U.S. Senate Passes GENIUS Act Regulating Stablecoins

The era of unregulated stablecoin issuance in the United States may be coming to an end with the passage of the GENIUS Act, short for Guiding and Establishing National Innovation for U.S. Stablecoins, through the U.S. Senate. This bipartisan-supported legislation aims to provide a clear regulatory framework for stablecoins, which are digital assets backed by the U.S. dollar and used for payments and settlements.

The GENIUS Act establishes that only licensed and supervised entities can issue payment stablecoins. These entities include subsidiaries of insured banks and credit unions, specially chartered nonbank firms approved at the federal level, and entities regulated by states with regimes certified by the U.S. Treasury as substantially similar to federal standards. Each stablecoin must be backed one-to-one with safe, liquid assets such as U.S. dollars, demand deposits, short-term Treasuries, and overnight repurchase agreements. Annual audits are required for issuers with more than $50 billion in outstanding stablecoins, and issuers are barred from engaging in other business lines unless explicitly authorized.

The law also includes provisions to balance innovation with risk management. Smaller firms with less than $50 billion in market capitalization can operate under state supervision, provided their state regime meets baseline federal standards. However, once they grow past that threshold, they must transition to federal oversight within 360 days. This mechanism allows for innovation and entry while scaling supervision proportionally to systemic risk. Additionally, the law strengthens consumer protections by prohibiting stablecoins from being marketed as insured by the federal government and requiring custodians to segregate customer assets. In the event of an issuer bankruptcy, stablecoin holders are granted first priority over reserve assets.

One of the most notable aspects of the GENIUS Act is its treatment of stablecoins as payment infrastructure rather than speculative investment vehicles. This clarification may help resolve years of jurisdictional confusion and open the door for financial institutions, payment processors, and fintech firms to build with confidence. However, the law imposes serious limits on anonymous protocols, offshore entities, and experimental designs that cannot meet the legal and capital requirements. Decentralized finance platforms and unaudited startups will have to either partner with compliant issuers or leave the U.S. market.

The GENIUS Act also leaves room for future amendments, calling for further study of algorithmic and self-collateralized stablecoins and encouraging regulators to develop interoperability standards. As the legislation awaits House approval, the Treasury Department, Office of the Comptroller of the Currency, and state regulators must coordinate to certify regimes, approve new charters, and monitor compliance. If implemented well, this could serve as a model for other areas of crypto regulation. If done poorly, it could entrench incumbents and stifle new entrants.

The legislation itself attempts to address the fundamental risks posed by unregulated digital dollars while preserving room for innovation. It avoids the false choice between banning stablecoins and embracing chaos, giving the industry a real path to legitimacy that depends on disclosures, audits, and public trust, not hype. Ultimately, the stablecoin market will look different going forward, with issuers needing compliance teams and consumers getting clearer information and stronger protections. Some projects may leave, while others may grow stronger as technology enters the domain of public infrastructure.

The GENIUS Act provides stablecoins with a clear regulatory framework to follow. Now, the industry must catch up as the legislation awaits being signed into law.