U.S. Senate Passes First Federal Stablecoin Law, Sparks Industry Debate

The U.S. Senate’s passage of the “Guiding and Establishing National Innovation for U.S. Stablecoins Act” (GENIUS Act) marks a pivotal moment for the crypto sector, introducing the first federal legislative framework targeting stablecoins. While the bill is celebrated as a milestone for clarifying regulatory ambiguity, its practical implications for digital assets and the broader economy remain contentious. The law’s focus on “payment stablecoins”—digital assets designed for transactional use rather than speculative holding—has sparked debate over its alignment with current market practices and technological realities [1].

The GENIUS Act establishes the Stablecoin Review Board, a federal body tasked with overseeing compliance, research, and rulemaking for stablecoins. Key provisions include mandatory adherence to “lawful orders” for freezing or blocking transactions, a requirement that payment stablecoins maintain reserves of U.S. cash, short-term treasuries, or repos, and a bifurcated regulatory structure for state and federal issuers. State-level issuers must cap reserves at $10 billion, while federal entities face a $50 billion limit. Critics argue that existing stablecoins like Tether’s USDT and Circle’s USDC do not meet the act’s criteria, as they lack bank charters or onshore operations. For instance, USDC’s $50+ billion in issuance would immediately render it non-compliant if a federal charter is granted [1].

The act explicitly excludes wallet providers, blockchain protocol developers, and DeFi protocols from its definition of “Digital Asset Service Providers,” addressing prior enforcement conflicts. However, it retains strict oversight for exchanges and stablecoin issuers, imposing penalties for non-compliance with regulatory orders. Notably, the law’s reliance on ERC-20-based stablecoins is problematic, as their design precludes compliance with freezing or seizure mandates. This clash between decentralized technology and centralized legal requirements highlights structural tensions within the crypto ecosystem [1].

Regulatory clarity comes at a cost. The act’s emphasis on reserve composition—prioritizing liquid fiat assets over tokenized counterparts—risks stifling innovation. For example, stablecoins like JPMorgan’s Onyx, which tokenize bank deposits, fall outside the law’s scope. Additionally, the absence of FDIC protection for stablecoins could amplify systemic risks during runs, as seen in the 2008 financial crisis when restricted redemptions triggered cascading failures. The 2023 collapse of Silicon Valley Bank, which held a portion of Circle’s reserves, underscored the fragility of such systems [1].

Economic implications are equally mixed. While the act aims to integrate stablecoins into traditional financial infrastructure, it inadvertently sidelines CBDCs and reinforces the dominance of institutions with existing charters and compliance frameworks. Critics argue this creates a “safe harbor” for incumbents while marginalizing decentralized alternatives. Furthermore, stablecoin issuers currently profit from interest margins on reserves, a model threatened by potential negative yields on treasuries. This could force fee hikes or operational losses, disrupting the low-cost settlement advantages the sector promotes [1].

The law’s ambiguity on “par price”—the 1:1 equivalence between stablecoins and fiat—leaves room for volatility, despite the act’s stability mandate. Professor Peter J. Mahrling’s analysis emphasizes that stablecoins function as representations of fiat money, yet the act omits explicit safeguards for parity. This omission raises questions about the Federal Reserve’s role in managing liquidity crises, as seen during the 2008 crisis when emergency interventions averted systemic collapse [1].

In conclusion, the GENIUS Act’s dual goals—to stabilize the economy and foster innovation—appear at odds. While it provides much-needed regulatory structure, its rigid definitions and enforcement mechanisms may hinder technological adoption. The act’s long-term success hinges on the Stability Review Board’s rulemaking, which remains open-ended. For now, the crypto sector must navigate a landscape where compliance and decentralization are increasingly incompatible [1].

Source: [1] [title: The GENIUS Act, Reading Between The Lines] [url: https://www.forbes.com/sites/vipinbharathan/2025/07/24/the-genius-act-reading-between-the-lines/]