New York Attorney General Warns GENIUS Act Lacks Safeguards Ahead of House Vote

The GENIUS Act stablecoin bill, which has already passed the Senate with bipartisan support, is currently under intense scrutiny as it awaits a crucial House vote. New York Attorney General Letitia James has expressed significant concerns about the bill, arguing that it lacks essential investor safeguards and could potentially allow foreign entities to influence the U.S. digital dollar infrastructure. James' public letter to Congress highlights the risks associated with the bill, including the potential for large-scale abuse, threats to national security, and the illegal use of digital currencies.

James' primary concern is that the bill does not adequately address the "Tether loophole," a gap in the law that could be exploited by foreign companies. She proposes that all issuers should operate within U.S. jurisdiction, use digital identity verification for all transactions, and be regulated similarly to banks. This would ensure that the country maintains control over stablecoin issuers tied to the U.S. dollar, thereby mitigating the risks of foreign interference.

Despite the strong political support for the bill, including backing from President Donald Trump, experts have differing opinions on its market implications. Some believe that the bill could temporarily boost trust in stablecoins, while others worry that rushing the bill through Congress could introduce new risks. Leading financial analysts share James' concerns, particularly about the lack of a clear Stablecoin FDIC insurance requirement. Unlike regular bank accounts, most stablecoins do not have insurance to protect users from losses, which could impact millions of people if these coins collapse.

Richard Dolan, a senior analyst, warns that without proper insurance, users could face significant financial losses if stablecoins fail. Amanda Reyes, a regulatory specialist, emphasizes the importance of digital identity verification, stating that without strong identity checks, it would be difficult to prevent money laundering or ensure compliance with sanctions. These concerns underscore the need for stronger safeguards in the bill to protect users and maintain the integrity of the financial system.

Supporters of the bill argue that it could serve as a model for digital dollar rules and oversight by establishing clear legal and financial standards. If approved by the House, the bill would represent a significant step in shaping stablecoin regulation in the U.S. However, the bill's history of past setbacks, due to disagreements over consumer protection, highlights the challenges in passing strong legislation. With more institutional involvement and a growing global stablecoin market, the pressure to pass robust legislation is higher than ever.

As the House vote approaches, experts are urging lawmakers to proceed with caution. They argue that the bill lacks key protections against foreign control and unlicensed issuers, which could have long-term implications for U.S. crypto laws. While the GENIUS Act represents an important step toward national crypto oversight, critics like Letitia James insist that it still needs stronger safeguards to ensure the safety and security of the financial system. The House's decision on the bill could shape stablecoin laws in the U.S. for years to come, making it a critical moment for the future of digital currencies.