Overview
On July 18, 2025, President Trump signed into law the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”), establishing the first U.S. statutory federal regulatory framework for payment stablecoins.
The legislation passed with strong support, 68-30 in the Senate and 308-122 in the House, reflecting a broad consensus on the need for greater regulatory clarity in the digital asset industry.
The GENIUS Act creates a dual federal-state regulatory framework for stablecoin issuers, mandates reserve requirements, and creates a framework for the issuance of payment stablecoins in the United States.
It achieves this by stating that payment stablecoins issued by permitted payment stablecoin issuers (“Permitted Issuers”) are not securities or commodities and that such issuers are not "investment companies," placing them in substantial part under a banking framework.
Key Provisions and Requirements
Permitted Issuers and Licensing Framework
The GENIUS Act makes it unlawful for any person to issue payment stablecoins in the United States unless they qualify as a Permitted Issuer. The GENIUS Act establishes three categories of Permitted Issuers:
- Insured Depository Institution Subsidiaries:
Subsidiaries of federally insured banks or credit unions may issue stablecoins with approval from their parent institution’s primary federal regulator. This path enables traditional financial institutions to leverage existing regulatory relationships and infrastructure.
- Federal Qualified Nonbank Issuers
The Office of the Comptroller of the Currency (the “OCC”) may approve nonbank entities, including fintech companies, uninsured national banks and federal branches of foreign banks, as federal stablecoin issuers. These entities will be subject to OCC supervision and regulation.
Entities may obtain state licenses if the state’s regulatory regime is certified as “substantially similar” to federal standards by the Stablecoin Certification Review Committee (the “SCRC”). However, state-qualified issuers face a critical limitation: if their outstanding stablecoins exceed $10 billion in market value (as measured over a 30-day rolling average), they must transition to federal regulation within 360 days.
The SCRC, comprising the Treasury Secretary, Federal Reserve Chair or Vice Chair, and FDIC Chair, plays a pivotal role in determining which state regimes qualify. The SCRC must act unanimously, creating a high bar for state certification that may limit the number of qualifying jurisdictions.
The GENIUS Act also imposes a binding 120-day deadline on federal regulators to act on complete applications for Permitted Issuer status. If an agency fails to approve or deny an application within that window, the application is deemed approved by operation of law. This automatic approval provision, a departure from the traditional bank charter application process, creates a strong incentive for timely action and a strategic advantage for well-prepared applicants.
While the GENIUS Act preempts state licensing regimes for stablecoin issuance once a federal or certified state license is obtained, it expressly preserves the applicability of state consumer protection laws. Permitted Issuers must still navigate diverse and evolving unfair and deceptive practices statutes across jurisdictions, particularly in areas such as marketing, fee disclosures, and redemption processes.
Reserve Requirements and Asset Management
The GENIUS Act mandates that every payment stablecoin be backed by reserves valued at no less than 100% of the outstanding stablecoin value. Permitted reserve assets are limited to:
- U.S. dollars and coins;
- Deposits at Federal Reserve Banks;
- Demand deposits at insured depository institutions;
- Treasury securities with a remaining tenor of 93 days or less;
- Overnight repurchase agreements fully collateralized by Treasury securities; and
- Shares in registered Governed money market funds and other registered funds that invest exclusively in the above assets (including a tokenized version of any of the above except repo and reverse repo agreements).
The reserve requirement prioritizes stability over yield, prohibiting riskier assets such as corporate bonds, longer-term securities, or other cryptocurrencies. However, although they may consist of Fed Funds held at Federal Reserve Banks for maximum safety, the GENIUS Act clarifies that it does not broaden eligibility for stablecoin issuers to obtain Federal Reserve accounts.
Issuers must maintain reserves in segregated, bankruptcy-remote accounts (presumably, Article 8 securities account) held by qualified custodians.
In the event of issuer insolvency, stablecoin holders benefit from a perfected, first-priority security interest in the reserve assets, senior to all other claims. This priority structure reinforces consumer protection by ring-fencing stablecoin reserves in an issuer insolvency.
Rehypothecation or repledge of reserve assets is prohibited except in narrowly defined circumstances including custodial costs and liquidity management.
Operational and Compliance Standards
The GENIUS Act imposes comprehensive operational requirements on Permitted Issuers:
Redemption Policies and Disclosures
Issuers must honor redemption of stablecoins at par (one stablecoin for one U.S. dollar) and establish clear procedures for timely redemption. They are also required to provide plain-language disclosures of these redemption rights and any fees or conditions, ensuring holders can confidently convert stablecoins back into fiat currency.
