The “GENIUS” Stablecoin Bill (Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025)

Introduction and Official Source

The Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025, commonly known as the GENIUS Act, is a proposed U.S. federal law to create a comprehensive regulatory framework for payment stablecoins. The bill’s official text (S.1582 in the 119th Congress) is available on Congress.gov. It defines “payment stablecoin” as a digital asset used for payments or settlement that is redeemable for a fixed monetary value (for example, one token redeemable for $1). The GENIUS Act aims to ensure that only fully-regulated and properly reserved stablecoins circulate in U.S. markets, establishing requirements for issuers, consumer protections, and oversight mechanisms. This report provides a detailed legal overview of the bill’s text, sponsorship, legislative status, and key provisions, followed by an analysis of its implications for stablecoin issuers, users, and regulators.

(Official Bill Source: The full bill text and status can be found on Congress.gov.)

Key Provisions of the GENIUS Act of 2025

Scope and Definitions

The GENIUS Act applies to “payment stablecoins,” defined as digital assets intended for use as a means of payment or settlement that the issuer is obligated to redeem for a fixed value (e.g. one U.S. dollar). The definition explicitly excludes instruments that are already legal tender or bank deposits, that pay interest, or that are securities under existing law. In fact, the Act makes clear that a compliant payment stablecoin “is not a security” under the Securities Act, Securities Exchange Act, or Investment Company Act. It also later clarifies that stablecoins regulated under this framework are not commodities for regulatory purposes and are not insured deposits. By carving stablecoins out of securities and commodities definitions, the bill provides regulatory clarity – these digital tokens will be overseen under the new stablecoin-specific regime rather than by the SEC or CFTC as securities or commodities. The Act’s provisions generally cover USD-pegged stablecoins (though “monetary value” could include foreign currencies), and would require any stablecoin used by U.S. persons in commerce to be issued by an authorized entity under this law (or an equivalent foreign regime, as discussed below).

Permitted Issuers and Licensing Requirements

One of the cornerstone features of the GENIUS Act is that it restricts stablecoin issuance to regulated entities termed “permitted payment stablecoin issuers.” In essence, only a permitted issuer may issue a payment stablecoin for use by U.S. persons (subject to certain phase-ins and exceptions). The Act defines three categories of permitted issuers:

• (A) Insured Depository Institution Subsidiaries: A subsidiary of a federally insured depository institution (i.e. a bank or credit union) that is approved to issue stablecoins. This allows traditional banks (through affiliates) to issue stablecoins under their existing bank regulatory framework.

• (B) Federal Nonbank Stablecoin Issuers: A nonbank company that obtains a new federal license/charter to issue stablecoins (referred to as a “Federal qualified nonbank payment stablecoin issuer”). These nonbank issuers would be chartered and supervised by the Office of the Comptroller of the Currency (OCC), the primary regulator for national banks. The OCC is explicitly tasked with regulating nonbank stablecoin issuers under the Act’s federal regime.

• (C) State-Qualified Stablecoin Issuers: A nonbank entity that is chartered or licensed under state law to issue stablecoins (for example, a state trust company or money transmitter that meets the Act’s standards), termed a “State qualified payment stablecoin issuer.” The Act permits a state-based regulatory option provided the state’s rules are “substantially similar” to the federal standards. Importantly, the state-based option is limited to issuers with $10 billion or less in outstanding stablecoin liabilities – larger issuers must operate under federal oversight.

  
  

All permitted issuers, whether federal or state, must be incorporated in the United States and be subject to regulation by the appropriate regulatory agency. In practice, this means a nonbank stablecoin provider can choose a regulatory path: either apply for a new OCC license (federal charter) or seek approval under a qualifying state regime (if they will remain relatively smaller in scale). A nonbank issuer that grows beyond $10 billion in stablecoin circulation will have to transition to the federal regime (OCC supervision) within a prescribed period, unless granted a waiver by the federal regulator. This ensures that larger stablecoin issuers with potential systemic impact are under federal supervision.

The Act lays out a licensing (approval) process for would-be issuers. An applicant must demonstrate it can meet all prudential requirements (capital, reserves, risk management, etc.). Notably, if a regulator does not act on an application within 120 days, the application is deemed approved by default. Any denial must be accompanied by a rationale, and applicants have the right to appeal denials. This provision is meant to prevent regulators from indefinitely stonewalling new entrants and to promote timely decision-making, thereby encouraging innovation and competition in stablecoin markets.

