[co-author: Samantha Ackel]
July 18th marks a historic milestone in U.S. digital asset policy. The President signed the GENIUS Act into law following its bipartisan passage by 308-122 in the House on July 17 and 68-30 in the Senate on June 17. The GENIUS Act is the first federal law to create a comprehensive regulatory framework for payment stablecoins, digital tokens pegged to monetary value and intended for payments.
The GENIUS Act ushers in a new era of legal clarity for stablecoin issuers operating in the United States. For the first time, federal law defines who may issue a stablecoin, how it must be backed and which federal or state regulator must oversee it.
After years of legal ambiguity, this law is a watershed moment for the crypto industry. It replaces a patchwork of state and federal guidance with enforceable standards for reserve assets, redemption rights, disclosures and custody while clarifying that compliant stablecoins are neither securities nor commodities.
The GENIUS Act is a significant policy victory for the digital asset sector, which has long called for tailored legislation to enable innovation within a well-defined regulatory perimeter. The GENIUS Act sends a strong signal globally that stablecoins are a legitimate financial product.
Background
The passage of the GENIUS Act follows key legislative developments:
- On June 17, the Senate passed the GENIUS Act (S.1582) overwhelmingly with a bipartisan vote of 68-30.
- On June 18, the President urged the House to pass the GENIUS Act without any changes to the legislative text as soon as possible so he could sign it into law.
- On July 3, House Committee on Financial Services Chairman French Hill (R-AR), House Committee on Agriculture Chairman GT Thompson (R-PA) and House leadership announced the week of July 14 would be designated as “Crypto Week,” when the House would consider three pieces of crypto legislation, including the GENIUS Act.
- On July 17, during “Crypto Week,” the House passed the GENIUS Act with bipartisan support by a vote of 308-122.
- On July 18, the President signed into law the GENIUS Act, the most significant digital asset law to date.
What Is a ‘Payment Stablecoin’?
Under the GENIUS Act, a payment stablecoin is defined as a digital asset designed for payment, listed by a stablecoin issuer that maintains the coin will hold a stable value relative to a fixed amount of monetary value. The Act explicitly excludes things like central bank money, bank deposits or traditional securities from this definition.
Who Can Issue Stablecoins? Permitted Issuers Only
Stablecoins may generally only be issued by “Permitted Stablecoin Issuers.” Beginning three years after enactment (i.e., July 2028), it will be unlawful for any person to issue a payment stablecoin in the U.S. unless they are a permitted stablecoin issuer meeting the Act’s requirements. Sec. 3(a)-(b).
Federal vs. State Issuer Paths — Two Routes, Same Standards
The GENIUS Act introduces a dual-track framework that permits certain smaller issuers, those with less than $10 billion in consolidated outstanding stablecoin issuance, to opt into a state-level regulatory regime, provided that regime is certified as “substantially similar” to the federal framework. Certification of a state regulatory regime under the GENIUS Act requires a determination by a new Stablecoin Certification Review Committee, composed of the Treasury, the Federal Reserve and the FDIC.
The GENIUS Act also imposes transition obligations. Once a state-qualified issuer exceeds the $10 billion cap, it must either transition to the federal regime within 360 days or obtain a waiver from federal regulators to remain under state supervision. This waiver may be granted based on factors such as the issuer’s capitalization, regulatory history and the strength of the state framework.
Key Requirements for Issuers
Regardless of whether a stablecoin issuer is federally or state-chartered, all permitted stablecoin issuers under the Act must abide by stringent prudential requirements set out primarily in Section 4 of the Act. These are designed to protect consumers and the financial system.
Full Reserve Backing (1:1)
Every payment stablecoin must be backed by high-quality, liquid reserve assets. The Act spells out what counts as eligible reserves: essentially cash and cash equivalents. Sec. 4(a)(1).
The reserves must also be segregated and not commingled with the issuer’s operational funds. Issuers are explicitly forbidden from rehypothecating (using assets that have been posted as collateral by their clients for their own purposes). Sec. 4(a)(2).
