In brief
On July 18, 2025, President Trump signed into law the Guiding and Establishing National Innovation for US Stablecoins Act (“GENIUS Act“), marking a pivotal moment in the evolution of digital asset regulation. As the first comprehensive federal framework governing payment stablecoins, the GENIUS Act introduces a robust regulatory regime designed to enhance market integrity and consumer protection. The GENIUS Act will take effect on the earlier of (i) January 18, 2027 (i.e., 18 months following enactment) or (ii) 120 days following the issuance of final implementing regulations. This relatively short compliance runway underscores the urgency for stakeholders to begin preparing now.
The GENIUS Act establishes a licensing regime for “permitted payment stablecoin issuers” and applies specifically to payment stablecoins, distinct from investment-oriented or algorithmic variants. It imposes substantive requirements concerning, among other things, reserve composition, redemption rights, public disclosures and supervisory oversight. These measures reflect a significant regulatory effort aimed at mitigating systemic risk, enhancing consumer protection, and strengthening anti-money laundering and counter-terrorism financing safeguards, and are also aimed at addressing customer protection concerns that have emerged in recent years, including the risk of sudden de-pegging, opaque reserve practices, and redemption delays.
To bolster trust and transparency, the GENIUS Act requires issuers to maintain fully backed reserves, offer daily redemption at par, and provide monthly attestations of reserve composition. These requirements broadly align with international regulatory frameworks, including the EU’s Markets in Crypto-Assets Regulation and Singapore’s Payment Services Act, and are expected to promote cross-border interoperability and enhance market confidence in US-issued stablecoins.
Stablecoins – digital assets designed to maintain a stable value relative to a reference asset like the US dollar – are increasingly used as efficient, low-cost payment instruments. Unlike traditional cryptocurrencies such as Bitcoin or Ether, which have been subject to significant price volatility and can derive value from market speculation, payment stablecoins are backed by high-quality liquid assets and are designed to serve as reliable mediums of exchange and stores of value. Their utility is particularly evident in the context of payments and settlement – stablecoin transfers are typically executed within seconds, offering near-instantaneous settlement across borders and platforms. This stands in contrast to conventional payment systems, which can involve multiple intermediaries and take several days to clear, particularly in cross-border contexts.
The GENIUS Act arrives alongside the advancements of the Digital Asset Market Clarity Act of 2025 (“Clarity Act“), which passed in the House of Representatives on July 17, 2025. While the GENIUS Act focuses on stablecoin issuance and oversight, the Clarity Act seeks to resolve longstanding jurisdictional ambiguities between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) and to provide definitional clarity regarding the treatment of digital assets under US securities and commodities laws. Together, these legislative efforts represent a coordinated push to modernize the US digital asset regulatory landscape and align it more closely with international standards. Those operating in or adjacent to the digital asset space, including payment and fintech companies, financial institutions and asset managers, should evaluate the potential impact of these developments. In particular, those involved in the issuance, custody or facilitation of stablecoin transactions should assess the applicability of the GENIUS Act to their operations and consider initiating internal reviews to evaluate licensing pathways, reserve management practices and disclosure protocols in anticipation of forthcoming rulemaking.
As noted above, the GENIUS Act establishes a comprehensive regulatory framework for payment stablecoins. Its key components include:
Definition of payment stablecoins – The GENIUS Act regulates “payment stablecoins”, which are defined as digital assets designed to be used as a means of payment or settlement, and issued by an issuer that (i) is obligated to convert, redeem, or repurchase such coins for a fixed amount of monetary value, and (ii) represents that such coins will maintain a stable value relative to the value of a fixed amount of monetary value.
Permitted payment stablecoin issuer – The GENIUS Act prohibits anyone other than an authorized “permitted payment stablecoin issuer” (PPSI) from issuing payment stablecoins in the US. To qualify as a PPSI, the issuer must fall into one of the following categories:
Subsidiary of an Insured Depository Institution (IDI): Must be approved by the IDI’s primary federal regulator.
Federal qualified issuer: Includes nonbank entities, uninsured national banks and federal branches of foreign banks, subject to approval by the Office of the Comptroller of the Currency (OCC).
State qualified issuer: Includes nonbank entities or state-chartered depository institutions with less than USD 10 billion in outstanding payment stablecoins. These issuers must be legally established in a US state and approved by a state payment stablecoin regulator whose regime has been certified as “substantially similar” to the federal framework under the GENIUS Act. Certification may be denied by the Stablecoin Certification Review Committee, which is comprised of the Treasury Secretary, Chair of the Federal Reserve Board and the Chair of the Federal Deposit Insurance Corporation (FDIC). Once a state qualified payment stablecoin issuer hits USD 10 billion or more in issuances, it must, as a general rule, transition to federal oversight and become a federal qualified payment stablecoin issuer.