Monthly Disclosure Requirements
Issuers must publish monthly reports detailing reserve composition and total stablecoins outstanding, with CEO and CFO certifications of accuracy. The information in these reports must be examined monthly by independent registered public accounting firms.
Anti-Money Laundering Compliance
All Permitted Issuers will be treated as financial institutions under the Bank Secrecy Act (BSA), triggering full AML/CTF obligations, including customer identification programs, transaction monitoring, and suspicious activity reporting. The GENIUS Act also imposes sanctions compliance obligations. Substantial questions remain as to the status of payment stablecoins under FinCEN’s AML/CTF programmatic requirements. For example, nothing in the GENIUS Act addresses the treatment of unhosted wallets and peer-to-peer transfers for payment purposes or the duty of virtual asset services providers to comply with the travel rule in respect of transfers to or from unhosted wallets.
In addition to traditional BSA compliance, Permitted Issuers must submit a certification of AML program effectiveness to their regulator within 180 days of licensure and annually thereafter, a formal attestation requirement that elevates the ongoing compliance burden.
Technical Capabilities
Issuers must maintain the ability to seize, freeze, burn, or otherwise prevent the transfer of stablecoins pursuant to court orders or regulatory directives. This requirement ensures law enforcement capabilities but necessitates sophisticated technical infrastructure.
Prohibited Activities
The GENIUS Act prohibits issuers from paying interest to stablecoin holders, engaging in unrelated commercial activities, or requiring bundled purchases or offering discounts contingent on the use of stablecoin services.
Marketing Restrictions
Issuers are barred from suggesting government backing or using terms implying federal insurance in any stablecoin marketing or branding, ensuring consumers are not misled about the nature of these assets. There is no pass-through of deposit or share insurance with respect to reserves held in federally insured deposits or credit union shares.
Foreign Issuer Accommodation
The GENIUS Act establishes a pathway for foreign stablecoin issuers to access U.S. markets, subject to stringent conditions:
- The Treasury Secretary, with unanimous SCRC concurrence, must determine the foreign regulatory regime is “comparable” to U.S. standards;
- The foreign issuer must register with the OCC, become subject to OCC oversight and consent to U.S. jurisdiction relating to enforcement of the GENIUS Act;
- Sufficient reserves must be maintained in U.S. financial institutions to meet American redemption demands;
- The issuer’s home jurisdiction cannot be subject to U.S. sanctions or identified as a primary money laundering concern; and
- The issuer must comply with U.S. court orders and maintain required technical capabilities.
These requirements create significant barriers for foreign issuers, particularly given the unanimous approval requirement for comparability determinations. Furthermore, the GENIUS Act empowers the Treasury to ban U.S. trading of stablecoins from foreign issuers that fail to meet these standards and authorizes penalties of up to $1 million per day for willful violations by noncompliant issuers. Notably, this penalty also applies to U.S.-based intermediaries, including custodians and exchanges, that knowingly handle noncompliant foreign stablecoins, creating strong enforcement leverage across the ecosystem.
Implementation Timeline and Transition Provisions
The GENIUS Act becomes effective on the earlier of 18 months after enactment (January 18, 2027) or 120 days after final regulations are issued. Key implementation milestones include:
- Within 12 months: Federal agencies must issue implementing regulations;
- After 12 months: Applications for permitted issuer status may be submitted; and
- Within 3 years: Digital asset service providers must cease handling non-compliant stablecoins.
The GENIUS Act provides a measured transition period, but existing issuers should begin compliance preparations immediately. The 120-day statutory deadline for regulatory decisions on complete applications creates pressure for thorough preparation.
Strategic Considerations
Competitive Dynamics
The GENIUS Act fundamentally alters competitive dynamics in the stablecoin market. The prohibition on interest payments levels the playing field between bank and nonbank issuers while limiting competition based on yield. The $10 billion threshold for state issuers creates natural consolidation pressure as growing entities must transition to federal oversight.
Large technology companies face particular challenges, as the GENIUS Act generally prohibits publicly traded non-financial companies from issuing stablecoins absent unanimous SCRC approval. This provision reflects congressional intent to maintain separation between commerce and currency issuance.
Operational Infrastructure Requirements
Compliance demands significant operational capabilities. Monthly audit requirements necessitate robust accounting systems and relationships with qualified auditors. Technical infrastructure must support real-time freezing capabilities while maintaining operational resilience. Treasury management systems must optimize returns within narrow asset constraints while ensuring liquidity for redemptions.
