GENIUS Act Passes House, Aims to Regulate Stablecoins in 18 Months

The GENIUS Act, an acronym for “Guiding and Establishing National Innovation for US Stablecoins Act,” is poised to become law after receiving approval from the US House. The bill, which originated in the Senate, now awaits President Donald Trump's signature to be enacted. The law is expected to come into effect 18 months after Trump signs it, or 120 days after the primary federal payment stablecoin regulators, including the Treasury and Federal Reserve, issue final regulations implementing the GENIUS Act.

The GENIUS Act aims to regulate stablecoins by dictating how issuers of these tokens must be regulated to serve the US market. One of the key changes introduced by the GENIUS Act is the creation of an incentive for stablecoin issuers to seek a banking license. Logan Payne, a crypto-focused lawyer at Winston & Strawn, noted that a new stablecoin license under the GENIUS Act limits a company’s activities to “purely stablecoin issuance.” However, most stablecoin issuers engage in activities beyond this scope, which creates an incentive for them to apply for a national trust bank charter with the Office of the Comptroller of the Currency (OCC). This charter allows for a wider range of activities without the need for state-to-state licenses.

A contentious aspect of the bill is the ban on stablecoin issuers, both foreign and regulated under US law, from giving holders and users interest or yield. This provision is expected to significantly impact the marketing strategies of stablecoins, as yield offerings are a major attraction for users. Some stablecoins offer yield natively for holders, while others reward those holding the stablecoin on exchanges. Payne suggested that many of these arrangements may change or be modified in response to the new regulations.

The GENIUS Act also introduces uncertainty into decentralized finance (DeFi) regarding how platforms should handle stablecoins. Payne noted that the impact of the GENIUS Act on DeFi is intentionally unaddressed for now, but additional legislation and regulation will address these gaps over the next few years. One such bill is the CLARITY Act, which classifies types of digital assets and specifies which authorities will regulate them. The House passed this bill to the Senate on the same day as the GENIUS Act.

Under the GENIUS Act, permitted stablecoin issuers must back their tokens 1:1 with reserves of US dollars or other monetary products such as Treasury bills. These issuers will be required to publish the composition of their reserves publicly and have them examined by a registered public accounting firm. They must also submit a certification of the accuracy of these reports to their federal or state regulatory body.

Three years after the bill is signed, it will outlaw any stablecoins that do not come from an approved issuer from being offered in the US. Foreign-issued stablecoins will also be barred from the US market unless the issuer complies with the bill’s legal requirements. The bill provides exemptions for foreign stablecoin issuers if the Treasury determines that their home country has a comparable regulatory regime. In such cases, foreign issuers can serve the US market if they successfully register with the OCC and hold sufficient reserves in a US financial institution to cover their US customers.

The GENIUS Act establishes a dual federal and state legal framework to regulate stablecoins in the US. Multiple types of regulated entities, such as banks, credit unions, and nonbanks, will be allowed to issue stablecoins. These entities will be regulated by various federal agencies, including the National Credit Union Administration, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Treasury, or the Federal Reserve. Entities with less than $10 billion in issued stablecoins can choose to be regulated at the state level, provided the state has a stablecoin regulator.