GENIUS Act Aims to Prevent Tech Giants from Dominating Stablecoin Market

The GENIUS Act, recently passed with bipartisan support, includes a significant provision aimed at preventing major technology companies and financial institutions from dominating the stablecoin market in the U.S. This clause, referred to as the “Libra clause” by Circle Chief Strategy Officer Dante Disparte, is a direct response to Meta’s failed attempt to launch a global digital currency.

Under this clause, any non-bank entity seeking to issue a dollar-backed stablecoin must establish a separate, standalone operation. This operation must navigate antitrust scrutiny and obtain clearance from a Treasury-led oversight committee, which has veto authority. Traditional banks are also subject to strict rules, requiring them to issue stablecoins through legally distinct subsidiaries. These subsidiaries are prohibited from engaging in leverage, lending, or risk-bearing activities, creating a more conservative structure compared to previous proposals.

Disparte believes that these clear rules will ultimately benefit U.S. consumers, market participants, and the dollar itself. The GENIUS Act, or the Guiding and Establishing National Innovation for US Stablecoins Act, provides long-awaited regulatory clarity for crypto firms, granting them a path to legitimacy and giving the dollar a regulatory edge in the global digital currency race. Firms with less than $10 billion in assets can still operate under state money-transmitter laws, while larger issuers must obtain a national trust-bank charter.

The bill also includes a ban on interest-bearing stablecoins and mandates rigorous asset disclosures. Issuers of unbacked tokens could face criminal penalties, effectively outlawing scenarios like the collapse of TerraUSD. Critics argue that banning yield-bearing stablecoins could stifle innovation and push users toward international platforms. However, Disparte contends that yield should be left to decentralized finance (DeFi) once the foundational stablecoin layer is secure. This yield ban could accelerate institutional interest in DeFi platforms, particularly those on Ethereum, which already leads in total value locked.

Stablecoins have emerged as a success story in the crypto industry, attracting the attention of corporations and regulators. Recent reports indicate that major companies like Amazon and Walmart are exploring stablecoin payments, briefly pushing stablecoin transaction volumes ahead of Visa’s in 2024. Regulatory clarity, such as Europe’s MiCA framework, has unlocked stablecoins’ growth potential by removing uncertainty. Stablecoin ecosystems can reduce transaction costs by over 90% and are becoming increasingly attractive to both consumers and corporations.

Last week, Ripple CEO Brad Garlinghouse projected that the stablecoin sector is poised for explosive growth, with the market potentially ballooning from its current $250 billion capitalization to as much as $2 trillion in the near future. This projection underscores the significant potential of stablecoins in the global financial landscape, driven by regulatory clarity and technological advancements.