The GENIUS Act and the Future of Crypto Regulation

New York, July 18, 2025 – PRISM MediaWire

Summary

The “Guiding and Establishing National Innovation for U.S. Stablecoins” (GENIUS) Act, signed into law by President Donald J. Trump on July 18, 2025, represents a landmark piece of federal legislation establishing the first comprehensive regulatory framework for payment stablecoins in the United States. This Act, celebrated by proponents as a strategic move to solidify American dominance in global finance and cryptocurrency technology, aims to provide regulatory clarity, foster innovation, enhance consumer protection, and strengthen the U.S. dollar’s status as an international reserve currency. Despite broad bipartisan support, the GENIUS Act has drawn significant criticism from consumer advocates and anti-corruption groups who highlight perceived loopholes, risks to financial stability, and concerns about facilitating illicit activities. Its passage positions the U.S. within a global landscape of evolving crypto regulations, setting a distinct course from approaches taken by the EU and UK, particularly concerning central bank digital currencies (CBDCs) and monetary sovereignty.

1. The GENIUS Act: Enactment and Core Objectives

The GENIUS Act was signed into law on July 18, 2025, following its passage in the House (308-122 vote) on July 17, 2025, and prior Senate approval on June 17, 2025. President Trump hailed it as “a very important act,” calling it “a hell of an act” that would make America the “UNDISPUTED Leader in Digital Assets.”

Key objectives and context of the GENIUS Act include:

• Regulatory Framework: To create a “clear and simple regulatory framework” for “payment stablecoins,” which are digital assets “pegged to another asset, including fiat currencies like the U.S. dollar or the Euro, to maintain a stable price.”
• Consumer Protection: To implement “robust safeguards for consumer protection.”
• Strengthening USD Dominance: To “cement American dominance of global finance and crypto technology” and reinforce the U.S. dollar’s status as the world’s reserve currency for generations to come, leveraging stablecoins to increase demand for U.S. Treasuries.
• Combating Illicit Activities: To bolster national security by combating illicit activities such as money laundering and sanctions evasion in digital assets.
• Fostering Innovation: To “unleash the immense promise of dollar-backed stablecoins,” positioning the U.S. as the “crypto capital of the world.”
• Faster Payments: To allow payments and money transfers to clear “in a matter of seconds rather than weeks and months,” upgrading the “entire ancient system” of financial transactions.

The Act prohibits algorithmic stablecoins and clarifies that properly issued stablecoins are neither commodities nor securities.

2. Key Provisions of the GENIUS Act

The GENIUS Act introduces a comprehensive set of provisions to regulate payment stablecoins:

• Dual Federal-State Regulatory Framework: Establishes a system where various entities can issue stablecoins, including subsidiaries of federally insured depository institutions, uninsured national banks, nonbank entities (under OCC oversight), federal branches of foreign banks, and state-regulated entities. State-regulated entities with outstanding stablecoins exceeding $10 billion must transition to federal oversight within 360 days.
• Rigorous Reserve Requirements: Mandates 1:1 backing for all outstanding stablecoins with highly liquid assets (e.g., U.S. dollars, short-term U.S. Treasury obligations, insured bank deposits). Issuers must hold these assets in segregated accounts, undergo regular third-party audits, and provide monthly public disclosures. Rehypothecation is prohibited, and issuers are forbidden from paying interest directly on stablecoins.
• Enhanced Consumer Protection: Requires timely redemption of stablecoins at face value, comprehensive disclosure of redemption policies, and strict marketing rules prohibiting claims of U.S. government backing or FDIC insurance. In case of bankruptcy, stablecoin holders’ claims take precedence over all other claims against the issuer.
• Anti-Money Laundering (AML) and Sanctions Compliance: Subjects stablecoin issuers to the Bank Secrecy Act (BSA), requiring AML/CFT programs, risk assessments, and customer identification procedures. Issuers must also possess the technical capability to “seize, freeze, or ‘burn’” stablecoins when legally required.
• Extraterritorial Application: Authorizes U.S. regulators to exercise jurisdiction over foreign stablecoin issuers serving U.S. persons, ensuring their adherence to AML, sanctions, and consumer protection standards.