Redeemability and Disclosures
Customers must have a clear, enforceable right to redeem stablecoins for the reference currency (e.g., U.S. dollars) on demand. The Act requires issuers to publish a redemption policy that promises timely redemption of stablecoins for fiat, with any fees disclosed in plain language and capped (fees can only be changed with seven days’ notice).
Capital, Liquidity and Risk Management Requirements
Federal and state stablecoin regulators are tasked with establishing additional capital and liquidity requirements for issuers through rulemaking.
Preemption of State Licensing Requirements
The GENIUS Act provides clear federal preemption of host state licensing and chartering laws for two categories of permitted payment stablecoin issuers: (i) federal qualified payment issuers and (ii) subsidiaries of insured depository institutions or credit unions that are approved to issue stablecoins. Sec. 5(h). For these federally regulated issuers, the Act supersedes any requirement under host state law to obtain a license, registration or charter to issue stablecoins.
While the applicable provisions leave room for reasonable interpretation, it is our view that the GENIUS Act does not provide a blanket preemption of state licensing laws for state-qualified payment stablecoin issuers. If a state qualified issuer is operating in a host state and its home state regulatory regime has been certified as “substantially similar” to the federal framework, then the host state may not apply its own laws more restrictively to the out-of-state state-issuer than it would to a federal issuer. In such cases, the home state’s laws govern, unless host state laws apply equally to similarly situated federal issuers. Sec. 7(f).
Additionally, a state-chartered depository institution which has a subsidiary that is a permitted payment stablecoin issuer may engage in the business of money transmission or provide custodial services through the permitted payment stablecoin issuer in any state so long as the state-chartered depository institution is subject to adequate liquidity and capital requirements under the laws or regulations of its home state and its adherence with those requirements is regularly assessed by the home state banking supervisor. Sec. 16(d).
Foreign Stablecoin Issuers — Can They Access US Markets?
The Act’s general rule is that only U.S.-regulated issuers can directly issue stablecoins to U.S. users, but it creates a possible exception for foreign issuers that meet strict criteria and obtain a form of U.S. approval.
Restriction on Publicly Traded Non-Financial Companies
The GENIUS Act places restrictions on publicly traded non-financial companies seeking to issue a payment stablecoin.
Bankruptcy Treatment of Stablecoin Reserves
To provide certainty in the event of a stablecoin issuer’s insolvency, the GENIUS Act includes targeted amendments to the U.S. Bankruptcy Code. These provisions are intended to insulate customer reserve assets from the issuer’s general creditors and prioritize customer recoveries in the event of a shortfall.
The Act amends Title 11 of the U.S. Code to make clear that reserve assets maintained by a permitted payment stablecoin issuer to back payment stablecoins are not property of the bankruptcy estate. This means that, in the event of the issuer’s bankruptcy, the segregated reserves are not available to satisfy the claims of general unsecured creditors and are instead preserved for the benefit of stablecoin holders.
If there is a deficiency in the reserve assets, meaning the reserves are insufficient to fully redeem all outstanding payment stablecoins, the Act provides stablecoin holders with a super priority claim. Specifically, the Act elevates customer claims above administrative expenses, which are typically granted the highest priority under the Bankruptcy Code (e.g., wages, legal fees and costs of administering the estate).
Effective Dates and Rulemaking Process
Most of the GENIUS Act provisions will not take immediate effect. Implementation will unfold over a multi-year period, during which federal and state regulators will conduct extensive rulemaking. Market participants should prepare for a staged compliance timeline and monitor forthcoming regulations closely.
Interoperability Standards
Congress also, in understanding that interoperability will play a significant, if not determinative, role in the success of payment stablecoins, vests in the primary federal stablecoin regulators (along with consultation with the National Institute of Standards and Technology and state governments) the ability to prescribe standards for payment stablecoin issuers.
