The latest update making waves in the cryptocurrency world these days is that the US Senate has taken a serious step in the direction of formalizing the regulation of stablecoins by advancing the GENIUS Act. The US stablecoin regulation is a bipartisan legislation that’s aiming to provide a clear regulatory framework for stablecoin issuers, and it’ll surely standardize financial stability and consumer protection, an important aspect to consider since the digital currency sector is growing.
According to the US stablecoin regulation, all stablecoin issuers have to keep segregated reserves and follow a set of regulations from here on out. Basically, it also de-alienates the dual regulatory approach based on the issuer’s scale and size.
Understanding What the GENIUS Act Is
The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act was actually introduced by Senator Bill Hagerty, with support coming from Senators Tim Scott, Kirsten Gillibrand, and Cynthia Lummis. The US stablecoin regulation’s purpose is, in summation, to define and regulate “payment stablecoins”, aka digital assets set to a fixed monetary value, like the US dollar.
Senator Gillibrand said, “Passing clear and sensible regulations for stablecoins is critical to maintaining U.S. dollar dominance, promoting responsible innovation, and protecting consumers.”
Enthusiasts in the crypto industry will find it fascinating to know that the bill has absolutely mandated that stablecoins must be backed on an equal basis with USD. Or, they can also back them up on other approved high-quality liquid assets, like Treasury Bills and even repurchase agreements.
Now, any issues that have a market cap of over 10 billion USD will fall under federal oversight – agencies like the Federal Reserve and the Office of the Comptroller of the Currency (OCC). In that vein, smaller issuers could go for state-level regulation, of course, given that the state’s regulatory regime is compatible with federal standards.
GENIUS Act and the Cryptocurrency World
The main question buzzing in the market right now is – what’s changing for crypto enthusiasts and investors? Well, US stablecoin regulation has three major things that’ll affect crypto:
- GENIUS creates a clear regulatory path for stablecoin issuers
Issuers must back coins 1:1 with either U.S. dollars or liquid assets like T-bills. This is a big win for transparency.
- It’s going to protect crypto from overreach by the SEC
The Act explicitly states that payment stablecoins are not securities. That means Circle and others can breathe easier, without fearing surprise lawsuits a la Ripple.
- A promising collaboration between state-level and federal-level regulation
Startups under $10B can choose a state-regulated pathway, while larger issuers like Circle or PayPal would operate under federal supervision.
This dual approach keeps the door open for crypto innovation at the state level, while also scaling guardrails as stablecoins gain systemic importance. Even though there has been controversy around the bill, especially from some Democrats, the concern around the conflict of interest is that this legislation might end up benefiting the interests of those who seek to harm consumers.
Now, to make sure compliance is successful, the US stablecoin regulation has allowed federal banking agencies authority that’s analogous to that under the Federal Deposit Insurance Act, meaning they can now issue civil penalties and take away licenses. They can also impose the “cease and desist” orders on anyone not following the issuance regulations.
How the US Stablecoin Regulation is Making Stablecoins the Battleground
It’s been a common debate in the crypto sphere, especially among experts, that stablecoins like Tether (USDT) are the true “killer app” of this world, as they make up more than 65 percent of DeFi TVL movements and also overwhelm on-chain payments, including Ethereum, Solana, and more.
And since there has been no formal, legitimate regulatory framework in the United States for this until now, the US stablecoin regulation has been a welcome change. Before its arrival, the entire sector had just been running in regulatory grey zones. Now, though, thanks to GENIUS, things are changing:
- First of all, stablecoin users will have to start providing monthly attestations
- Any yield-generating stablecoins are banned
- Also, reserves are now required to be liquid and held at qualified custodians
- What’s more is that issuers have to register and undergo regular audits
While it’s true that this move is introducing more compliance friction, it’s most definitely bringing regulatory certainty; something that major institutions demanded before they immersed in DeFi.
The US Stablecoin Regulation’s Effects on the Market
It goes without saying that the implementation of the GENIUS Act, i.e., the US stablecoin regulation, is probably going to have significant implications for the U.S. financial system. Some analysts warn that the widespread adoption of stablecoins, backed by assets like Treasury bills, could trigger an avalanche of increased demand for short-term government debt, potentially leading to an influence on bond price volatility. As of 2024, you’ve likely seen that leading stablecoin “Tether” already holds 98 billion USD in T-bills.
On top of that, the US stablecoin regulation’s provisions could influence the overall competitive landscape of the financial sector. Traditional banks have expressed concerns that the rise of stablecoins could eat away at their market share, as consumers might go for keeping funds in stablecoins rather than traditional deposit accounts.
Conclusion
Naturally, this advancement of the US stablecoin regulation (GENIUS Act) is a historical moment in the arena of controlling digital currencies in the United States. As they establish a more comprehensive framework for stablecoin issuance and supervision, this act will eventually play a role in balancing development with stability.
New regulations and laws like this are not only inevitable, but also a serious need because of how popular and widespread digital assets are becoming. Any realm that affects millions of people in seconds needs to be monitored, of course, while maintaining the freedom of the market, without which most entities will suffer losses.
Frequently Asked Questions (FAQs)
How will stablecoins be issued under the GENIUS Act?
The only permitted issuers of stablecoins, under the GENIUS Act, are federal-qualified non-bank entities that are also approved by the OCC, the subsidiaries of insured institutions for deposits, and all state-qualified issuers, as long as the federal standards are followed.
What is the reserve requirement of holding stablecoin?
All issuers have to keep a clear 1:1 reserve backing with assets that are approved and then segregated from their operational funds. Moreover, monthly certifications and regular audits are also a necessity now under the US stablecoin regulation, GENIUS.
Can I still create my own stablecoin?
Yes, as long as you follow the set regulations. If you’re under 10 billion USD, you can go ahead and register at the state level with certain compliance steps.
