for example, if a repurchase agreement is cleared or there is explicit prior approval from the Federal or State payment stablecoin regulator.
Not securities or commodities; permitted payment stablecoin issuers not investment companies
Payment stablecoins issued by permitted payment stablecoin issuers are explicitly classified as non-securities and non-commodities, and permitted payment stablecoin issuers are deemed not to be investment companies under the Investment Company Act. The Genius Act expressly states that payment stablecoins cannot bear interest, be staked, or provide dividends. Failure to comply with the rules and regulations would put the asset at risk of losing its classification as a payment stablecoin. While the Act does not state that non-compliance reclassifies the asset as a security or a commodity, it does state that only permitted payment stablecoin issuers’ stablecoins are excluded from those definitions.
AML obligations
Under the Genius Act, permitted payment stablecoin issuers will be “treated” as financial institutions under the BSA and must establish an “effective” AML and countering the financing of terrorism (CFT) program including conducting risk assessments, designating a compliance officer to supervise the program, and maintaining an effective Customer Identification Program to identify and verify account holders of the stablecoin issuer. With respect to the details of the AML/CFT program requirements, the US Treasury Department must issue implementing regulations to affect the Genius Act’s requirements and this task will likely be delegated to FinCEN.
Additionally, although not explicitly stated on the face of the Genius Act, it is likely that permitted payment stablecoin issuers will also be subject to other aspects of AML/CFT programs required by traditional financial institutions such as developing a system of internal controls, independent testing, training of appropriate personnel, and performing customer due diligence. Permitted payment stablecoin issuers will also need to have “appropriate record retention” practices which we anticipate will mean complying with the BSA’s recordkeeping and reporting requirements such as filing suspicious activity reports, adhering to the Travel Rule, and filing Currency Transaction Reports. Finally, 30 to 60 days following its enactment, the Genius Act requires the Secretary of the Treasury to seek public comment to identify and implement innovative techniques, methods, and/or strategies to detect illicit finance.
Capital, liquidity, and risk management standards
The primary Federal and State payment stablecoin regulators will issue capital requirements, liquidity, and interest rate risk management standards, in addition to appropriate operational, compliance, and information technology risk management standards tailored to the business model and risk profile of the permitted payment stablecoin issuer.
Bankruptcy code modifications
The Genius Act introduces specific amendments to the US Bankruptcy Code to address the implications of regulated payment stablecoin. It prioritizes the claims of payment stablecoin holders above all other unsecured claims, including administrative expenses (such as attorney and trustee’s fees). The Genius Act gives payment stablecoin holders first priority to reserves and first priority to the debtor’s unencumbered assets if those reserves are insufficient to satisfy the holder’s claims. In so doing, it displaces the priority of the ongoing costs of the Chapter 11 process (including the fees of the debtor’s professionals) in favor of the immediate payment of any shortfall in the reserves required to back payment stablecoins. This is a material change to a bedrock element of the Bankruptcy Code, and it is likely to have a lasting impact on how Chapter 11 cases are managed and financed. The Act also clarifies that a payment stablecoin issuer that is not a depositary institution may be considered a debtor under Title 11 of the US Bankruptcy Code, rendering non-bank payment stablecoin issuers explicitly eligible to be subject to the bankruptcy proceedings under the code.
Limitation on stablecoin activities; prohibition on tying and use of deceptive names
A permitted payment stablecoin issuer may only issue, redeem, and manage reserve assets, including purchasing, selling, and holding reserve assets; providing custodial or safekeeping services for reserve assets or private keys; and undertaking activities that directly support any of the permitted activities. There is also a general prohibition on the issuer from providing services to a customer on the condition that the customer obtain an additional paid product or service from the issuer or its subsidiaries or agree to not obtain an additional product or service from a competitor. The Act also prohibits the use of deceptive names, such as the use of any combination of terms relating the US government in the name of the payment stablecoin, or marketing the payment stablecoin as legal tender, guaranteed, or approved by the government.
Compliance obligations
The Genius Act requires payment stablecoin issuers to publish monthly disclosures detailing reserve composition, redemption policies, and applicable fees, with each report reviewed by a PCAOB-registered public accounting firm and certified by the issuer’s CEO or CFO. Issuers must also maintain robust internal controls. Regulators are authorized to conduct regular examinations of issuers and assess financial condition, reserve sufficiency, and compliance with capital, liquidity, and risk management rules. All reserves must be held in segregated, bankruptcy-remote accounts to ensure full and prompt redemption by holders. Additionally, state-chartered issuers must meet “substantially similar” standards and be certified by the Treasury to operate nationally.
Interoperability
The Genius Act requires that the federal stablecoin regulators consult with the National Institute of Standards and Technology, other relevant standard setting organizations and state bank and credit unions regulators, to prescribe compatibility and interoperability standards with other permitted payment stablecoin issuers and the broader digital finance ecosystem, including accepted communications protocols and blockchains, permissioned or public.
Bank-specific provisions
The Genius Act states that nothing in the Act should be construed to limit the existing authority of banking institutions to engage in activities permissible pursuant to applicable and state and Federal laws. This includes accepting and receiving deposits and shares; issuing digital assets that represent those deposits or shares; utilizing distributed ledger technology for books and records and to effect interbank transfers; and providing custodial services for payment stablecoins, private keys of payment stablecoins, or reserves backing payment stablecoins. The Genius Act also makes clear that federal banking agencies may not require depository institutions to include digital assets held in custody to be a liability on the entity’s balance sheet and may not require additional regulatory capital to be held against such assets except as necessary to mitigate against operational risks inherent in custody or safekeeping services.
Conclusion
The Genius Act represents one of the most consequential regulatory developments in digital finance. It lays the foundation for a stablecoin-driven monetary layer that is likely to reshape payment systems, market structure, and financial infrastructure. It establishes a framework for issuance, reserve assets, legal treatment in bankruptcy, and other compliance obligations. As implementation and regulatory guidance evolves, stakeholders – issuers, investors, traditional financial institutions, crypto companies, enterprises, entrepreneurs and retail consumers – will be impacted.
Payment stablecoin issuers and digital asset providers are encouraged to develop or update controls, disclosures, and AML programs; review marketing practices and consumer disclosures; and address new enforcement risks. In addition, businesses are encouraged to track regulatory rulemaking, state-federal certification processes, and evolving guidance, especially regarding AML innovation and non-payment stablecoins. To access the US markets, foreign issuers will need to meet US standards.
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