U.S. Enacts Bipartisan GENIUS Act: Stablecoin Framework Mandates 1:1 Reserves and Dual-Tier Licensing

The GENIUS Act, formally titled the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025, represents a landmark shift in cryptocurrency regulation following its enactment on July 18, 2025, under President Donald Trump. The bipartisan-supported legislation, passed with Senate (68–30) and House (308–122) backing, establishes a federal framework for "payment stablecoins"—tokens pegged to fiat currency for payments or settlement—while imposing stringent prudential standards to mitigate risks and foster U.S. competitiveness in digital finance [1]. The law’s provisions aim to address long-standing regulatory ambiguities and stabilize the crypto industry by creating a structured licensing regime, enhanced transparency, and clear enforcement mechanisms [2].

Central to the Act is a dual-tier licensing system for stablecoin issuers. Entities with stablecoins valued below $10 billion can operate under state-level licenses that align with federal requirements, while those exceeding $10 billion in market capitalization must obtain a federal license. All issuers are mandated to maintain 1:1 reserves in high-quality liquid assets, such as U.S. cash, short-term Treasuries, or Fed balances, with funds segregated and unencumbered to ensure immediate redemptions at par value [1]. The law explicitly prohibits interest or yield payments on stablecoins, aligning them with traditional currency rather than securities, and bans algorithmic stablecoins, which rely on non-1:1 backing [3]. These measures aim to reduce liquidity risks and prevent the recurrence of past crises, such as the 2022 algorithmic stablecoin collapses [3].

Extraterritorial provisions extend the Act’s scope to foreign issuers, requiring them to register with the Office of the Comptroller of the Currency (OCC) and meet U.S. regulatory benchmarks. This creates a de facto "comparable" standard for jurisdictions operating under U.S. sanctions or with weak anti-money laundering (AML) controls, effectively limiting market access for non-compliant foreign entities [2]. Enforcement is rigorous, with civil fines of up to $100,000 per day and criminal penalties for willful violations, including imprisonment for up to five years or fines exceeding $1 million [2].

The Act also reshapes the competitive landscape by authorizing federally regulated institutions to use blockchain for transactions and tokenized deposits, removing regulatory uncertainty for banks exploring distributed ledger technology (DLT) [2]. Insured depository institutions can now use subsidiaries to issue stablecoins, while non-banks must seek federal licenses or state charters under federally certified frameworks. This dual approach balances innovation with oversight but may favor early adopters in states with existing digital asset frameworks, such as New York or Wyoming [1]. The law explicitly restricts non-financial corporations, including Big Tech firms, from issuing stablecoins without special approval, addressing concerns about anti-competitive practices [1].

Transparency is a key focus, with requirements for monthly reserve disclosures and annual audits for large issuers. These measures aim to rebuild consumer trust after past incidents, including the collapse of algorithmic stablecoins. Stablecoin holders are granted first-priority claims in bankruptcy proceedings, ensuring repayment before other creditors [3]. The Act’s aggressive implementation timeline, with a transition period ending in early 2027, mandates that federal agencies finalize regulations by July 2026, with non-compliant issuers barred from the market by 2028 [3].

Analysts suggest the Act could drive institutional adoption by reducing regulatory friction, though its strict reserve requirements may increase compliance costs for smaller firms [3]. The law’s emphasis on stability and transparency aligns with broader U.S. efforts to position itself as a leader in digital finance, but its global reach may also spark regulatory tensions with jurisdictions unwilling to meet U.S. standards.

Sources:

[1] [GENIUS Act: Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025](https://zycrypto.com/heres-how-the-genius-act-law-will-extensively-transform-the-crypto-industry/)

[2] [GENIUS Act Represents a Major Milestone for Crypto Regulation](http://www.msn.com/en-us/news/politics/genius-act-represents-a-major-milestone-for-crypto-regulation/ar-AA1IYvnh)

[3] [Stablecoins Gain Legitimacy as Crypto Finds Clarity in Regulatory Fog](https://siliconangle.com/2025/07/26/stablecoins-gain-legitimacy-crypto-finds-clarity-regulatory-fog/)