Regulatory jurisdiction: For bank-affiliated issuers, their existing federal banking regulator (e.g. Federal Reserve, FDIC, or OCC depending on the charter) will oversee stablecoin operations; for nonbank issuers under the federal option, the OCC is the primary regulator. State-licensed issuers remain under their state regulators, though federal authorities retain certain backup powers as discussed below. No matter the route, all permitted issuers face baseline requirements on reserves, liquidity, auditing, and consumer disclosure as mandated by the GENIUS Act.

Reserve Backing and Capital Standards

To protect the value of stablecoins and prevent runs, the GENIUS Act imposes stringent reserve requirements. Every payment stablecoin must be 100% backed by high-quality liquid assets on a one-to-one basis. In other words, for each $1 of stablecoin issued, at least $1 of eligible reserve assets must be held by the issuer at all times. The bill tightly defines “permitted reserves” to limit them to safe and liquid instruments, including: U.S. coins and currency, balances in insured bank accounts, short-term U.S. Treasury bills, Treasury repurchase agreements (repos) or reverse repos fully collateralized by Treasuries, shares in government money market funds, central bank reserves, and other similar government-issued assets approved by regulators. Riskier or illiquid assets (e.g. corporate debt, equities, exotic investments) cannot count toward reserve backing, preventing an issuer from backing a stablecoin with volatile or credit-risky instruments. This addresses past concerns where some stablecoins were found to hold risky reserve assets; under GENIUS, reserves must essentially be cash or cash equivalents with minimal credit and market risk.

The Act also restricts how reserve assets can be used. Issuers generally cannot leverage or encumber reserves for speculative investments. Reserves may be used only for specified purposes, such as redeeming stablecoins on demand or serving as collateral in safe short-term financing transactions (like Treasury repos). This ensures the reserve assets remain liquid and available to meet stablecoin redemptions at all times. Notably, stablecoin issuers would not be subject to traditional bank regulatory capital requirements that apply to depository institutions. The rationale is that because stablecoin issuers must hold $1-for-$1 reserves, the usual bank capital ratios (which allow fractional reserve banking) are not applicable – essentially the stablecoin issuer’s own “capital” is the full reserve backing itself. The Act instead directs federal and state regulators to issue tailored capital and liquidity rules specific to stablecoin issuers (likely ensuring resilience against operational risks or losses unrelated to reserve backing). In sum, the GENIUS framework creates a full-reserve model for stablecoins to protect coin holders, rather than the fractional reserve model of traditional banking.

Disclosure, Reporting, and Audits

Every permitted issuer must establish and publicly disclose its redemption policies (i.e. the terms and procedures for consumers to redeem stablecoins for cash). They are also required to issue regular reports on their outstanding stablecoin liabilities and the composition of their reserves. At a minimum, issuers must publish monthly reports detailing the total stablecoins in circulation and exactly what assets make up the reserves backing those coins. These reports provide ongoing transparency so that users and regulators can verify that stablecoins are fully collateralized at all times.

Crucially, the Act requires that management attestations and independent audits support these disclosures. The periodic reserve reports must be certified by the issuer’s executive officers (holding management accountable for accuracy) and “examined” by a registered public accounting firm. In addition, any issuer with more than $50 billion in stablecoins outstanding faces an even higher bar: it must submit annual audited financial statements to regulators. These audits would likely evaluate the issuer’s financial condition, internal controls, and reserve holdings in depth. The combination of management certification, third-party examination of reserve reports, and annual audits (for large issuers) creates multiple layers of assurance that a stablecoin issuer is honest and solvent.

Consumer-facing note: The Act also requires that consumers be informed that stablecoins are not government-insured deposits – avoiding any false sense of FDIC protection – and presumably mandates other disclosures to ensure users understand the product they are using.

Supervision and Enforcement Powers

For federally regulated issuers (i.e. bank subsidiaries and OCC-chartered nonbanks), the same federal banking agencies that regulate their affiliated bank or that granted their charter will supervise the stablecoin activities. For example, a stablecoin subsidiary of a national bank might be supervised by the OCC alongside the bank, whereas a nonbank stablecoin issuer with an OCC charter will be supervised directly by the OCC (with the Federal Reserve possibly overseeing any holding company). These regulators are tasked with monitoring the issuer’s financial condition, safety and soundness, and risk management systems in the context of stablecoin operations. All federal-regime issuers must file regular reports and submit to examinations by their regulator, just as depository institutions do.

Regulators are also armed with enforcement authority. If an issuer violates any requirement of the Act or any condition imposed in its charter/license, the regulator can order the issuer to stop issuing stablecoins or impose other enforcement actions (e.g. fines, cease-and-desist orders). In extreme cases, an issuer could effectively be shut down for non-compliance. This enforcement mechanism ensures that regulators can act swiftly to correct problems – for instance, if an issuer’s reserves fell short or if it engaged in unsafe practices, the agency could halt further issuance until issues are remedied. These powers mirror the kind of prompt corrective action regulators have in banking supervision, adapted to stablecoins.

