On June 17, 2025, the Senate voted 68-30 with bi-partisan support to pass the Guiding and Establishing National Innovation for U.S. Stablecoins Act (“GENIUS Act”), which proposes the establishment of a federal framework for “Payment Stablecoins.” Under the GENIUS Act, only permitted entities (“Issuers”) may issue Payment Stablecoins in the U.S., subject to certain exceptions or safe harbors (discussed below) adopted at the discretion of the Secretary of the Treasury (“Secretary”).
The bill defines Payment Stablecoins as:
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Digital assets used, or designed to be used, as a means of payment or settlement;
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Convertible, redeemable or eligible for repurchase by an Issuer for a fixed amount of monetary value, not including a digital asset denominated in a fixed monetary value; and
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Subject to an Issuer representation that it will maintain a stable value relative to the value of a fixed amount of monetary value.
Payment Stablecoins would not include digital assets that are national currencies, deposits, or securities under the federal securities laws. Thus, under recent SEC guidance, yield-bearing stablecoins would not be Payment Stablecoins. Thorny issues around the definition of “deposit” are not addressed. However, similar to bank deposits, in the case of the Issuer’s insolvency, Payment Stablecoin holders’ claims against an Issuer would be prioritized over other claims.
Issuers and Federal vs. State Regulatory Oversight
Except for “Foreign Issuers” (defined and discussed below) and national banks (which are already permitted by the OCC to issue payment stablecoins), an Issuer must be organized in the U.S. and must fall within one of the following three categories:
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A “Bank Subsidiary Issuer,” which is a subsidiary of a national bank or a state-chartered insured depository institution (either a bank or credit union) that has been approved by a primary federal Payment Stablecoin Regulator (as defined below) to issue Payment Stablecoins;
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A “Federally Qualified Issuer,” which may be either:
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A non-bank entity approved by the Office of the Comptroller of the Currency (“OCC”) to issue Payment Stablecoins;
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An uninsured national bank approved by the OCC to issue Payment Stablecoins; or
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A federal branch of a foreign bank approved by the OCC to issue Payment Stablecoins; or
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A “State Qualified Issuer,” which is an entity that is legally established under the laws of a state and approved to issue Payment Stablecoins by the requisite state Payment Stablecoin Regulator.
Primary federal Payment Stablecoin Regulators are:
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For a subsidiary of an insured depository institution (other than an insured credit union), the appropriate federal banking agency of such insured depository institution;
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For an insured credit union or a subsidiary of an insured credit union, the National Credit Union Administration;
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For a state-chartered depository institution, the Federal Deposit Insurance Corporation (“FDIC”), the OCC, or the Board of Governors of the Federal Reserve System (“Board”); and
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For a federal qualified Payment Stablecoin issuer, the OCC.
A Federally Qualified Issuer that receives approval from the OCC to issue Payment Stablecoins would be regulated and examined exclusively by the OCC.
State Qualified Issuers with less than $10 billion in Payment Stablecoins outstanding would have the option to be regulated under a state-level regulatory regime. This option would only be available if the state-level regulatory regime is substantially similar to the federal regime proposed by the GENIUS Act, which will be determined by broad-based principles established by the Secretary. A state Payment Stablecoin Regulator – the state agency with primary regulatory and supervisory authority to oversee State Qualified Issuers – would be required to review and certify the state-level regulatory regimes are in accordance with the principles established by the Secretary. Certification by a state Payment Stablecoin Regulator would need to be upheld by the Stablecoin Certification Review Committee (“Review Committee”), composed of the Secretary, Chair of the Board, and Chair of the FDIC.
This process is similar to that established in the Secure and Fair Enforcement for Mortgage Licensing (“SAFE”) Act, with the GENIUS Act directing states to develop regulatory and licensing schemes that mirror federal regulations to create a more cohesive regulatory framework. Many existing state laws would not meet this “substantially similar” standard, and as such states would have to amend current legislation to comply or introduce new bills tracking federal regulations.
State-chartered depository institutions that are State Qualified Issuers and have issued more than $10 billion in Payment Stablecoins would be required to transition to federal oversight no later than 360 days after the Payment Stablecoins issued reach the $10 billion threshold. In certain circumstances, the relevant primary federal Payment Stablecoin Regulator may grant a waiver to allow a State Qualified Issuer that has issued more than $10 billion in Payment Stablecoins to remain under the supervision of a state Payment Stablecoin Regulator. To determine whether to provide such a waiver, the federal Payment Stablecoin Regulator would consider the following:
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The capital maintained by the State Qualified Issuer;
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The past operations and examination history of the State Qualified Issuer;
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The experience of the state Payment Stablecoin Regulator in supervising Payment Stablecoin and digital asset activities;
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The supervisory framework of the State Qualified Issuer with respect to Payment Stablecoins and digital assets.
Foreign Issuers
Payment Stablecoins issued by a foreign Payment Stablecoin issuer (“Foreign Issuer”) would not be permitted to be publicly offered, sold, or otherwise available for trading in the United States by a digital asset service provider unless the Foreign Issuer satisfies a safe harbor (discussed below) or the Foreign Issuer:
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Is subject to regulation and supervision by a foreign Payment Stablecoin Regulator of a foreign country that has a regulatory and supervisory regime related to Payment Stablecoins that the Secretary determines is comparable to the regulatory and supervisory regime detailed in the GENIUS Act;
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Is registered with the OCC;
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Holds reserves in a U.S. financial institution that are sufficient to meet liquidity demands of U.S. customers; and
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Is domiciled in a foreign country that is not subject to comprehensive sanctions by the U.S. or in a jurisdiction deemed by the Treasury Department to be of primary money laundering concern.