3. Impact and Implications

The GENIUS Act is expected to profoundly influence the U.S. digital asset industry and broader financial landscape:

• Reshaping the U.S. Digital Asset Industry: Provides “long-awaited clarity for the market,” which is “widely expected to attract substantial investment and foster innovation.” This clarity is crucial for stablecoins to become a “mainstream form of payment.”
• Transformation for Financial Institutions: Permits federally chartered banks, non-bank entities, and credit unions to issue their own stablecoins. Large financial institutions, such as JPMorgan Chase & Co., and major corporations, including Walmart and Amazon, are already exploring this. This brings new opportunities but also significant compliance obligations.
• Strengthening U.S. Dollar’s Global Reserve Currency Status: By mandating U.S. dollar and short-term U.S. Treasury backing, the Act is expected to “generate increased demand for U.S. debt.” This is seen as a “strategic approach” to maintain U.S. financial hegemony.
• Facilitating Faster Payments: Stablecoins, with regulatory clarity, are “poised to transform financial services by facilitating faster, lower-cost financial transactions,” settling payments “in seconds” compared to traditional methods that take “days or even weeks.” This also extends access to the U.S. dollar globally, even for the unbanked.

4. Controversies and Criticisms

Despite its stated benefits and bipartisan support, the GENIUS Act has faced significant criticism:

• Loopholes and Insufficient Consumer Protection: Senator Elizabeth Warren argues the bill has “significant loopholes” and “insufficient consumer protections.” Critics note the absence of the Consumer Financial Protection Bureau (CFPB) from the Act and the lack of FDIC deposit insurance for stablecoins, which means consumers might be left “out of luck” if they are defrauded.
• Allegations of Facilitating Illicit Activities: Anti-corruption activists warn that the legislation could “inadvertently facilitate money laundering, sanctions evasion, and provide easier access to funds for terrorists and cartels.” Concerns are raised explicitly about “glaring loopholes” for foreign stablecoin issuers, such as Tether, which has reportedly been used to evade sanctions. Scott Greytak of Transparency International states that the “secondary market is unregulated by any of these bills,” creating “a pretty obvious loophole, a pretty obvious map for evading U.S. law.”
• Risk of Financial Instability and “Shadow Banking”: Critics draw parallels to the Commodity Futures Modernization Act (CFMA) of 2000, which they argue contributed to the 2008 financial crisis. Rep. Rashida Tlaib warned that allowing private companies to issue dollar-backed stablecoins would “create a whole new form of shadow banking” that taxpayers might “have to bail out in case of failure.” Concerns also exist that the bill permits stablecoin issuers to invest in risky assets, potentially leading to instability.
• Impact on Community Banks: The creation of a parallel stablecoin banking system could lead to a “significant drain of deposits from traditional community banks,” reducing funding for small businesses and local economies.

5. Comparative Analysis with International Regulatory Frameworks

The GENIUS Act positions the U.S. within a global trend of crypto regulation, but with distinct philosophical differences:

