Overview
On Tuesday, February 4, 2025, Sen. Bill Hagerty (R-TN) introduced a bipartisan bill entitled the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which seeks to establish a regulatory framework for US dollar-denominated stablecoins. Crypto allies on Capitol Hill from both sides of the aisle, including Senate Banking Chairman Tim Scott (R-SC), Sen. Cynthia Lummis (R-WY) and Sen. Kirsten Gillibrand (D-NY), are cosponsoring the legislation.
The GENIUS Act is the first major crypto-related bill introduced in the 119thCongress and is a serious contender to become law. Chairman Scott has indicated that the bill is a priority for Senate Banking. A recently announced bicameral working group, comprising members of the Senate Banking Committee, House Financial Services Committee, and Senate and House Agriculture Committees, will work to build consensus around the legislation. While the Trump administration has not officially weighed in on the legislation, it is expected to support it given its focus on promoting United States leadership in digital assets.
Some highlights of the bill include:
Primary Federal Regulators and State Regulatory Pathway: The bill divides regulatory responsibilities based on the issuer type and the stablecoin market capitalization. For depository institution-issuers, the bill applies the Federal Reserve's regulatory framework, which would result in the bank's primary prudential regulator having oversight. For non-bank issuers, the Office of the Comptroller of the Currency will be the primary federal regulator. For insured credit union issuers, the National Credit Union Administration will be the primary federal regulator.
While issuers of stablecoins with a market capitalization of over $10 billion must be federally regulated, the bill provides smaller stablecoin issuers (those with a total market capitalization below $10 billion) the option of regulation under a state regulatory regime.
During the 118thCongress, the role of state regulation of stablecoin issuers was a point of conflict between Republican and Democratic members. Democrats were skeptical of state regulators, while Republicans sought to deemphasize the role of federal oversight. This bill preserves a role for state regulation but provides the Treasury Secretary with a process to subject a state-regulated stablecoin issuer to federal regulation under certain circumstances. Specifically, the bill requires state regulators to certify annually to the Treasury Secretary that the state regulatory regime is substantially similar to the federal regulatory regime for stablecoins. The Treasury Secretary has the authority to reject such a certification, and an appeals process is established in the US District Court for the District of Columbia.
Reserve Requirements: The bill establishes reserve requirements on a 1:1 basis, with reserves limited to US currency, treasury bills, repo and reverse repo agreements based on Treasuries, and other specified financial instruments. Rehypothecation of reserves is prohibited. Additionally, issuers are compelled to publish the composition of these reserves on a monthly basis and to disclose redemption policies and procedures to customers and regulators.
Capital, Liquidity, and Risk Management: The bill requires federal and state regulators to promulgate rules regarding capital requirements, liquidity and interest rate risk management standards, as well as Bank Secrecy Act and sanctions compliance. All payment stablecoin issuers under the act are deemed financial institutions for purposes of the Bank Secrecy Act.
Issuer Application Process: The bill outlines that, while the specifics of the application process for the issuance of stablecoins are left to the relevant regulator, a decision on the application must be rendered within 120 days of receipt. In the event of an application’s denial, the regulator must provide an explanation for the denial, and the applicant is entitled to an appeal. Federal regulators are incentivized to render a decision: if they fail to do so within the 120-day period, the application will be deemed approved.
Custodial Services: A person providing custodial services must be subject to supervision or regulation by a primary federal payment stablecoin regulator, a primary financial regulatory agency as defined by the Dodd-Frank Act (i.e., a federal banking regulator, SEC, CFTC, FHFA, or state insurance agency), a state bank supervisor, or a state credit union supervisor. Additionally, these individuals must comply with specific segregation requirements, preventing the commingling of funds, except for narrow and limited exceptions. The bill instructs entities or individuals providing custodial services to treat stablecoins, private keys, cash, and other customer property as belonging to the customer and to take steps to protect these assets from creditor claims.
Endogenously Collateralized Stablecoins: The bill would require the Treasury Department, Federal Reserve Board, OCC, FDIC, and SEC to study algorithmic stablecoins within a year of passage of the bill. This marks a shift from prior stablecoin legislation in the 118thCongress that would have placed a moratorium on such stablecoins.
Clarifies that Payment Stablecoins Are Not Securities. The bill amends multiple securities laws to clarify that payment stablecoins issued by a permitted payment stablecoin issuer do not fall within the definition of a security. Interestingly, the section header in the legislation indicates that payment stablecoins are not commodities, but the legislation does not add clarifying language to the Commodity Exchange Act.
Please contact the authors if we can assist in assessing how this legislation will impact your business, developing and executing an advocacy strategy, or navigating the quickly shifting policy and administrative law framework in Washington.
