The GENIUS Act: A New Era for Stablecoins in the United States

The U.S. Senate’s passage of the Guiding and Establishing National Innovation for U.S. Stablecoins Act—colloquially known as the GENIUS Act—marks a watershed moment in the evolution of the digital asset ecosystem. Passed by a 68-30 bipartisan vote in mid-June, the bill introduces a comprehensive regulatory framework for fiat-backed stablecoins and effectively signals the end of the Wild West era in American crypto finance. With the House of Representatives preparing its own version for reconciliation, the GENIUS Act could be signed into law before fall 2025, ushering in a new chapter for both the crypto industry and the broader financial system.

WATCH: You’re Being Played — This Market Rally Is a Setup

What the GENIUS Act Does

At its core, the GENIUS Act sets firm boundaries on who can issue “payment stablecoins”—tokens pegged 1:1 to fiat currency, typically the U.S. dollar, and designed for transactional use. Under the bill, only subsidiaries of insured depository institutions, federally qualified issuers approved by regulators like the OCC, or state-chartered issuers (with market caps under $10 billion) can issue stablecoins. Big Tech firms, foreign-domiciled issuers, and most crypto startups will be shut out unless they meet stringent oversight requirements.

Issuers must hold reserves exclusively in high-quality liquid assets—U.S. dollars, Treasury bills under 93 days, repos backed by Treasuries, and select money market funds. These reserves must be held in segregated accounts and are prohibited from being pledged, rehypothecated, or used as collateral. Monthly public disclosures and CEO/CFO certifications are mandatory, and third-party audits are required annually. Stablecoin issuers are also barred from paying interest, cementing their role as transaction mediums rather than yield-generating instruments.

Winners and Losers

The clearest winner is Circle (CRCL), issuer of USDC. Circle has already complied with many of the bill’s mandates, including publishing reserve attestations and maintaining U.S.-based reserves. Its public listing earlier this year and close regulatory alignment with U.S. policy give it a competitive edge. The day after the Senate passed the GENIUS Act, Circle’s shares surged 34%.

On the losing end sits Tether (USDT), which commands 66% of the global stablecoin market with $156 billion in circulation. Tether's reserve assets include volatile holdings like bitcoin and precious metals and it has consistently resisted full audits. Under the GENIUS Act’s rules, Tether would either need to undergo radical restructuring and become fully transparent—or exit the U.S. market. This “Tether Loophole” has drawn scrutiny from regulators, including New York Attorney General Letitia James, who warned that the bill allows foreign issuers like Tether to operate without sufficient safeguards.

If Tether exits, liquidity could shift rapidly toward compliant alternatives. This may reshape where capital pools form in the crypto space and what blockchains dominate.

Market Impact and Strategic Opportunities

The GENIUS Act does more than rein in bad actors—it provides a credible foundation for institutional adoption. A projected $2–3.7 trillion stablecoin market by decade’s end, up from $230 billion today, demands regulatory clarity. The Act sets the stage for banks, e-commerce platforms, and fintech firms to safely offer stablecoins as payment rails.

Corporate adoption is already underway. Walmart and Amazon have expressed interest in issuing their own branded stablecoins. In the financial sector, banks are exploring consortium models to offer co-branded tokens under a shared infrastructure. Payment-focused altcoins—already facing usage declines—could become obsolete as compliant stablecoins dominate everyday transactions.

Meanwhile, infrastructure winners are emerging. Ethereum and XRP Ledger (XRPL) look best positioned to benefit. Ethereum currently hosts over $130 billion in stablecoins, with deep DeFi infrastructure and flexibility for regulatory integrations. XRPL, with built-in KYC, blacklist, and freeze tools, aligns closely with GENIUS Act compliance needs. As auditors and compliance teams begin vetting infrastructure, privacy-centric or high-speed chains without controls may be left behind.

Rules for Deposits, Lending, and Payments

The GENIUS Act doesn’t just cover issuance—it reshapes downstream uses. Deposits must be fully backed and reported monthly, and holders cannot earn interest from issuers. However, platforms like Coinbase may continue offering interest-bearing accounts by using segregated yield from Treasuries, depending on regulatory interpretation. Lending against stablecoins or fractional reserve models are off-limits for issuers themselves.

Digital asset custodians and exchanges must ensure compliance with know-your-customer (KYC), anti-money laundering (AML), and sanctions laws. Issuers must respond to law enforcement requests for seizure and provide traceability features. This further solidifies stablecoins as debit-style, rather than credit-style, instruments.

Offline adoption remains a hurdle. Merchant infrastructure is lacking, and stablecoins are unlikely to replace credit cards for point-of-sale transactions in developed markets anytime soon. However, in the online economy—especially in emerging markets where Tether has thrived—stablecoins offer faster, cheaper, and often more secure cross-border payments.

Systemic Implications and Policy Debate

The Act’s reserve requirements tie stablecoin issuance directly to U.S. Treasury demand, potentially making issuers among the largest buyers of short-term debt. As stablecoins scale, this linkage could give the Federal Reserve another indirect channel for managing liquidity—though it also raises the risk of systemic entanglement if issuers falter.

NY Attorney General James, along with other critics, has flagged key risks. She argues that the Act lacks sufficient protections, fails to enforce digital identity verification, and allows foreign loopholes that could undermine national security. Her call to regulate all stablecoin issuers as banks—while controversial—reflects a broader tension: how to foster innovation without exposing financial markets to unnecessary risks.

Looking Ahead

The House must still pass its own version of the bill or adopt the Senate’s language. Reconciliation could alter timelines or provisions, including the length of the grace period (three years in the Senate bill, 18 months in the House’s STABLE Act). If passed, the bill would become law either 18 months after signing or 120 days after the final regulatory rules are published.

Despite the political haggling to come, one thing is clear: the GENIUS Act has fundamentally changed the stablecoin landscape. For compliant firms, the path is now paved with institutional credibility and massive market potential. For others—like Tether—the clock is ticking.