• EU’s Markets in Crypto-Assets (MiCA) Framework: MiCA emphasizes safeguarding users, ensuring financial stability, and protecting monetary sovereignty. The EU is also actively developing a digital euro by the European Central Bank (ECB), which is “rightly poised to be the main on-chain money available to EU retail consumers.” Foreign, non-MiCAR compliant stablecoins are generally prohibited from public issuance by compliant financial institutions. This contrasts with the U.S. approach of promoting private stablecoins while banning a retail CBDC.
• UK Proposed Stablecoin Regulations: The UK also proposes 100% real-world asset-backed stablecoins held in segregated accounts with independent third parties, with fiduciary duties owed to coin holders and direct redemption rights. However, critiques include a “notoriously slow” authorization process, requirements that could make issuance “uneconomic,” and a perception that the regime remains “mostly on traditional finance (TradFi) rails,” potentially missing DLT advantages. Unlike the GENIUS Act, UK proposals may not explicitly allow for affiliate “rewards” as a workaround for interest payments.
• Key Similarities: All major frameworks (U.S., EU, UK, Hong Kong) recognize stablecoins as distinct digital assets, emphasize full backing with high-quality liquid reserves, require asset segregation, and prioritize consumer protection and robust AML/CFT measures.
• Key Differences & Interoperability Implications: The U.S. approach prohibits a retail CBDC and aims to reinforce USD dominance via private stablecoins (“cryptomercantilism”). At the same time, the EU actively pursues a digital euro and seeks to safeguard against “digital dollarization.” These divergent approaches, particularly regarding CBDCs and monetary sovereignty, pose “significant challenges for seamless global interoperability.”

6. Future Outlook and Next Steps

The full impact of the GENIUS Act will unfold as federal agencies (Federal Reserve, OCC, U.S. Treasury) issue implementing regulations within 180 days, with full operationalization anticipated by early to mid-2026. This period will be crucial for shaping the practical aspects of compliance.

Entities operating or entering the stablecoin market are advised to immediately undertake strategic preparations, including licensing analysis, comprehensive compliance planning (especially for AML/CFT), reserve structuring, aligning with disclosure requirements, and ensuring technical capabilities for “seize, freeze, or burn” functions.

The GENIUS Act is part of a broader legislative focus, with other bills, such as the Digital Asset Market Clarity (CLARITY) Act and the Anti-CBDC Surveillance State Act (which prohibits a retail Central Bank Digital Currency, or CBDC), also under consideration. This indicates a coordinated strategy to foster a regulated, privately-led digital asset ecosystem in the U.S., explicitly rejecting a government-issued retail digital currency, and aiming to cement the U.S. as the “UNDISPUTED Leader in Digital Assets” globally.

The GENIUS Act: Regulating U.S. Stablecoins – FAQ

What is the GENIUS Act, and when was it signed into law?

The Guiding and Establishing National Innovation for U.S. Stablecoins Act, or GENIUS Act, is a landmark federal law signed by President Donald J. Trump on July 18, 2025. This act establishes the first comprehensive U.S. regulatory framework specifically for “payment stablecoins,” aiming to foster innovation in the digital asset space while implementing safeguards to protect consumers and maintain financial stability. It passed with bipartisan support in both the Senate (June 17, 2025) and the House of Representatives (July 17, 2025).

What are “stablecoins” and how does the GENIUS Act regulate them?

Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to other, less volatile assets, most commonly the U.S. dollar. The GENIUS Act precisely defines “payment stablecoins” as digital assets used for payment or settlement, which can be redeemed for a fixed amount of monetary value and are represented as maintaining a stable value relative to that fixed amount.

The Act regulates them by:

• Prohibiting Algorithmic Stablecoins: This provision explicitly excludes algorithmic stablecoins from the definition of “payment stablecoins,” aligning with past SEC guidance and aiming to prevent the volatility associated with such assets.
• Classifying Them as Non-Securities/Commodities: Stablecoins issued correctly in this framework are explicitly not considered securities or commodities, providing a distinct legal pathway.
• Establishing a Dual Federal-State Regulatory Framework: It allows various entities, including subsidiaries of federally insured banks, uninsured national banks, nonbank entities (under OCC oversight), and federal branches of foreign banks, to issue stablecoins upon approval. State-regulated entities can operate under state supervision if their outstanding stablecoins are less than $10 billion; however, a transition to federal oversight is required if they exceed this cap.
• Mandating Rigorous Reserve Requirements: Issuers must maintain full 1:1 backing for all outstanding stablecoins with highly liquid assets (like U.S. dollars, short-term Treasuries, or bank deposits) held in segregated accounts, undergo regular third-party audits, and provide monthly public disclosures. Rehypothecation (reusing reserves) is prohibited, as are direct interest payments on stablecoins.