Reserves Requirements
All Issuers, excluding Foreign Issuers, would be required to maintain “reserves” backing the outstanding Payment Stablecoins on at least a 1:1 basis. Permissible reserves would consist of, among other things:
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U.S. currency;
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Demand deposits at an insured depository institution;
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Shares at an insured credit union;
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Treasury bills, notes or bonds (with a remaining maturity of 93 days or less, or issued with a maturity of 93 days or less);
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Money received under repurchase agreements;
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Reverse repurchase agreements; and
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Securities issued by a registered investment company.
Reserves could not be pledged, rehypothecated, or reused by Issuers. Reserves would have to be held by a custodian subject to regulation by a federal Payment Stablecoin Regulator or a state banking agency.
Issuers would be required publicly disclose their redemption policies and publish monthly reports detailing their reserves. At the end of each month, Issuers would have to retain a registered public accounting firm to audit the information included in the previous month-end report. Additionally, the CEO or CFO of the Issuer would need to submit a certification as to the accuracy of the monthly report to the applicable federal or state regulator.
Prohibitions on Non-Financial Services Public Companies
The GENIUS Act would prohibit a public company from being an Issuer if neither the company nor any of its wholly or majority owned subsidiaries or affiliates are not predominantly engaged in one or more financial activities unless the public company receives a unanimous vote from the Review Committee. The vote of the Review Committee would be based on a finding that:
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The public company’s issuance of Payment Stablecoins will not pose a material risk to the safety and soundness of the U.S. banking system, the financial stability of the U.S., or the Deposit Insurance Fund;
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The public company will comply with data use limitations dictating that, unless the public company receives consent from the consumer, nonpublic personal information obtained from Payment Stablecoin transaction data may not be used to target, personalize, or rank advertising or other content, sold to any third party, or shared with non-affiliates; and
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The public company and its affiliates will comply with the anti-tying prohibitions listed in the bill. The anti-tying prohibitions prevent Issuers from providing conditional services to a customer based on the premise that the customer must obtain an additional paid product or service from the Issuer or its affiliates or agree to not obtain an additional product or service from a competitor.
Anti-Money Laundering
Issuers would treated as financial institutions under the Bank Secrecy Act (“BSA”) and thus subject to federal anti-money laundering requirements. The GENIUS Act would require all Issuers, including Foreign Issuers, to maintain technological capabilities to freeze and seize Payment Stablecoins associated with suspicious activity. Additionally, all Issuers would be required to annually certify compliance with the anti-money laundering (“AML”) provisions included in the GENIUS Act.
Foreign Issuers would be required to have the technological capability to comply with AML protections and the Secretary has the authority to determine whether a Foreign Issuer is compliant. Any Foreign Issuer that knowingly offers Payment Stablecoins in the U.S. without an affirmative determination of compliance from the Secretary will be subject to a civil monetary penalty of no more than $1,000,000 per violation per day, and the Secretary may seek an injunction in a U.S. district court to prohibit the Foreign Issuer from engaging in financial transaction in the U.S. and with U.S. persons.
Penalties
Depending on the violation, the GENIUS Act would impose large monetary penalties and/or possible imprisonment. Any person who knowingly issues a Payment Stablecoin in the U.S. without being a permitted Issuer would be subject to a civil monetary penalty of up to $1,000,000 per violation, imprisonment for no more than 5 years, or both.
Issuers and institution-affiliated parties of such issuers that materially violate the GENIUS Act or any regulation issued under the Act, or that materially violate a written condition by the primary federal Payment Stablecoin Regulator included in a written agreement between the Issuer and the regulator, would be liable for a civil penalty of up to $100,000 per day during which the violation continues. For knowing participation in violating the GENIUS Act, a civil penalty of an additional $100,000 per day could apply.
Legal Tokens:
To become law, the GENIUS Act still requires a majority vote in the House, which is not clear as the House has its own proposed stablecoin legislation, the STABLE Act, which will need to be reconciled with the provisions of the GENIUS Act. (Signature on the STABLE – GENIUS legislation by the President would appear a foregone conclusion.) Additionally, some House representatives are attempting to create a more comprehensive stablecoin framework by combining aspects of the GENIUS Act with the CLARITY Act, a market structure bill pending in the House. These logistic considerations make it difficult to determine whether the GENIUS Act will be successful in the House and reach the President for signature, at least before the August Congressional recess.
Whether this legislation is a stroke of genius, or a source of potential financial instability, remains to be seen. Other commentators have pointed out potential risks and pitfalls associated with the legislation. We may add to the chorus in more detail, but for now, we point out a broad conceptual issue that Congress should resolve prior to adopting any new stablecoin legislation.
The issue is that the GENIUS Act doesn’t answer the fundamental question of what a stablecoin is. In our view, there are two possibilities. First, a stablecoin can evidence a holder’s claim for an undivided interest in a pool of assets maintained by the Issuer. We can call this the “money fund model” because it’s virtually indistinguishable from the logistical operation of a money market mutual fund. Alternatively, a stablecoin can evidence a holder’s claim directly against the Issuer, with reserves merely ensuring the solvency of the Issuer in the face of redemptions. We can call this the “prepaid access model” because general purpose reloadable prepaid cards work almost identically. (We could likewise call this the “deposit model” because this is also, in essence, how bank deposits work.)
We caution that leaving the true nature of stablecoins undefined raises some enormously tricky questions related to disclosures, supervision, and most importantly, resolution of failed issuers. To paraphrase the fictional Dr. Ian Malcolm in Jurassic Park, perhaps legislators “were so preoccupied with whether or not they could, they didn't stop to think if they should” create a stablecoin framework.
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