Outside Source
Will the GENIUS Act push stablecoins into mainstream finance, or will Tether struggle to meet transparency and reserve requirements under the new U.S. regulatory framework?
Table of Contents
Stablecoins get a rulebook
For the first time in U.S. history, a stablecoin regulatory framework is on the verge of becoming law.
On March 13, the Senate Banking Committee advanced the Guiding and Establishing National Innovation for U.S. Stablecoins Act. The bill aims to set clear rules for stablecoin issuers at both the federal and state levels.
The bill was introduced on Feb. 4 by Senator Bill Hagerty (R-TN), who framed it as essential for keeping the U.S. competitive in the global financial arena. As other nations modernize their payment systems, Hagerty made it clear that the U.S. “cannot be left behind.”
Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) also backed the bill. A committee approved it with an 18-6 bipartisan vote.
It now moves to the full Senate for a floor vote. If approved, it will head to President Donald Trump’s desk for signing—potentially becoming the first stablecoin-specific regulatory framework in the U.S.
But what exactly does this bill entail, and what does it mean for the future of stablecoins in the U.S.? Let’s dive in.
Decoding the bill
The GENIUS Act introduces a structured approach to regulating U.S. stablecoins. It sets clear rules on:
- Who can issue them
- How they must be backed, and
- What safeguards are in place to protect consumers.
Instead of a one-size-fits-all approach, the bill differentiates between smaller and larger stablecoin issuers based on market capitalization.
Issuers with less than $10 billion in market cap fall under state-level oversight, granting them more operational flexibility while still adhering to financial laws.
Once an issuer surpasses the $10 billion threshold, it transitions to direct supervision by the Federal Reserve and the Office of the Comptroller of the Currency, the same regulators that oversee major banks.
The tiered regulatory model ensures that the largest players, which have the potential to influence the broader financial system, face stricter scrutiny while allowing smaller issuers room to grow under state jurisdiction.
Another critical aspect of the bill is its emphasis on transparency and reserve backing. Stablecoins are designed to maintain a fixed value, often pegged to the U.S. dollar, but for that to work, issuers need to prove they actually hold the reserves they claim.
The GENIUS Act enforces monthly liquidity reports, compelling issuers to disclose financial details regularly. Additionally, all stablecoins must be backed one-to-one by U.S. dollars or highly liquid assets, ensuring that every token in circulation corresponds to a real, available asset.
The provision is intended to eliminate the uncertainty that arose in past controversies where stablecoin issuers were suspected of lacking sufficient reserves, leading to market instability.
Redemption rights and consumer protection have also received heightened attention under the bill. Stablecoin holders must have the ability to redeem their tokens for cash on demand, and issuers are legally bound to honor these requests without delay.
To reinforce accountability, the Federal Reserve and the OCC hold the authority to suspend licenses or impose penalties on issuers failing to meet these obligations.
These enforcement measures act as a safeguard against fund mismanagement and ensure that issuers remain responsive to consumer needs, particularly during market fluctuations.
The legislation also brings anti-money laundering and know-your-customer compliance into sharper focus.
Issuers will be required to follow the same financial crime prevention measures as traditional banks, ensuring that stablecoins are not easily used for illicit activities.
Warning from Warren
While the GENIUS Act provides a path forward, critics argue that it lacks essential safeguards.
Democrats on the Senate Banking Committee attempted to introduce several amendments to tighten regulatory controls, but each was blocked along party lines.
Senator Elizabeth Warren has been one of the bill’s most vocal opponents, warning that, in its current form, it could create significant risks for both the economy and national security.
One of Warren’s primary concerns is the lack of consumer protections. She pointed out that stablecoin users may not receive the same fraud protection that applies to traditional financial products.
Another major issue is the potential for stablecoins to be misused for illicit finance. Warren argues that the bill does not go far enough in preventing individuals convicted of financial crimes from owning or operating stablecoin companies.
The bill, in its current form, could make it easier for foreign adversaries — Iran, North Korea, and Russia — to evade sanctions by using stablecoins instead of traditional financial channels, she says.
Citing an industry report that labeled stablecoins as the “new kingpin of illicit crypto activity,” Warren warned that without stronger enforcement mechanisms, the bill could enable money laundering, terror financing, and even the sale of illicit goods online.
Consumer advocacy groups like Public Citizen have also criticized the bill, calling it an incomplete and potentially dangerous piece of legislation.
In a letter to the committee, Bartlett Naylor, a financial policy advocate at Public Citizen, cautioned that if the bill becomes law, it could increase price manipulations, stablecoin failures, and the use of cryptocurrencies for illicit finance.
However, not everyone sees the bill as a threat. Some industry leaders believe that the GENIUS Act is a step in the right direction.
Jeremy Allaire, CEO of Circle, issuer of USDC (USDC) called it a “huge step towards providing regulatory clarity for stablecoins” and a way to modernize the U.S. dollar for a digital age.
What’s next for stablecoin giants
If the GENIUS Act passes through the House and reaches President Trump’s desk, stablecoin issuers will face a completely new regulatory environment in the U.S.
One of the bill’s key provisions requires that foreign-issued stablecoins meet the same standards as U.S.-based counterparts, including compliance with reserve mandates, anti-money laundering regulations, and sanctions checks, which effectively levels the playing field for all issuers.
For U.S.-based stablecoins like USDC and Ripple USD (RLUSD) —issued by Ripple (XRP)—this won’t be a major change, as these companies already adhere to U.S. financial compliance standards.
On the other hand, the situation is more complicated for Tether (USDT), the largest stablecoin issuer in the world.
Tether, headquartered in El Salvador, has traditionally backed its stablecoin, USDT, with a mix of assets, including U.S. Treasury bills, corporate paper, and Bitcoin (BTC).
However, a recent report from JPMorgan has raised concerns that a portion of Tether’s reserves, particularly its Bitcoin holdings, might not meet the stringent reserve requirements outlined in the bill.
If the law passes, Tether may be forced to liquidate part of its Bitcoin reserves to comply, which could put pressure on its ability to maintain a stable peg to the U.S. dollar.
Another important aspect of the bill is its enforcement provisions. It mandates that stablecoin issuers must have the capability to freeze, block, or burn tokens upon lawful orders from regulators.
Legal experts like Jeremy Hogan have pointed out that this could force issuers to reconsider their technological infrastructure to meet these demands.
Overall, if the bill passes, U.S. based stablecoins could see greater adoption and deeper integration with traditional banking systems, while foreign competitors struggle to keep up with U.S. regulations.
In response to increasing regulatory pressure, Tether has recently appointed Simon McWilliams as its new Chief Financial Officer. The appointment aims to improve transparency and work toward a full audit.
Tether has long promised a full audit, but critics have only seen quarterly attestations through BDO. Whether these efforts will satisfy U.S. regulators remains uncertain.
Whether this is a step toward stability and legitimacy or just another layer of government control will depend on how it’s implemented—and who ultimately benefits from the changes.
This article first appeared at crypto.news