What are the main objectives of the GENIUS Act?

The overarching objectives of the GENIUS Act are multifaceted and include:

• Creating a Comprehensive U.S. Regulatory Framework: Establishing clear “rules of the road” for payment stablecoins.
• Prioritizing Consumer Protection: Safeguarding individuals from malicious actors and ensuring transparency.
• Strengthening the U.S. Dollar’s Global Reserve Currency Status: By requiring stablecoins to be backed by U.S. dollars and U.S. Treasury securities, the Act aims to increase demand for U.S. debt and reinforce the dollar’s dominance.
• Bolstering National Security: Combating illicit activities like money laundering and sanctions evasion in digital assets.
• Encouraging Innovation and Investment: Providing regulatory clarity to attract substantial investment and foster innovation in the U.S. digital asset space, fulfilling President Trump’s promise to make America the “crypto capital of the world.”
• Facilitating Faster, Lower-Cost Payments: Enabling near-instantaneous settlement of payments compared to traditional methods.

How does the GENIUS Act address concerns about illicit activities like money laundering and sanctions evasion?

The GENIUS Act incorporates several provisions to combat illicit activities:

• Bank Secrecy Act (BSA) Compliance: Stablecoin issuers are explicitly subjected to the BSA, requiring them to implement robust Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) programs. These programs include risk assessments, verification of sanctions lists, and strong customer identification procedures.
• Enhanced Treasury Enforcement: The Act improves the Treasury Department’s ability to enforce mechanisms against sanctions evasion and money laundering involving stablecoins.
• Technical Capabilities for Lawful Orders: All stablecoin issuers must possess the technical ability to seize, freeze, or “burn” (permanently destroy) stablecoins when legally required and must comply with such lawful orders.
• Extraterritorial Application: U.S. regulators are authorized to exercise jurisdiction over foreign stablecoin issuers serving U.S. individuals, ensuring their adherence to AML, sanctions, and consumer protection standards, with specific conditions for U.S. market access for foreign-issued stablecoins.

What criticisms and controversies surround the GENIUS Act?

Despite bipartisan support, the GENIUS Act has drawn significant criticism:

• Insufficient Consumer Protections: Critics, such as Senator Elizabeth Warren, argue that the bill has loopholes and weak safeguards. The Consumer Financial Protection Bureau (CFPB) is not mentioned, and stablecoins lack FDIC deposit insurance, potentially leaving consumers “out of luck” if defrauded.
• Concerns about Audits and Risky Assets: Critics argue that many stablecoin issuers may not be required to undergo comprehensive financial audits. There are also concerns that the bill allows issuers to invest in high-risk assets and engage in non-stablecoin activities without sufficient regulatory oversight, which raises concerns about financial instability.
• Facilitating Illicit Activities: Anti-corruption activists warn that “glaring loopholes,” particularly regarding foreign stablecoin issuers like Tether, could allow for increased money laundering, sanctions evasion, and easier access for criminal organizations. Stablecoins are already identified as a significant vector for illicit crypto activity.
• Comparison to the CFMA of 2000: Critics draw parallels to the Commodity Futures Modernization Act (CFMA) of 2000, which lightly regulated derivatives and contributed to the 2008 financial crisis. They argue the GENIUS Act risks boosting the crypto industry while embedding new systemic risks into the economic system, potentially leading to future taxpayer bailouts.
• Impact on Community Banks: Concerns exist that a parallel, potentially lightly regulated, stablecoin banking system could draw deposits away from traditional community banks, reducing funding for small businesses and local economies.

How does the GENIUS Act compare to stablecoin regulations in other major economies like the EU and UK?