Restrictions on foreign issuers – The GENIUS Act prevents digital asset service providers from offering, selling or otherwise making available for trading in the US a payment stablecoin that is issued by a foreign payment stablecoin issuer unless certain conditions are met, including that the foreign payment stablecoin issuer:
Has sufficient technological capability to comply (and will comply) with legal orders to seize, freeze, burn or prevent the transfer of outstanding stablecoins;
Is subject to a comparable regulatory regime pursuant to the determination by the Treasury Secretary after recommendation by the members of the Stablecoin Certification Review Committee;
Registers with the OCC;
Maintains sufficient reserves in US financial institutions to meet liquidity demands for US customers; and
Is not domiciled and regulated in certain sanctioned jurisdictions.
Reserve requirements – The GENIUS Act mandates that all payment stablecoins be backed on at least a 1:1 basis by certain high-quality liquid assets, including US dollars, bank deposits, and short-term, low-risk securities such as US Treasuries. Other assets, including cryptocurrencies (unless they are tokenized versions of permitted assets), cannot be used as reserves.
PPSIs are required to segregate these reserves from operational funds and hold them with qualified custodians. PPSIs must file monthly reports detailing their reserves, which must be examined by a third-party auditor. Non-public PPSIs with more than USD 50 billion in consolidated total outstanding payment stablecoin issuances must publicly file audited financial statements on an annual basis.
No yield or interest payments – The GENIUS Act prohibits PPSIs and foreign payment stablecoin issuers from offering yield or interest to holders in connection with holding or use of payment stablecoins.
Custody and wallet safeguards – The GENIUS Act also imposes robust consumer protection standards on wallet providers and custodians. Only regulated financial institutions supervised by a federal banking agency, the SEC or the CFTC, or a US state banking supervisor may provide custodial services for payment stablecoins, their reserves, stablecoins used as collateral, or the private keys used to issue payment stablecoins. The GENIUS Act also prohibits the rehypothecation of customer stablecoins, ensuring that user funds are not used for proprietary trading or lending, and requires that a customer’s stablecoins, cash, private keys and other property is treated as the property of the customer, and that a customer’s assets are segregated from those of the custodian and protected from creditor claims.
Federal oversight and preemption – Federal regulators, including the Federal Reserve, the OCC, the FDIC and National Credit Union Administration, are granted broad supervisory authority over PPSIs and are empowered to issue rules thereunder. The GENIUS Act also mandates coordination with the US Department of the Treasury’s Financial Crimes Enforcement Network to prevent and monitor illicit financial activity.
To ensure regulatory consistency, the GENIUS Act preempts certain conflicting state laws (e.g., state money transmitter laws) for certain PPSIs, but does not preempt state consumer protection laws.
Consequences of non-compliance – Non-PPSI issued stablecoins cannot be treated as cash or as a cash equivalent for accounting purposes, for margin or collateral purposes by broker-dealers, swap dealers and other intermediaries, or accepted as a settlement asset for wholesale payments between banking organizations. In addition, individuals operating outside this framework face steep penalties, including civil fines of up to USD 1 million for each violation, with additional fines of up to USD 100,000 for each day that non-PPSI issued stablecoins are outstanding or the violation continues (up to USD 1,000,000 per day in some instances), as applicable, and criminal liability for willful violations.
With the GENIUS Act now signed into law, the digital asset industry enters a critical transitional phase. Full implementation will require a series of required rulemakings and interpretative guidance from key regulatory agencies, including the Federal Reserve, the OCC and state banking authorities, which are expected to begin developing proposals in the coming months.
In anticipation of these developments, industry participants should proactively begin preparing by taking the following steps:
Assess issuer eligibility: Evaluate whether your organization qualifies as a PPSI under the GENIUS Act criteria.
Review reserve and disclosure practices: Examine current reserve management, audit practices and disclosure procedures to ensure alignment with forthcoming requirements.
Evaluate product offerings: Confirm that existing and planned stablecoin offerings comply with restrictions on yield-bearing instruments and limitations on foreign payment stablecoin issuers.
Engage with regulators: Consider participating in upcoming public comment periods, engaging in dialogue with relevant agencies, or seeking early guidance to clarify implementation and compliance obligations.
We will continue to monitor regulatory developments closely and provide timely updates as the regulatory framework takes shape.
The GENIUS Act has been broadly welcomed across the financial and fintech sectors as a long-overdue step toward regulatory clarity and innovation. However, not all feedback has been uniformly positive. The Conference of State Bank Supervisors (CSBS) issued a statement on July 17, 2025, acknowledging the GENIUS Act as a “historic, bipartisan effort” and expressing appreciation for several amendments that promote parity for state-approved stablecoin issuers and narrow the scope of authorized activities for all issuers.
However, at the same time, the CSBS urged Congress to address several remaining concerns in future legislation, including:
Eliminating the provisions that would prevent host states from supervising the money transmission and custody activities of uninsured banks with stablecoin subsidiaries – a move the CSBS views as an unnecessary intrusion on state authority.
Amending the GENIUS Act to restore full state authority over subsidiaries of state-chartered banks that issue stablecoins.
Clarifying the GENIUS Act to ensure that state consumer protection laws are not preempted by the federal framework.
Time will tell to see how the CSBS’ concerns are addressed, if at all.
