Federal Legislation Establishes Regulation for Stablecoin Management in the United States
The United States took a significant step forward in regulating the cryptocurrency industry with the signing of the GENIUS Act into law in July 2025. This landmark legislation marks the first federal attempt to regulate stablecoins, specifically "payment stablecoins," setting a comprehensive regulatory framework designed to promote safety, consumer protection, and financial stability while fostering industry growth.
Key Provisions of the GENIUS Act
The GENIUS Act introduces a robust regulatory framework for payment stablecoin issuers. Only "permitted payment stablecoin issuers" (PPSIs) are allowed to issue payment stablecoins. These issuers include:
- Subsidiaries of insured depository institutions (banks)
- Other federally approved nonbank entities or OCC-chartered uninsured banks
- State-chartered issuers approved by state regulators
- Registered foreign issuers under comparable regulatory regimes supervised by the OCC
Payment stablecoins are defined as digital assets used for payment that maintain a stable value pegged to a fixed monetary amount with issuers obligated to redeem them at a stable value.
Reserve and Financial Requirements
PPSIs must hold 1:1 reserves in cash, demand deposits, or short-dated U.S. Treasury securities to fully back outstanding stablecoins. They are prohibited from paying any yield solely for holding the stablecoin, eliminating incentives that might encourage risky behavior.
Regulatory Regime
The Act creates a dual regulatory system, balancing federal and state oversight. It imposes standards for supervision, enforcement, anti-money laundering (AML), Bank Secrecy Act (BSA) compliance, sanctions programs, and insolvency provisions. Foreign issuers must comply with AML and sanctions rules and be supervised by the OCC.
Market and Enforcement Rules
Non-permitted issuers are prohibited from issuing payment stablecoins in the U.S., with criminal penalties of up to $1 million per day and possible imprisonment. Existing noncompliant stablecoins have a 3-year transition (secondary market sunset) to obtain proper licensing or exit the market. The Act grants superpriority bankruptcy claims to stablecoin holders to protect their funds in issuer insolvencies.
Exclusions and Exceptions
Tokenized deposits (such as digital bank deposits) are explicitly excluded from the Act, allowing banks to continue issuing them under current banking regulations. Limited exceptions can be granted for very low transaction volumes or emergency circumstances by the Treasury Secretary.
Implementation Timeline
The Act takes effect 18 months after enactment or 120 days after final regulations are issued (whichever is earlier). Final implementing regulations must be issued within one year of enactment.
Expected Impacts
The GENIUS Act aims to bring legal clarity and market stability to the payment stablecoin market, enhance consumer protection, encourage industry growth, and foster market discipline. It is expected that the full effect of the GENIUS Act will be felt in 2027.
While the GENIUS Act has drawn criticism from some Democrats due to concerns over regulatory gaps and Trump's personal involvement in the crypto industry, the White House has framed the legislation as a move to secure U.S. leadership in financial innovation. President Trump made a statement about the signing of the GENIUS Act, emphasizing its potential to position the U.S. as a global leader in financial innovation and crypto technology. The final rules from the U.S. Treasury and the Federal Reserve are expected to clarify enforcement mechanisms further.
- The GENIUS Act, signed into law in July 2025, sets a regulatory framework for the cryptocurrency industry that encompasses both business and technology aspects, particularly focused on payment stablecoins.
- The implementation of the GENIUS Act, which aims to foster safety and financial stability while promoting industry growth, will have a significant impact on the finance sector and the broader technology landscape, positioning the United States as a global leader in financial innovation and crypto technology.