State vs. Federal Considerations
The choice between state and federal licensing involves multiple factors beyond the $10 billion threshold. Federal oversight provides nationwide operation without geographic restrictions but may involve more intensive supervision. State regimes may offer more flexibility for smaller issuers but require careful monitoring of certification status and growth trajectories.
International Context
The GENIUS Act positions the United States within an evolving global regulatory landscape.
The EU’s Markets in Crypto-Assets Regulation (MiCA), operational since December 2024, provides a unified framework across 27 countries but with different reserve requirements and operational standards. Singapore’s framework requires exclusive local issuance for regulated status, while Hong Kong’s regime asserts extraterritorial jurisdiction over HKD-pegged stablecoins globally.
The UK’s developing framework appears most aligned with U.S. principles, though final rules remain pending.
Japan requires institutional partnerships between issuers and banks or trust companies, representing a more restrictive model. Switzerland maintains a guidance-based approach offering flexibility but less legal certainty.
The GENIUS Act’s comparable regime provisions may open opportunities for regulatory reciprocity, particularly with jurisdictions adopting similar prudential standards. However, initial determinations will likely prove restrictive given the unanimous approval requirement and high U.S. standards.
Section 15 of the GENIUS Act further directs the Federal Reserve and Treasury to pursue reciprocal agreements with foreign jurisdictions, indicating congressional intent to eventually harmonize global stablecoin standards beyond the narrow comparable regime framework.
Other Key Takeaways for Market Participants
Existing Stablecoin Issuers should immediately assess their path to compliance, determining whether federal or state licensing best suits their business model. Reserve portfolios require realignment to permitted assets, and operational infrastructure needs significant enhancement to meet disclosure and technical requirements.
Financial Institutions should evaluate opportunities in stablecoin issuance, leveraging existing regulatory relationships and infrastructure advantages. Banks may also benefit from providing custody services for reserves and stablecoins, subject to appropriate risk management.
Technology companies must carefully navigate restrictions on commercial entity participation. Partnership structures with regulated financial institutions may provide market access while maintaining technology focus.
Foreign Issuers face complex decisions regarding U.S. market participation. Direct compliance through OCC registration or establishing U.S. subsidiaries may prove more viable than awaiting comparability determinations.
While the GENIUS Act primarily governs stablecoin issuance, it also imposes key obligations on digital asset service providers, defined to include custodians, exchanges, and other entities that facilitate payment stablecoin transactions on behalf of users. Notably the definition of digital asset service providers does not include: a (i) distributed ledger protocol; (ii) developing, operating, or engaging in the business of developing distributed ledger protocols or self-custodial software interfaces; (iii) an immutable and self-custodial software interface; (iv) developing, operating, or engaging in the business of validating transactions or operating a distributed ledger; or (v) participating in a liquidity pool or other similar mechanism for the provisioning of liquidity for peer-to-peer transactions. For market participants that fall within the digital asset service provider definition, these intermediaries must ensure they do not list or support noncompliant stablecoins after the GENIUS Act’s transition period ends. Failure to comply can result in penalties, particularly in connection with foreign-issued stablecoins that have not received a comparability determination. Digital asset service providers should evaluate counterparty compliance and update asset support policies accordingly.
Conclusion
The GENIUS Act represents a watershed moment for U.S. digital asset regulation, providing long-sought clarity while imposing significant compliance obligations1. The framework balances innovation with stability, creating opportunities for responsible growth within defined parameters. Success requires careful navigation of the federal-state regulatory matrix, substantial operational investment, and strategic positioning within the global regulatory landscape.
As implementation proceeds, market participants who move decisively to establish compliant operations will be best positioned to capitalize on the institutional adoption this framework enables.
While still pending in Congress, the Clarity Act is anticipated to bring further clarity to the digital asset market, addressing broader digital asset market structure and securities law issues. On adoption, it is expected that the Clarity Act and the GENIUS Act would together establish a comprehensive federal framework for digital asset regulation.
1See SEC Staff Takes a Position on the Security Status of USD-Backed Stablecoins (April 2025), available at: https://clsbluesky.law.columbia.edu/2025/04/10/ao-shearman-discusses-sec-staff-position-on-usd-backed-stablecoins/
The authors would like to thank Bill Satchell, retired partner, for his contributions to this article.
