The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, S. 1582, passed 68-30 in the Senate with bipartisan support for its aim of establishing a federal regulatory framework for U.S. dollar-backed stablecoins.
The legislation addresses the type of cryptocurrencies it covers, as well as how they are to be issued, backed and redeemed under federal supervision. It is intended to close regulatory gaps related to cryptocurrencies while also mitigating systemic risks and addressing consumer protection concerns, among other potential risk factors.
The legislation defines “payment stablecoins” as digital assets tied to the fixed value of the U.S. dollar or similarly liquid assets in terms of worth and intended to be used as a form of payment or settlement. These would only be issued by “permitted payment stablecoin issuers” who would be required to maintain one-to-one reserves in U.S. dollars or other highly liquid assets and comply with federal anti-money laundering rules and regulations.
The GENIUS Act would create three categories of permitted payment stablecoin issuers:
- Subsidiaries of insured depository institutions (IDIs), which would be subject to approval by the primary federal regulator of the IDI;
- Federal qualified payment stablecoin issuers, which include nonbank entities (other than a state qualified payment stablecoin issuer), uninsured national banks chartered by the Office of the Comptroller of the Currency (OCC) and federal branches approved by the OCC; and
- State-qualified payment stablecoin issuers, subject to approval by a state payment stablecoin regulator.
An issuer’s federal regulator would be dependent on their issuer category and market capitalization. Those with more than $10 billion would be subject to federal oversight by the OCC, Federal Reserve, Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA). Each of these federal agencies would have one year following the bill’s enactment to promulgate implementing regulations through the appropriate notice and comment process.
Issuers would be required to publish monthly disclosures of their crypto reserves. Those with more than $50 billion in market capitalization also would have to provide annual audited financial statements and disclose related party transactions and make them publicly available.
The attempted issuance of payment stablecoins by a person not recognized under the terms of the bill would be subject to fines up to $1 million per violation and up to five years in prison.
If adopted into law, the measure could open the door for more widespread use of cryptocurrencies in a variety of transactions.
Notably, the bill received Senate approval only two days before Federal Housing Finance Agency (FHFA) Director Bill Pulte announced a directive requiring Fannie Mae and Freddie Mac to evaluate processes for incorporating cryptocurrencies into mortgage loan risk assessments. This appears to be a step toward allowing digital assets to be used in real estate transactions without needing to be converted into fiat currency beforehand.
It could clear a path for the use of stablecoins in property purchases, particularly in earnest money deposits, cross-border deals and escrow transactions. Stablecoins have already been used experimentally in residential and commercial sales, but their broader adoption has been hampered by legal and regulatory uncertainty.
The bill has garnered support from all Senate Republicans and several Democrats, as well as experts who champion it for providing consumers more payment options.
Some opponents, such as Senate Banking Committee Ranking Member Elizabeth Warren (D-Mass.), have expressed concerns that it may lack sufficient protections against conflicts of interest and illicit finance. The National Conference of State Legislatures also expressed opposition to a provision that overrides state regulatory authority for certain issuers.
The version of the bill that passed the Senate contained two key amendments.
One addressed concerns about a provision giving the Treasury secretary broad discretion to issue safe harbors for otherwise ineligible entities to operate as stablecoin issuers under “unusual and exigent circumstances.” As amended, the bill would require the secretary to justify any such exceptions in writing to the Senate Banking Committee and the House Financial Services Committee.
The other amendment modifies the U.S. Bankruptcy Code to exclude stablecoin reserve assets from a debtor’s estate, providing stablecoin holders “superpriority” claims over crypto reserves in applicable circumstances.