by Yev Muchnik

Real GENIUS: A New Era for Stablecoin Regulation in the U.S.

On July 23, 2025, the United States took a monumental step toward formalizing its role as a global leader in digital finance with the passage of the GENIUS Act – the first federal law specifically regulating payment stablecoins. This landmark legislation introduces a robust, unified framework for overseeing digital tokens pegged to fiat currency, intended for payment and settlement purposes.

Why the GENIUS Act Matters

For the first time, the U.S. has moved beyond fragmented state-level oversight to establish a national framework for payment stablecoins. With bipartisan support, the GENIUS Act reflects the growing consensus that stablecoins have entered mainstream finance and require tailored federal oversight.

Key Features of the GENIUS Act

1. Mandatory Licensing for Issuers

Starting January 18, 2027 (or earlier if final regulations are issued), it will be unlawful to issue a payment stablecoin in the U.S. without proper licensure. Issuers must become Permitted Payment Stablecoin Issuers (PPSIs) under one of three categories:

    • IDI Subsidiaries: Subsidiaries of federally regulated banks or credit unions.
    • Federal Qualified Issuers: Nonbanks directly chartered by the Office of the Comptroller of the Currency (OCC).
    • State Qualified Issuers: State-licensed entities in jurisdictions certified as meeting federal standards by the Stablecoin Certification Review Committee (SCRC).

2. Strict Prudential Requirements

Issuers must meet robust reserve, audit, and disclosure requirements, including:

    • Full 1:1 reserve backing with high-quality liquid assets such as U.S. currency, short-term Treasuries, and Fed balances.
    • Monthly audits, executive certifications, and restrictions on asset pledging or lending.
    • Redemption at par must be guaranteed, and redemption freezes require regulator approval.

These rules effectively prohibit algorithmic or unbacked stablecoins, reinforcing safety and public trust.

3. Extraterritorial Reach and Foreign Issuer Restrictions

The law extends to foreign stablecoins offered to U.S. persons. To access the U.S. market, foreign issuers must:

    • Register with the OCC.
    • Maintain reserves in the U.S.
    • Demonstrate home country regulations are “comparable” to U.S. standards.

Non-compliant issuers face potential daily penalties of $1 million and market exclusion.

4. Activity and Conduct Limitations

Stablecoin issuers under GENIUS:

    • Cannot pay interest, dividends, or rewards on tokens.
    • Must avoid “tying” arrangements (bundling products).
    • Cannot exploit user transaction data without consent.
    • Are barred from other crypto activities (e.g., staking, trading) unless licensed separately.

5. Compliance and Enforcement

Violations post-effective date can result in:

    • Civil fines of up to $200,000/day for willful breaches.
    • Criminal liability for fraud, false statements, or intentional noncompliance – up to five years’ imprisonment.

Strategic Implications

For Stablecoin Issuers:

Firms must now decide their future under the GENIUS regime. Options include:

    • Applying for a new OCC charter.
    • Partnering with banks as IDI subsidiaries.
    • Operating under certified state regimes (e.g., NY or WY).

Business models reliant on yield generation must be restructured, as yield-sharing is now forbidden.

For Traditional Financial Institutions:

The GENIUS Act welcomes banks and payment processors into digital assets with legal clarity, creating a pathway for tokenized banking services and blockchain-based settlements.

For Global Markets:

The Act sets a new international standard. Jurisdictions around the world may adapt their policies to meet U.S. comparability criteria. Global compliance will become essential for access to American markets.

Looking Ahead

Over the next 12 months, federal agencies – OCC, Fed, FDIC, NCUA, and Treasury – will engage in rulemaking to implement the GENIUS Act. Key areas include:

    • Capital and liquidity standards.
    • Redemption mechanics.
    • Compliance scope for AML/CFT obligations.

Stakeholders are encouraged to participate in public comment periods to shape how the Act is applied.

Conclusion: From Limbo to Legitimacy

The GENIUS Act ushers in a new regulatory era – one that seeks to balance financial stability with innovation. By legitimizing stablecoins under a banking-style framework while prohibiting riskier constructs, it positions the U.S. as a standard-setter in global digital finance.

Firms that adapt early will not only comply – they’ll lead the next chapter of digital money.

 

Disclaimer: The information contained in this article is for general informational purposes only and does not constitute legal advice. The content provided should not be relied upon as a substitute for consultation with a qualified attorney. For specific legal questions or situations, please consult with a licensed legal professional who can provide advice tailored to your particular circumstances.