Around 3 months ago, President Trump signed the Genius Act into law, providing much-needed clarity in crypto regulation. Short for Guardrails for Enduring, Non-Inflationary, and Uniform Stablecoins, this framework offers the first federal guidelines for payment stablecoins.
With its passage, the federal government ended a fragmented, state-by-state approach that left issuers and investors guessing where compliance began and ended.
While the Genius Act only deals with stablecoins, the crypto industry saw the legislation as one that could turbocharge the entire digital asset ecosystem. Already, several traditional financial companies are responding by bringing their business onto the blockchain.
Even sceptics like Jamie Dimon of JPMorgan Chase have joined in. In June, as the Genius Act was making its way through Congress, the bank announced it would launch a stablecoin for its clients.
“We are going to be involved in both JPMorgan Deposit coins and stablecoins to understand how good they are,” Dimon announced. Bank of America and Citigroup have also said they would launch stablecoins.
The Genius Act rewrites who can issue stablecoins, how reserves must be held, and what kind of oversight these entities will face. Both banks and crypto firms expect the framework to make compliance easier.
For Washington, it’s an attempt to reassert financial leadership after the European Union’s MiCA and the U.K.’s FSMA frameworks set global benchmarks. It will also help domesticate a $300 billion industry that had long operated in regulatory grey zones.
What the GENIUS Act Does
The GENIUS Act brings about a clear regulatory framework for U.S.-dollar-backed stablecoin issuers. The law is a culmination of years of debate over how to treat digital assets that operate like money but aren’t issued by central banks.
Lawmakers finally moved after a series of market crises, most notably the collapse of TerraUSD, which laid bare the risks of unregulated issuance.
Issuers are now required to back stablecoins with 1:1 reserves of cash or short-term treasuries. In addition, these firms must also publish their reserves monthly and undergo third-party audits.
The law also provides protections for issuers. If an issuer goes insolvent, the holders are prioritised ahead of creditors. The Act also largely prohibits insurers from tapping into their reserves to fund other investments. Additionally, issuers cannot offer yield or interest on issued stablecoins.
The Genius Act also brings crypto anti-money laundering rules closer to the traditional finance sector. Permitted payment stablecoin issuers (PPSIs) are now designated as financial institutions under the Bank Secrecy Act. As a result, they must implement know-your-customer (KYC) checks and report suspicious transactions.
Besides tightening the screws on issuers, the law also offers much-needed clarity on regulatory oversight by specifying which regulators supervise which PPSIs.
Winners, Losers, and Market Impact
The GENIUS Act redraws the competitive map for digital payments. While many were expecting banks to be the biggest losers from the Genius Act, the opposite is turning out to be true. Banks are using their stronger reserves, compliance infrastructure, and existing trust to great advantage.
The law also makes it easier for Fintechs to attract capital and partner with banks. However, some issuers may struggle to meet reserve requirements. On top of that, there are concerns that compliance might prove too expensive for smaller issuers.
Crypto-native issuers face the most dramatic adjustment. For those willing to register and disclose reserves, the law brings legal recognition and access to U.S. institutions. But it also closes the door on regulatory arbitrage. Some offshore issuers are already signalling plans to establish U.S.-licensed affiliates to remain competitive.
Tether, the issuer of the world’s largest stablecoin by circulation, announced plans to launch USAT to meet GENIUS requirements. The new stablecoin will be backed by separate US reserves, while USDT will continue operating as a foreign payment stablecoin issuer.
The Post-GENIUS Regulatory Landscape
The real test of GENIUS will be how regulators implement it. The Act sets a framework but leaves most of the rulemaking to the OCC, Federal Reserve, FDIC, and FinCEN.
Federal-State Coordination
Under the Genius Act, states retain oversight of smaller issuers, but the OCC and Federal Reserve now have explicit authority to step in when issuance crosses national thresholds. State banking departments will now need to coordinate with the federal government on licensing, audits, and enforcement actions.
Increased Supervision
The Genius Act is expected to increase oversight. Regulators are expected to focus on ensuring issuers have enough reserves, offer acceptable redemption speed, and have proper disclosures. The law also authorises regulators to conduct on-site inspections.
Global Alignment
The Genius Act aligns the US with other major crypto legislations like Europe’s MiCA, which took effect in December 2024. The U.K. and Japan are in the process of creating similar legislation that boosts innovation while also protecting stablecoin holders.
Looking Ahead
The GENIUS Act is set to come into force on January 27, 2027, 18 months after it was signed into law or 120 days after regulators provide final regulations. We’re still in the early days, and the next 15 months will bring a wave of technical rulemakings, pilot programmes, and early enforcement cases that will define the tone of U.S. supervision.
The law’s passage is expected to boost market confidence and increase the use of stablecoins. Currently, most stablecoin transactions are used to trade cryptocurrency and in decentralised finance (DeFi) activities.
With the Genius Act mandating equivalent cash reserves, banks and other financial institutions will feel much safer when using stablecoins for asset settlement.
Traditional payment service providers like Visa, which have embraced stablecoins, will be able to provide faster and cheaper cross-border transactions. In an appearance on CNBC, Ryan McInerney, the CEO of the payment processor, said the Genius Act will give clarity to stablecoin and that the company had been preparing for it.
“We’ve been embracing (stablecoins) and building for years, preparing for this moment,” he said. “We’ve been enabling people to issue VISA credentials on top of stablecoins and have been modernising our own settlement infrastructure with stablecoins.”
The current landscape is a stark contrast to the enforcement-first approach of the Biden administration. Now, issuers have a clear infrastructure to work with, but compliance is still optional for the next year or so.
