Regulators Turn to Tech to Tame Stablecoin Wild West

The U.S. Department of the Treasury has issued a public request for comment under the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, signaling a major step in the federal government’s engagement with stablecoin regulation. This initiative, mandated by Section 9(a) of the GENIUS Act, seeks to gather feedback on innovative methods and technologies used by regulated financial institutions to detect illicit activity involving digital assets, including the use of APIs, AI, blockchain, and digital identity verification tools. The comment period will remain open for 60 days following publication in the Federal Register, closing on October 17 [1].

The request for comment aligns with Executive Order 14178, which emphasizes the U.S. government’s commitment to fostering responsible innovation in digital financial technology while safeguarding national security. The GENIUS Act creates a federal regulatory framework for stablecoin issuers, ensuring that innovation does not come at the expense of oversight. Treasury’s call for public input reflects a broader effort to balance the need for robust compliance measures with the potential burden these tools might place on financial institutions, especially regarding privacy, cybersecurity, and operational costs [1].

Critics of the GENIUS Act, including industry groups like the Independent Community Bankers of America (ICBA), have raised concerns about the implications of the legislation. In a letter to the Senate Banking Committee and its Digital Assets Subcommittee, ICBA and its allies urged lawmakers to amend Section 16(d) of the Act, which allows state-chartered institutions with stablecoin subsidiaries to engage in national money transmission and custody activities. The groups argue that this provision undermines state sovereignty, weakens consumer protections, and creates opportunities for regulatory arbitrage [3]. ICBA has previously contributed to shaping the Act during the legislative process, ensuring that key provisions like FDIC insurance prohibitions and access to Federal Reserve master accounts were strengthened.

The debate over stablecoins also extends to their economic and privacy implications. The GENIUS Act prohibits stablecoin issuers from paying interest or yield on stablecoin holdings, a provision that critics argue stifles consumer incentives and limits competition in the financial sector. By locking out non-financial publicly traded companies from issuing stablecoins without approval from a Stablecoin Certification Review Committee, the Act also limits broader market participation [2]. The legislation subjects stablecoin issuers to the full scope of the Bank Secrecy Act, requiring them to engage in extensive anti-money laundering (AML) surveillance, a requirement that raises privacy concerns and parallels the surveillance risks associated with central bank digital currencies (CBDCs) [2].

In contrast, the European Union’s Markets in Crypto-Assets (MiCA) regulation presents a broader and more harmonized approach to digital asset oversight. MiCA sets uniform rules across 27 EU member states, covering a wide range of crypto assets and service providers. Under MiCA, stablecoins are categorized as either asset-referenced tokens (ARTs) or e-money tokens (EMTs), each subject to specific regulatory requirements. MiCA’s passporting system allows authorized entities to operate across all EU member states, offering a streamlined path for cross-border compliance [5]. The European Central Bank (ECB) has also accelerated plans for a digital euro (e-euro) to counter the growing dominance of U.S.-denominated stablecoins like USDC and USDT, which account for 99% of the global stablecoin market cap [6].

As the U.S. and EU continue to develop their regulatory frameworks, the global stablecoin landscape is increasingly shaped by the intersection of innovation, compliance, and geopolitical strategy. The U.S. Treasury’s recent call for public comment on illicit finance detection tools reflects a critical juncture in the evolution of digital asset regulation, where the need for security and transparency must be weighed against the potential impact on privacy and financial inclusion. The responses to this request will likely inform the development of future policies, shaping the trajectory of stablecoin adoption in the coming years [1].

Source:

[1] Treasury Issues Request for Comment Related to the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act (https://home.treasury.gov/news/press-releases/sb0228)

[2] The GENIUS Act Is Not Pure Genius (https://www.aei.org/technology-and-innovation/the-genius-act-is-not-pure-genius/)

[3] ICBA, other groups ask Congress to fix GENIUS Act flaw (https://www.icba.org/newsroom/news-and-articles/2025/08/14/icba-other-groups-ask-congress-to-fix-genius-act-flaw)

[4] MiCA vs. GENIUS Act: How Crypto Laws Differ in Europe and the US (https://www.ccn.com/education/crypto/mica-vs-genius-act-how-crypto-laws-differ-in-europe-and-the-us/)

[5] EU irked by US dollar stablecoins, China stifles stable talk (https://coingeek.com/eu-irked-by-us-dollar-stablecoins-china-stifles-stable-talk/)

[6] Digital Euro vs. U.S. Stablecoins: Europe's Plan (https://www.europeanbusinessreview.com/europe-accelerates-digital-euro-plans-to-counter-u-s-stablecoin-dominance/)