GENIUS Act Mandates U.S. Stablecoin Reserves but Leaves Foreign Issuers Unregulated

The U.S. Congress recently passed the GENIUS Act, a landmark piece of legislation aimed at regulating the stablecoin market by establishing a framework for U.S.-issued stablecoins. However, the Act has drawn scrutiny for its lack of clarity on how to regulate foreign stablecoin issuers, potentially creating a regulatory gap that could disadvantage domestic players [1]. The bill mandates that U.S. stablecoins be fully backed by U.S. dollars or equivalent assets, a move expected to boost demand for U.S. Treasury securities and reinforce the dollar's role as a global reserve currency [1].

The Act also prohibits stablecoin issuers from offering yield or interest to token holders, a restriction that may reduce the appeal of U.S.-issued stablecoins as a store of value [1]. Industry experts warn that this could drive users toward decentralized finance (DeFi) platforms, where they can still earn returns. According to former CFTC Chair Timothy Massad, foreign issuers are required to operate under “comparable” regulatory standards to U.S. counterparts, but the term remains undefined, creating uncertainty and potentially encouraging offshore operations [1]. This ambiguity could undermine U.S. regulatory efforts and market leadership in the stablecoin sector.

Despite these challenges, the GENIUS Act is expected to accelerate mainstream adoption by allowing major U.S. commercial banks and large retailers to issue their own stablecoins. This development may integrate stablecoins into everyday financial services and payment systems, expanding their utility beyond the crypto-native space [1]. However, experts note that U.S. stablecoins like USDC face stiff competition from well-established offshore stablecoins such as Tether, which holds a dominant 61.7% share of the stablecoin market with a $163.7 billion market capitalization [1]. New entrants, particularly banks, are likely to take a cautious approach, focusing on specific use cases and limiting the initial scale of large stablecoin issuances.

The potential implications of the Act extend beyond the U.S. market. Analysts suggest that emerging markets may increasingly adopt U.S. dollar-backed stablecoins due to their stability and efficiency, potentially enhancing financial inclusion and cross-border payment capabilities [1]. Nonetheless, the Act’s regulatory gap related to foreign issuers remains a critical issue that could shape the competitive landscape in the coming years.

The GENIUS Act signals a pivotal shift in how stablecoins are regulated and adopted, balancing the need for consumer protection with the push for innovation. While the U.S. is taking steps to integrate stablecoins into the mainstream financial system, the unresolved foreign issuer loophole highlights the need for continued regulatory clarity and international cooperation.

Source: [1] GENIUS Act May Create Challenges for Tether Amid US Stablecoin Regulatory Shift (https://en.coinotag.com/genius-act-may-create-challenges-for-tether-amid-us-stablecoin-regulatory-shift/)