GENIUS Act Strengthens Stablecoin Framework but Leaves Foreign Regulation Unclear

The GENIUS Act, signed into law in the United States, marks a pivotal development in the regulation of stablecoins, establishing a comprehensive framework for domestic issuance. The law mandates strict reserve requirements, financial disclosures, and sanctions compliance for US-based stablecoin issuers, aiming to enhance trust and promote mainstream adoption. Proponents argue that the act strengthens the dollar’s global reserve currency status and supports financial innovation in blockchain and decentralized finance (DeFi)[1].

Christian Catalini, founder of the MIT Cryptoeconomics Lab, highlights the act as a catalyst for institutional and corporate participation in stablecoin issuance, predicting that stablecoin strategies will become standard for payments and financial services companies. Major financial institutions and retailers, such as Bank of America, Walmart, and Amazon, are reportedly exploring stablecoin initiatives, signaling a shift toward broader adoption[1].

However, the act leaves critical gaps, particularly regarding the regulation of foreign-issued stablecoins. The Atlantic Council and former CFTC chairman Timothy Massad have pointed out a so-called “Tether loophole,” where foreign issuers may continue to operate in less-regulated jurisdictions. The GENIUS Act requires offshore stablecoins to adhere to “comparable” standards as their US counterparts, but the lack of clear definitions leaves room for ambiguity and potential market distortions[1].

Tether, the largest stablecoin issuer with a $163.7 billion market cap, has indicated its intent to comply with the act and launch a domestic stablecoin. Despite this, experts suggest that Tether’s offshore advantage may shield it from immediate disruption, while US-native stablecoins like USDC could face more direct competition from regulated corporate entrants[1].

The act’s prohibition on yield-bearing stablecoins raises concerns over competitiveness. Without the ability to generate interest, stablecoins may lose appeal to institutional investors and users in the developing world, who rely on them as both a store of value and a medium of exchange. Christopher Perkins of CoinFund argues that this restriction could drive users toward DeFi platforms for yield generation, potentially benefiting Ethereum-based ecosystems[1].

The White House has framed the GENIUS Act as a tool to bolster demand for US debt and reinforce the dollar’s dominance in global finance. Secretary of the Treasury, Scott Bessent, has projected that dollar-linked stablecoins could eventually reach a $2 trillion market cap. Markus Hammer, a financial consultant, supports this view, noting that the 100% dollar-backed requirement of US stablecoins inherently increases demand for US assets, particularly in emerging markets where local financial systems lack stability[1].

Yet, some experts caution that the dollar’s global hegemony is not guaranteed. Trust in US-backed currencies is slowly waning, and the success of the GENIUS Act will ultimately depend on whether stablecoins become a widespread means of payment or remain a niche tool. Keith Vander Leest of BVNK suggests that new entrants will likely test the waters through small-scale pilots before scaling up, with banks moving faster than corporates[1].

Overall, the GENIUS Act is widely regarded as a foundational milestone in the evolution of stablecoins. While unresolved issues—such as foreign issuer regulation and yield restrictions—remain, the law is seen as a necessary step toward legitimizing and expanding the use of stablecoins in both traditional and digital financial systems. As Catalini notes, stablecoins represent the first tokenized assets to enter mainstream adoption, with bonds and securities likely to follow suit in the near future[1].

Source: [1]GENIUS sets new stablecoin rules but remains vague on foreign issuers (https://cointelegraph.com/news/genius-new-stablecoin-rules-remains-vague-foreign-issuers)