How Will the GENIUS Act Change Stablecoin Regulation in the US?

The cryptocurrency industry has long awaited regulatory clarity, particularly for stablecoins—digital assets pegged to stable reserves like the US dollar. The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, introduced in 2025, marks a pivotal shift in how the US government approaches digital finance. 

This bipartisan legislation aims to create a structured framework for stablecoin oversight while balancing innovation, consumer protection, and the dollar’s global dominance. 

Here’s an in-depth look at how the GENIUS Act could reshape the regulatory landscape.

What Is the GENIUS Act?

The GENIUS Act is the first comprehensive federal legislation focused exclusively on regulating stablecoins. Sponsored by Senators Cynthia Lummis (R-WY), Bill Hagerty (R-TN), Kirsten Gillibrand (D-NY), and Tim Scott (R-SC), the bill classifies stablecoins as “payment stablecoins” and establishes clear guidelines for their issuance, reserves, and oversight. 

Unlike previous proposals, it carves out a distinct legal category for stablecoins, separating them from securities or commodities, and prioritizes the US dollar’s role in the digital economy.

Key Provisions of the GENIUS Act

Dual Regulatory Oversight

Federal Supervision

Issuers with a market capitalization over $10 billion fall under the jurisdiction of the Federal Reserve and the Office of the Comptroller of the Currency (OCC).

State Flexibility

Smaller issuers can operate under state-level regulations, provided they meet federal baseline standards.

Reserve Requirements

Stablecoins must be backed 1:1 by high-quality liquid assets, such as cash or US Treasuries. Issuers must submit monthly liquidity reports and undergo third-party audits to ensure transparency.

Consumer Protections

Redemption Rights: Users can redeem stablecoins at face value without delays.

AML/KYC Compliance: Issuers must register as financial institutions and adhere to anti-money laundering (AML) and know-your-customer (KYC) regulations.

Algorithmic Stablecoin Moratorium

The bill imposes a two-year ban on algorithmic stablecoins (e.g., assets backed by other cryptocurrencies) pending a Treasury Department study on their risks.

International Coordination

The US Treasury will collaborate with global regulators to align standards, ensuring US-backed stablecoins remain competitive abroad.

How the GENIUS Act Differs from Previous Proposals

The GENIUS Act builds on earlier efforts like the Clarity Act and Lummis-Gillibrand Act but introduces critical distinctions:

The GENIUS Act’s tiered oversight model and focus on payment-specific use cases set it apart, offering a more flexible yet structured approach compared to its predecessors.

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GENIUS Act Industry Reactions: Support and Skepticism

Proponents

Circle and Tether praised the bill for providing regulatory clarity. Circle’s CEO Jeremy Allaire called it a “historic step” toward legitimizing stablecoins, while Tether’s Paolo Ardoino highlighted its potential to bolster the dollar’s global role.

Ripple CEO Brad Garlinghouse noted the bill aligns with their plans to launch a compliant stablecoin.

Critics

Senator Elizabeth Warren (D-MA) opposed the Act, arguing it lacks safeguards against illicit finance and could enable tech giants like Meta or Amazon to dominate financial services.

Public Citizen, a consumer advocacy group, warned the bill risks legitimizing “crypto schemes” and destabilizing markets without stricter controls.

Also read The Evolution of Crypto Regulation: Balancing Innovation and Security

GENIUS Act Implications for the Crypto Ecosystem

1. Boosting Institutional Adoption

Clear regulations could attract traditional financial institutions to issue or integrate stablecoins, enhancing liquidity and interoperability in payments.

2. Global Dollar Dominance

By mandating dollar-backed reserves, the Act aims to cement the US dollar’s supremacy in the digital age, countering central bank digital currencies (CBDCs) from China and the EU.

3. Impact on DeFi and NFTs

While focused on stablecoins, the bill sets a precedent for future regulations on decentralized finance (DeFi) and non-fungible tokens (NFTs).

4. Challenges for Algorithmic Stablecoins

Projects like TerraUSD (UST), which collapsed in 2022, face heightened scrutiny. The two-year moratorium could stifle innovation in this niche but reduce systemic risks.

The Road Ahead For GENIUS Act

The GENIUS Act passed the Senate Banking Committee in March 2025 with bipartisan support (18-6 vote) and now moves to full Senate and House debates. Key points of contention include:

1. State vs. Federal Control

Balancing state flexibility with federal oversight.

2. Tech Giant Involvement

Preventing non-financial corporations from dominating the stablecoin market.

3. Illicit Finance Risks

Addressing concerns about terrorism financing and sanctions evasion.

If enacted, the bill could position the US as a leader in digital finance while addressing long-standing gaps in crypto regulation. However, its success hinges on bipartisan cooperation and adaptive frameworks that keep pace with technological advancements.

Also read US Crypto Regulation Confimed! Will the Market be Bullish in August?

Conclusion

The GENIUS Act represents a watershed moment for US crypto policy. By creating a clear path for stablecoin regulation, it aims to protect consumers, foster innovation, and reinforce the dollar’s global stature.

While challenges remain—particularly around algorithmic stablecoins and corporate oversight—the bill signals Washington’s recognition of digital assets’ transformative potential. 

As the legislative process unfolds, stakeholders across industries will watch closely to see if the GENIUS Act lives up to its name or becomes another missed opportunity in the race to regulate crypto.

FAQ

1. What is the main purpose of the GENIUS Act?

The GENIUS Act aims to establish a clear federal legal framework for stablecoins, focusing on consumer protection, transparency, and ensuring stablecoins are fully backed by liquid reserves.

2. How does the GENIUS Act regulate stablecoin issuers?

It introduces a dual regulatory system where large issuers (over $10 billion market cap) are federally supervised, while smaller issuers operate under state regulations, all following strict reserve and compliance standards.

3. What impact will the GENIUS Act have on algorithmic stablecoins?

The Act imposes a two-year moratorium on algorithmic stablecoins, pending further study, to mitigate risks associated with their instability and past failures.

4. How does the GENIUS Act support the US dollar’s role in digital finance?

By requiring stablecoins to be backed 1:1 with US dollar assets and promoting regulatory clarity, the Act aims to strengthen the dollar’s dominance in the global digital asset ecosystem.