The GENIUS Act, the first federal legislation for stablecoins in the U.S., was passed in July 2025. It creates a new regulatory category for payment stablecoins—digital assets pegged to fiat currencies like the U.S. dollar—by requiring full reserves, federal registration, and monthly audits. This marks a turning point for crypto regulation, opening doors for institutional adoption and signaling a maturing U.S. digital asset economy.
Summary: The GENIUS Act mandates 100% reserves for payment stablecoins, bans algorithmic models, and enables dual licensing. It reshapes stablecoin issuance, compliance, and market access across the U.S.
What Is the GENIUS Act and Why Was It Passed?
The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins) was introduced to address the lack of federal oversight in the stablecoin space. After years of fragmented state rules, market instability, and high-profile depegging events, Congress passed the bill to ensure uniformity, transparency, and consumer protection.
The law defines payment stablecoins as digital assets used for payments or settlements, backed 1:1 with tangible assets like cash or short-term U.S. Treasuries. The legislation also introduces mandatory monthly audits, strict anti-money laundering (AML) compliance, and new issuer categories.
How Does Dual Licensing for Stablecoins Work?
The Act allows issuers to choose between state or federal oversight—if they meet eligibility thresholds:
- Federal Oversight: Required for issuers with over $10 billion in circulation. Registration with a new federal body or an approved agency is mandatory.
- State Oversight: Available to smaller issuers operating in states with frameworks “substantially similar” to the federal standard. They must shift to federal regulation within 360 days if they surpass the $10 billion threshold.
Entities like banks, fintechs, and credit unions can apply for stablecoin issuer status under either regime, depending on their scale and jurisdiction.
Why Are Algorithmic Stablecoins Banned?
The collapse of TerraUSD in 2022 and depegging of assets like USDC in 2023 highlighted risks from uncollateralized or algorithmically stabilized stablecoins. The GENIUS Act prohibits such models, only permitting coins with full, liquid asset backing.
This provision aims to:
- Eliminate systemic risks linked to unbacked issuance
- Prevent liquidity crises and loss of consumer funds
- Protect redemption rights for users
Who Can Issue Stablecoins Under the GENIUS Act?
The Act opens issuance to a broader range of institutions:
- Traditional banks and credit unions with existing licenses
- Fintech companies meeting reserve and compliance requirements
- Non-U.S. firms that register and comply with equivalent standards
Major corporations such as Citigroup and JPMorgan Chase have expressed interest in issuing regulated stablecoins. Retail companies like Amazon and Walmart are also exploring blockchain-based payment models.
How Will This Impact the Stablecoin Market?
Analysts expect the GENIUS Act to accelerate adoption and institutional entry. Projections suggest the U.S. stablecoin market could grow from $250 billion in 2025 to $2 trillion by 2030.
Key effects:
- Institutional confidence from clear legal frameworks
- More stable liquidity in DeFi and TradFi integrations
- Greater regulatory scrutiny of exchanges and service providers
Only stablecoins issued under this framework can be listed or traded by U.S. digital asset platforms, reshaping the competitive landscape.
How Did the GENIUS Act Gain Bipartisan Support?
The Act passed the House with 308 votes and cleared the Senate with 68, showing rare bipartisan alignment. Sponsored by Republican Senator Bill Hagerty and supported by Democrats like Kirsten Gillibrand, the legislation was part of a broader push known as “Crypto Week,” which also included:
- The CLARITY Act, defining digital assets
- The Anti-CBDC Surveillance State Act, limiting central bank digital currencies
President Trump, who has called the U.S. the “crypto capital of the world,” is expected to sign the bill within days.
What Are the Risks and Concerns?
Despite strong institutional backing, critics argue the Act could:
- Favor large issuers like Circle and PayPal
- Increase regulatory surveillance of users
- Limit competition from foreign or decentralized issuers
Service providers must now ensure compliance or face delisting, with added reporting obligations and consumer disclosures.
Key Takeaways
- The GENIUS Act is the first U.S. federal law governing stablecoins.
- Dual licensing enables flexibility for issuers below $10B in volume.
- Algorithmic stablecoins are banned to prevent depegging and instability.
- Major institutions are entering the space, fueling adoption.
- Regulatory clarity is reshaping how stablecoins are issued, audited, and traded.
FAQ
What is the GENIUS Act?
It’s a federal law passed in 2025 regulating payment stablecoins in the U.S., requiring full reserves and monthly audits.
Who can issue stablecoins under the law?
Banks, fintech firms, and credit unions can issue stablecoins if they meet reserve, audit, and compliance standards.
Why are algorithmic stablecoins banned?
They were linked to market crashes in 2022–2023. The Act only allows asset-backed stablecoins to protect users.
What happens if an issuer exceeds $10 billion in volume?
They must switch from state to federal oversight within 360 days.
Will foreign stablecoins be allowed?
Only if the issuer registers with U.S. regulators and complies with equivalent standards.
How will this affect crypto exchanges?
Only compliant stablecoins can be offered; exchanges must ensure full regulatory alignment.
What are the penalties for non-compliance?
Issuers and platforms face fines, delisting, and loss of access to U.S. markets if they violate provisions.
Is the GENIUS Act part of a broader trend?
Yes, it’s part of a multi-bill package aiming to establish comprehensive digital asset regulation in the U.S.
Shogun Lin