The GENIUS Act shares common goals with other frameworks but has distinct philosophical approaches:

• Similarities: All major frameworks (U.S., EU, UK, Hong Kong) recognize stablecoins as a distinct category, emphasize full backing with high-quality liquid reserves, require asset segregation, and prioritize consumer protection and AML/CFT measures.
• Differences. Approach to CBDCs: The U.S. has banned a retail Central Bank Digital Currency (CBDC) and promotes private stablecoins, while the EU is actively pursuing a digital euro. The UK also has a ban on a U.S. dollar CBDC.
• Monetary Sovereignty: The GENIUS Act aims to reinforce U.S. dollar dominance globally (“cryptomercantilism”) through stablecoins. In contrast, the EU’s MiCA framework explicitly safeguards against “digital dollarization” to protect its monetary autonomy.
• Regulatory Scope: MiCA covers a broader range of crypto-assets, while the GENIUS Act focuses specifically on payment stablecoins.
• Flexibility vs. Prescription: The U.S. dual federal-state framework offers flexibility for smaller issuers, whereas UK proposals appear more prescriptive in operational areas, with concerns about slow authorization and economic viability.
• Interest Payments: The GENIUS Act forbids direct interest payments by licensed issuers but allows for “rewards” via affiliates, a potential workaround not explicitly available in the UK.

These divergences pose challenges for global interoperability, potentially leading to a multi-polar digital financial system.

What are the expected impacts of the GENIUS Act on the U.S. digital asset industry and broader financial services?

The GENIUS Act is expected to influence the U.S. digital asset industry and financial landscape profoundly:

• Clarity, Innovation, and Investment: It provides much-needed regulatory clarity, which is expected to attract substantial investment and foster innovation, facilitating the transition of stablecoins from niche to mainstream.
• Transformation for Financial Institutions: Banks, non-bank entities, and credit unions are now permitted to issue their own stablecoins, presenting new opportunities and revenue streams. Major corporations, such as Walmart and Amazon, are also exploring the issuance of stablecoins.
• Significant Compliance Obligations: These opportunities are accompanied by stringent compliance measures, including licensing analysis, comprehensive AML/CFT assessments, compliant reserve structures, monthly reporting, and annual audits. This effectively integrates stablecoins into the existing financial system and extends regulatory burdens to established players.
• Faster Payments and New Use Cases: Stablecoins are poised to facilitate faster, lower-cost financial transactions, enabling instantaneous peer-to-peer and merchant payments. This also opens doors for new applications, such as micropayments, advancements in decentralized finance (DeFi), and integration with wallet-connected devices, thereby expanding access to the U.S. dollar globally, even for the unbanked.

What are the next steps for the GENIUS Act’s implementation and its long-term vision?

While the GENIUS Act takes immediate effect, its full operationalization will unfold over time:

• Regulatory Implementation: Key federal agencies (Federal Reserve, OCC, U.S. Treasury) are directed to issue detailed regulations governing licensing, reserve requirements, disclosures, and compliance within 180 days. Full operationalization is anticipated by early to mid-2026.
• Strategic Preparation: Entities in or entering the stablecoin market must undertake immediate preparations, including licensing analysis, compliance planning (especially for AML/CFT), structuring reserves to adhere to 1:1 backing, aligning with reporting mandates, and ensuring technical capabilities for seizing, freezing, or “burning” stablecoins as legally required.
• Related Legislative Efforts: The GENIUS Act is part of a broader legislative focus, with other bills like the Digital Asset Market Clarity (CLARITY) Act (for broader crypto market structure) and the Anti-CBDC Surveillance State Act (prohibiting a retail CBDC) also under consideration, indicating a coordinated strategy to foster a regulated, privately-led digital asset ecosystem.
• Long-Term Vision: The Act is viewed as critical to President Trump’s agenda to solidify the U.S. as the “crypto capital of the world,” building on previous executive mandates, such as establishing a Strategic Bitcoin Reserve. The long-term vision aims to attract “MASSIVE Investment, and Big Innovation” to position the U.S. as the “UNDISPUTED Leader in Digital Assets” globally.

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