GENIUS Act Regulates Stablecoins, Banks Adapt to New Landscape

Stablecoins, once a niche curiosity in the cryptocurrency world, have now gained significant traction and legitimacy with the passage of the GENIUS Act. This legislation aims to establish a clear regulatory framework for stablecoins, setting standards for issuance, reserve requirements, and supervision. The Act stipulates that only insured depository institutions and approved non-bank entities can issue stablecoins, which must be backed 1:1 with high-quality liquid assets such as US Treasuries. Additionally, issuers are required to undergo regular audits and disclose their reserves, with a prohibition on algorithmic or unbacked stablecoins.

One of the key implications of the GENIUS Act is the potential for stablecoins to divert significant transaction volume and core deposits away from traditional banks. Retailers, fintechs, and Big Techs are increasingly issuing branded stablecoins, which could lead consumers to move their cash into these digital assets for convenience, rewards, or programmability. This shift could make stablecoins functional equivalents of bank deposits but without the FDIC insurance, relationship ties, or regulatory protections that banks provide. This risk is not hypothetical; a study found that $2.15 trillion has already left banks for fintech investment accounts, with a significant portion coming from Gen Xers and Baby Boomers. Additionally, Americans have an estimated $10 billion sitting in merchant mobile apps like Starbucks’ at any given week.

JPMorgan Chase has already taken steps to adapt to this new landscape by filing a trademark for a digital deposit token, JPMD. This token is designed for institutional clients and will be issued on Coinbase’s Base blockchain, targeting on-chain settlements and cross-border B2B transfers. JPMD is marketed as a “deposit token”—a fully insured, interest-bearing digital representation of bank deposits. Unlike other stablecoins backed by Treasuries, JPMD is a tokenized claim on JPMorgan deposits, integrating deposit insurance and liquidity. This move positions JPMorgan to safeguard its deposit base, ensuring it remains on-balance-sheet and insured, while also blending digital currency innovation with traditional banking strength.

The GENIUS Act presents both opportunities and challenges for banks. On the one hand, it provides regulatory clarity, reducing compliance risk and offering a sanctioned path to innovate. It also helps banks defend against shadow banking by restricting issuance to regulated entities. On the other hand, the Act imposes strict reserve, audit, and reporting requirements, which may create costly compliance overhead for banks. Additionally, banks’ legacy systems are not built to support tokenized assets or blockchain-based ledgers, requiring massive overhauls to core systems, KYC/AML processes, and cybersecurity frameworks. Furthermore, the Act allows non-bank entities to participate if approved, potentially introducing new competition from fintechs, retailers, and merchants.

Despite these challenges, the GENIUS Act opens the door to new revenue channels for banks willing to adapt. These include stablecoin issuance, custodial services, transaction fees, and cross-border payments. Institutions that move early could benefit from new product lines and differentiated digital experiences. However, banks must also consider the operational and risk implications of stablecoins, including infrastructure risk, cybersecurity risk, balance sheet and liquidity implications, and regulatory supervision complexity.

In response to the GENIUS Act, banks should define their strategic position, invest in necessary infrastructure, educate senior leadership, partner with experts, and advocate for smart regulation. The adoption of tokenized money is inevitable, and banks must prepare to innovate or risk financial erosion as tech-native alternatives capture consumer funds. For banks who act, the GENIUS Act and the potential for Amazon and Walmart stablecoins are not threats but a blueprint for future growth and innovation in the digital asset space.