For state-qualified issuers (<$10B), the Act preserves primary oversight for state regulators: “State regulators would have supervisory, examination, and enforcement authority over all state issuers”. In other words, a company that opts for a state stablecoin license will answer mainly to the state banking or financial authority that chartered it. However, to ensure federal interests (like financial stability and monetary policy) are protected, the Act gives federal regulators certain backup authorities over state-regulated issuers. Specifically, a state may voluntarily cede supervisory responsibility to the Federal Reserve for a stablecoin issuer. Even if not ceded, the Federal Reserve or OCC can step in to take enforcement actions against a state issuer in “unusual and exigent” circumstances. This language suggests that if a state-regulated stablecoin were threatening broader financial stability or flagrantly violating the rules, federal authorities could intervene (similar to how the Fed has emergency powers in other contexts). Additionally, if a state-based issuer grows beyond the $10B threshold, it must come under joint federal/state supervision or shift to a federal charter, as noted earlier.

Anti-Money Laundering and Financial Integrity Measures

Stablecoins raise concerns about illicit finance, so the GENIUS Act contains AML (Anti–Money Laundering) and counter-terrorism finance provisions. All permitted stablecoin issuers would be made explicitly subject to the Bank Secrecy Act (BSA), which is the primary U.S. AML law. This means issuers must implement know-your-customer (KYC) programs, monitor transactions for suspicious activity, file Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs) as required, and comply with anti-money laundering and sanctions laws just like banks and money services businesses do. The Act in fact requires each issuer to certify that it has implemented an AML and sanctions compliance program as a condition of being licensed. Failure to maintain an adequate AML program could lead to enforcement action.

The law also directs the Financial Crimes Enforcement Network (FinCEN) (the bureau of the Treasury Department that oversees BSA compliance) to issue “tailored” AML rules for digital assets. FinCEN would be tasked with updating or refining AML regulations to address the unique characteristics of stablecoins and other digital assets, and to “facilitate novel methods…to detect illicit activity involving digital assets.”. This could include guidance on blockchain analytics, informationsharing, or new reporting requirements specific to crypto transactions. In essence, Congress is requiring regulators to modernize AML oversight tools to keep pace with stablecoin technology, recognizing that traditional methods must adapt (for example, leveraging the traceability of distributed ledgers while also managing privacy concerns).

Furthermore, the Act imposes bad actor bans: any individual who has been convicted of certain financial crimes is prohibited from serving as an officer or director of a stablecoin issuer.

Custody and Investor Protection Provisions

The GENIUS Act contains several provisions addressing the custody of stablecoins and reserve assets, as well as protections for stablecoin holders in the event of issuer insolvency. First, the law would allow regulated financial institutions to custody stablecoins and their reserves. Banks and credit unions are explicitly permitted to hold stablecoins in custody for customers and to hold reserve assets on behalf of stablecoin issuers. They are also permitted to use distributed ledger technology (blockchains) in their operations and even to issue “tokenized deposits” (essentially bank deposits represented as tokens on a blockchain) if they choose. These clarifications remove any legal doubt that banks can participate in the stablecoin ecosystem, which could foster integration of stablecoins into mainstream banking (e.g. banks offering stablecoin wallets or integrating stablecoin payments).

For any entity acting as a custodian of stablecoin assets or reserves – whether it’s an issuer itself or a third-party custodian – the Act sets rules to protect customers. Notably, custodians are prohibited from commingling customer stablecoin funds with the custodian’s own assets. Customer assets must be segregated, which protects users if the custodian were to fail. (Commingling could put customer funds at risk of being tied up in the custodian’s bankruptcy; segregation ensures they remain identifiable and returnable to customers.) Limited exceptions might apply (e.g. pooling for operational efficiency), but generally segregation of reserves is required. Additionally, any stablecoin custodian must itself be a regulated entity – either a federally or state regulated bank or a registered securities/capital markets entity (like a trust company or broker-dealer) regulated by the SEC or CFTC. This ensures that companies holding the reserves (or the tokens in custody for users) are subject to oversight and examinations regarding their safeguarding of those assets.

