The GENIUS Act: Explained

Momentum has been building, and the breaking point is here.

After years of regulatory ambiguity, the U.S passed its first comprehensive federal framework for stablecoins. The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins of 2025) has garnered rare bipartisan support passing the Senate on a 68-30 vote. It not only sets up the ground rules for one of crypto’s most important innovations but also reshape how digital dollars move through the global economy. With stablecoins now accounting for about $250 billion in market value and serving as the backbone of crypto trading, settlement, and payments, the stakes could not be higher. This is the legislation that will unlock the next chapter of blockchain-based finance and determine whether the U.S. leads it.

The Role of Stablecoins

Stablecoins are a type of crypto currency designed to maintain a stable value because it is backed by another asset (such as fiat, crypto, commodities, or other financial instrument). Stablecoins are one of the crypto industry’s best examples of a killer use –case, offering a stable, digital alternative to traditional currency. Blockchain technology is faster, more efficient, global, peer-to-peer, decentralized, and has a clear, transparent, and immutable record. Amid the high volatility that has defined the crypto market, stablecoins play a crucial role by providing a relatively stable medium of exchange. While primarily used for trading, the increased use of stablecoins heralds a future where crypto becomes more mainstream for settlements and payments.

Key Provisions of the GENIUS Act:

At its core, the GENIUS Act is focused on protecting consumers and users, and ensuring the errors of LUNA and other algorithmic stablecoin collapses are not repeated. Here’s what you need to know:

1. Reserves: Issuers of a stablecoin must establish 100% reserves of liquid, safe assets as collateral support. In the case of a U.S. dollar-pegged stablecoin, these are likely short-term treasuries or similar liquid assets. Reserves must also be held separately from operational funds.
2. Transparency and Accountability: Issuers must publicly disclose their financial reserves and redemption procedures and commit to monthly audits.
3. Insolvency: Stablecoin holders have first priority in the event of insolvency, and reserve assets are protected from other creditors.
4. Marketing: Issuers are prohibited from marketing their stablecoin as legal tender issued by the U.S., guaranteed by the U.S. government, or covered by FDIC insurance.

The GENIUS Act also provides issuers a clear framework for a continued path forward and innovation.

1. AML/CFTC: Issuers must comply with the Bank Secrecy Act, implement robust AML and sanctions programs, verify customer identities, and certify compliance. Foreign stablecoin issuers must register with US authorities.
2. Stabilization: The GENIUS Act establishes a framework that includes diversification requirements for reserve assets, interest rate risk management standards, capital liquidity, and risk management requirements.
3. Oversight: Issuers with a market cap over $10 billion must comply with federal oversight, while issuers below that threshold can operate under state regulatory regimes if they meet federal standards. This flexibility opens the door for smaller issuers to operate under state regimes.
4. Interoperability and international coordination: The act encourages the development of interoperability standards (potentially with NIST) and allows the treasure to establish reciprocal international stablecoin frameworks

Impact

By setting strict liquidity and reserve requirements, the GENIUS Act aims to protect consumers and the financial system from risks associated with unregulated stablecoins, whilst encouraging innovation in this space. It also brings a level of trust injected into stablecoins as an asset. The bill's passage is likely to lead to an acceleration of innovation in the blockchain -based payments space. It will undoubtedly increase demand for U.S. treasuries, signifying a significant source of funds inflows for the U.S. government. Senator Bill Hagerty even went so far as to say, “By the end of this decade, stablecoin issuers will be the number 1 holders of U.S. treasures in the world.” Given the global nature of stablecoins, it will fortify the U.S. dollar's position as the global currency. Citizens living in unstable countries undergoing rampant inflation, war, or other destabilizing forces (e.g., Venezuela, Greece, Croatia) would be able to trade their local currency, buy stablecoins, and hold them in a personal wallet. The U.S. dollar’s prominence in global trade will make it an attractive option. ETH also stands to benefit as it is the chain that holds the ~50% of all stablecoins - almost $125 billion at present.

In addition, traditional banks will need to reevaluate their operations as a new alternative to lending, borrowing, and yield enter the space. A regulated stablecoin gives holders a digital dollar that is fully backed by a real asset, accessible and transferrable globally over the web, and capable of earning yield, all built on top of the security and transparency of a blockchain. Do not forget that stablecoins are also programmable (automated liquidity, risk management, etc.), which is a portent for innovations to come. Small banks with fewer means of pivoting and offering customers bespoke services will be hit the hardest – it is a good thing the GENIUS Act includes the carveout for state regulation of smaller issuers. This could impact credit provision in the community banking and SME space, something the debates around the GENIUS bill have been alive to, given the risks of unintended consequences.

Expect other countries to follow suit. The EU already has the MiCA regulation, which stands as the current regulatory framework for European digital assets, including stablecoins. Hong Kong passed a new ordinance to covering stablecoins and introduced a licensing regime for regulated stablecoins to take effect August 1. Further stablecoin regulation is anticipated by the end of the year. Crypto has an anti-government, censorship-resistant undertone to it, but stablecoins are rapidly becoming crypto backed by the government–issued fiat. It’s the best way to get governments on board with crypto, and for them to recognize the benefits – cheaper, more efficient, more transparent guard rails.