What is the GENIUS act?

GENIUS Act: What It Proposes, Its Impact on Existing Stablecoins, and Legislative Status

As a follow-up to my last post about stablecoins, I discuss here the pending GENIUS act.

GENIUS Act: Overview, Impact on Stablecoins, and Legislative Status

What Does the GENIUS Act Propose?

• Creates a federal regulatory framework for payment stablecoins. Only approved issuers (called Permitted Payment Stablecoin Issuers, or PPSIs) such as banks, OCC-chartered nonbanks, and certified state entities may issue stablecoins for payments in the U.S.
• Requires full 1:1 backing of stablecoins. All payment stablecoins must be backed by safe, highly liquid assets like U.S. dollars, deposits at the Federal Reserve, short-term Treasury bills, or overnight repo agreements. These reserves are held solely for redeeming the tokens.
• Mandates transparency and regular audits. Issuers must publish monthly disclosures about their reserves and undergo annual independent audits, especially if they have over $50 billion in tokens outstanding.
• Enforces anti-money laundering and compliance rules. All issuers must implement strict KYC (Know Your Customer) and AML (Anti-Money Laundering) programs and comply with U.S. sanctions regulations.
• Prohibits interest-bearing or yield-generating stablecoins. Stablecoins cannot pay interest, claim FDIC or government guarantees, or be marketed as if they are backed by the U.S. government.
• Foreign stablecoin issuers must meet equivalent standards. If foreign issuers don’t comply, their tokens can be blocked from being traded or held in the U.S.
• Protects stablecoin holders in case of insolvency. Stablecoin users get priority access to reserve assets if an issuer fails.

How Does the GENIUS Act Affect Tether, USDC, and Other Stablecoins?

• USDC (by Circle): Already follows most of these requirements—backing with Treasuries, regular attestations, and high transparency—so Circle is well-positioned to benefit from the GENIUS Act, which provides legal clarity and trust for its product.
• Tether (USDT): May face challenges. Tether’s reserve disclosures have been less transparent and include assets not allowed under the new rules. To continue operating in the U.S., Tether would need to fully comply with the new standards or risk being blocked from U.S. users and exchanges.
• Other stablecoins: Smaller and foreign-issued stablecoins that can’t or won’t comply may exit the U.S. market, leaving only well-regulated and transparent options available to American users.

Legislative Status: Has the GENIUS Act Passed?

• Senate: The GENIUS Act passed the U.S. Senate with strong bipartisan support on June 17, 2025.
• House: The Act is still pending in the House of Representatives. A similar bill (the STABLE Act) is also circulating; the two bills may need to be reconciled before final passage.
• Next steps: After reconciliation and a House vote, the Act would go to the President for signature. Final approval could come later this year.

Summary Table

Aspect	GENIUS Act Rule
Who can issue?	Licensed banks, OCC-regulated nonbanks, certified state entities
Reserves	100% in cash, Fed deposits, short-term Treasuries, or repo
Transparency	Monthly public disclosures and annual audits
Compliance	Full AML/KYC, no interest, no misleading claims
Foreign stablecoins	Must meet equivalent U.S. standards
Senate status	Passed June 17, 2025
House status	Pending, not yet reconciled

Outlook

If enacted, the GENIUS Act will set the first comprehensive federal rules for stablecoins in the U.S. It is expected to benefit transparent and regulated stablecoins like USDC, while posing a challenge for less transparent ones like Tether. The Act is likely to increase consumer confidence, foster U.S. innovation, and further entrench the U.S. dollar’s digital role worldwide.