Custodia CEO Highlights Stablecoin Regulation Gaps Despite GENIUS Act

Custodia Bank CEO Caitlin Long has expressed ongoing concerns about the clarity of stablecoin regulation in the United States, despite the passage of the GENIUS Act in mid-July. The act requires stablecoin issuers to obtain federal licenses, maintain 1-to-1 reserve backing, undergo annual audits for those with a market capitalization over $50 billion, and comply with oversight rules for foreign entities [1]. However, Long argues that these measures have not fully resolved key uncertainties that continue to hinder the sector’s growth and integration into traditional finance.

Long, a prominent figure in the digital asset space, highlighted the regulatory ambiguity surrounding tokenized deposits—digital representations of traditional bank deposits on blockchain [1]. While such innovations offer the potential for faster, more efficient transactions, banks remain hesitant due to unclear rules on whether they can issue these tokenized assets. This uncertainty impacts how financial institutions approach stablecoin-related products and services.

Additionally, the capital requirements for banks dealing with stablecoins remain undefined, contributing to regulatory hesitancy and operational complexity. Long also pointed out compliance shortfalls among crypto-focused fintech firms, emphasizing the need for a more unified and clear regulatory framework across the industry.

A major challenge in the current landscape, according to Long, lies in the lack of clarity around interbank liability for tokenized deposits. Under existing regulations, banks face restrictions on sharing customer information, complicating the process of transferring tokenized deposits between institutions. Clearer rules on secure information sharing could reduce compliance costs and encourage broader adoption, particularly for smaller financial institutions.

Long’s insights underscore the importance of addressing unresolved issues in stablecoin regulation to foster innovation and growth. Clear and comprehensive rules not only reduce compliance costs but also enhance trust, promote stability, and create a more predictable environment for financial institutions and fintechs alike [1].

Despite the GENIUS Act’s progress, Long’s perspective highlights that the path to full regulatory clarity remains unfinished. Resolving questions around tokenized deposits, capital requirements, and interbank liability will be essential for stablecoins to realize their potential as a stable and efficient component of the future financial system.

Source: [1] Stablecoin Regulation: Why Custodia CEO Caitlin Long Sees Persistent Uncertainty Despite GENIUS Act (https://coinmarketcap.com/community/articles/68abfd073bde1258f425f284/)