Perhaps one of the most important consumer protections in the Act is its treatment of stablecoin holders’ claims in bankruptcy. The law provides that stablecoin holders have priority over all other creditors in claims against the issuer’s reserve assets. In practical terms, if a stablecoin issuer were to go bankrupt or be liquidated, the customers who hold the stablecoin tokens get first claim on the reserve funds backing those tokens, before any other debts of the company are paid. This is a powerful protection: it means the collateral truly belongs to the token holders and cannot be grabbed by, say, the issuer’s other creditors. It greatly increases the likelihood that stablecoin holders can recover their money even if the issuer fails, essentially making them senior secured creditors with respect to the reserve. The Act also updates the bankruptcy code as needed to enforce this priority rule. By giving stablecoin users a senior claim, the Act addresses the scenario of a stablecoin “run” – users will know they are first in line for repayment, which should reduce panic and run incentives during stress.

Finally, as noted earlier, the Act explicitly states that stablecoins are not insured by the federal government. This means if a stablecoin fails and somehow reserves were insufficient (which should not happen under a 100% reserve mandate, but theoretically if there were fraud or losses), holders cannot claim FDIC deposit insurance or other federal insurance – they rely on the issuer’s assets. Requiring disclosure of this fact is an important consumer-awareness measure to prevent any misunderstanding of stablecoins as risk-free insured deposits. Consumers must rely on the regulatory framework, the reserve backing, and the issuer’s soundness for protection, rather than an insurance safety net.

Foreign Issuers and International Considerations

Recognizing the global nature of crypto markets, the GENIUS Act also addresses foreign stablecoin issuers and cross-border usage. Within three years of the Act’s enactment, it would become unlawful to offer or sell a payment stablecoin to U.S. persons except by a permitted (U.S.-regulated) issuer. This effectively phases out unregulated stablecoins from the U.S. market – even foreign-based stablecoins (like those issued overseas) must either become compliant or exit the U.S. consumer market. However, the Act gives the U.S. Treasury, in consultation with other regulators, authority to establish “reciprocal agreements” with foreign jurisdictions that have comparable regulatory standards for stablecoins. If a foreign jurisdiction has a robust oversight regime similar to the GENIUS Act, Treasury can deem it comparable and set up an agreement to allow that jurisdiction’s regulated stablecoins to be offered in the U.S. without each foreign issuer needing a separate U.S. license. This is akin to passporting or mutual recognition.

Even when foreign stablecoins are allowed, the Act imposes additional safeguards. Any foreign stablecoin permitted for U.S. use must have the technical capability to freeze transactions and to comply with lawful orders. In practice, this means truly decentralized or ungovernable stablecoins would not qualify – the issuer or controlling entity must be able to block illicit transactions or seize tokens when required by regulators (e.g. to enforce sanctions or court orders). Additionally, foreign issuers that want their stablecoins used in the U.S. must register with the OCC and submit to ongoing supervision, and they must hold a portion of their reserves in U.S. financial institutions sufficient to satisfy U.S. redemption requests. This latter requirement ensures that U.S. holders of a foreign stablecoin can redeem locally without depending entirely on foreign banks. It also gives U.S. regulators some leverage (since those reserves in the U.S. can be overseen or frozen if needed).

The Act gives the Treasury Secretary (along with other agencies) flexibility to waive certain requirements for foreign issuers and for digital asset intermediaries that deal in foreign stablecoins, if such waivers are in the U.S. interest. This could allow, for example, transitional arrangements or special cases if a strict application of the rules would disrupt markets. Overall, these foreign issuer provisions aim to extend the regulatory perimeter internationally – encouraging other countries to implement similar standards and preventing the U.S. from becoming a haven for unregulated stablecoins, or conversely, preventing circumvention of U.S. rules via offshore entities.

Other Notable Provisions

In addition to the core elements above, the GENIUS Act contains a few other notable legal provisions:

• Executive Officials and Conflicts of Interest: Partly in response to concerns about high-level conflicts (the bill’s nickname “GENIUS” drew scrutiny around potential involvement of political figures in crypto ventures), the final Senate version added a provision affirming that existing federal ethics laws prohibit senior government officials (e.g. the President, Cabinet members) from issuing stablecoins.

• Federal Implementation Timeline: The Act directs that the regulatory framework be put into effect within one year of enactment. This includes agencies promulgating all necessary regulations through notice-and-comment rulemaking. A one-year implementation deadline is an aggressive timetable, reflecting Congress’s desire to quickly stand up oversight in a fast-moving crypto market. Regulators would need to coordinate and issue rules on licensing procedures, capital levels, examination guidelines, disclosure formats, etc., by that deadline.

• Continuation of Existing Authority: Until the new rules are in place, the Act does not immediately outlaw existing stablecoin activity. It implicitly allows current stablecoin issuers operating under state money transmitter laws or other exemptions to continue during the interim. Likewise, the Office of the Comptroller of the Currency’s prior guidance that national banks may handle stablecoins remains effective until superseded. This avoids a disruption where stablecoins would suddenly become illegal before a pathway to compliance exists.

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The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.