The Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) is the United States’ first comprehensive federal law governing payment stablecoins—digital tokens designed to hold a fixed value (typically $1) and used for payments. After passing the Senate on June 17, 2025 (68–30) and the House on July 17, 2025 (308–122), it was signed into law in July 2025, marking the first major federal framework for a crypto asset class.
At a high level, the law defines who can issue stablecoins, what reserves must back the tokens, how redemption works, and which regulators supervise the activity. It aims to shore up consumer protection and financial stability without outlawing stablecoins outright. Analysts and other experts in the financial sector characterize it as a sweeping, “federal–state” regime that closes a long-criticized gap in U.S. oversight.
Core Mechanics: Who May Issue and Under What Rules
Permitted issuers
The Act makes it unlawful for anyone other than a “permitted payment stablecoin issuer” to issue a payment stablecoin in the U.S. Permitted issuers can be:
(1) banks/credit unions approved by the OCC/NCUA
(2) specially approved nonbank issuers under a new federal registration process
(3) state-qualified issuers operating under a state regime that meets federal criteria
There is also a pathway for foreign issuers to access U.S. markets if their home regime is deemed comparable and certain conditions are met.
1:1 Reserves
Each token must be backed at least one-to-one by high-quality liquid assets. The statute spells out what counts: U.S. currency or balances at a Federal Reserve Bank; demand deposits at insured banks (subject to concentration limits); Treasury bills/notes/bonds ≤93 days; overnight repos and reverse repos secured by Treasuries; government money market funds that invest solely in those instruments; other similarly liquid federal assets approved by the primary regulator; and even tokenized versions of the same. Issuers must publish a monthly reserve breakdown and undergo monthly third-party examinations, with CEO/CFO certifications subject to criminal penalties if false.
Redemption Rights and Custody
Issuers have to publish a clear redemption policy and honor timely, at-par redemptions (limited only by regulators in stress scenarios). The Act prioritizes customer claims on reserves in an insolvency and sets out custodial segregation and priority rules for intermediaries that hold stablecoins for customers.
Supervision & Enforcement
Federal regulators (principally the OCC, Federal Reserve, FDIC/NCUA depending on the issuer type) and State regulators share oversight, with information-sharing, examinations, and cease-and-desist/removal authorities. For state-qualified issuers, the Fed can intervene under “unusual and exigent circumstances.” AML/sanctions certifications are required and can trigger criminal liability if false.
Market Treatment of “Non-Permitted” Coins
Tokens that are not issued by a permitted issuer cannot be treated as cash or cash equivalents for accounting, margin/collateral at brokers/FCMs/clearinghouses, or as settlement assets in bank wholesale payment systems. In other words, unregulated “stablecoins” are fenced off from key parts of the financial system.
Securities/Commodities Carve-Out
The Act generally excludes payment stablecoins issued by permitted issuers from being treated as securities or commodities, clarifying jurisdictional lines and reducing duplicative regulation by the SEC/CFTC for plain-vanilla payment coins. (Yield-bearing or structured products could still fall under securities laws.)
What the Act Gets Right
Clarity on Reserves and Redemptions
The detailed reserve menu, frequent disclosures and executive certifications directly target the kinds of opacity and run risks that destabilized some stablecoins during market stress.
Closing the Perimeter
By barring non-permitted coins from being treated like cash collateral or settlement money in regulated markets, the Act reduces the chance that shadow money undermines financial plumbing.
A Pragmatic Federal–State Blend
Rather than preempting states, the law recognizes state regimes (notably New York’s) while giving federal regulators a backstop in emergencies, an approach many analysts say balances innovation and safety.
Budget-Realistic
The Congressional Budget Office expects new administrative costs for regulators, but within normal ranges for implementing a fresh financial regime suggesting the law is operationally doable.
Where the Loopholes and Pressure Points May Be
Reserve Composition Opens Some Doors
The “safe” list includes bank demand deposits, overnight reverse repos and government money market funds (MMFs), all generally liquid, but not risk-free:
- Bank deposits (even at insured institutions) re-introduce bank counterparty and concentration risk, which the Act addresses through limits but doesn’t eliminate.
- Reverse repos concentrate operational and counterparty risk in short-term funding markets that can seize under stress.
- Government MMFs can, under SEC rules, impose liquidity fees in stress, potentially hampering rapid liquidation to meet redemptions.
- A regulator can also approve “other similarly liquid” federal assets and allow tokenized forms of eligible reserves—flexibility that’s helpful, but also a discretionary aperture if standards loosen over time.
Regulatory Arbitrage via State or Foreign Routes
Because the law supports state-qualified issuers and provides a foreign-issuer pathway where regimes are deemed “comparable,” firms could shop for the friendliest venue, domestic or abroad, then passport back into U.S. distribution. The Act does include cooperation and emergency tools for federal regulators, but the comparability determinations and state rulemaking will be where the rubber meets the road. Expect intense lobbying here.
The Securities/Commodities Carve-Out Can Be Gamed at the Edges
Plain payment coins from permitted issuers are not “securities” or “commodities,” but adjacent products might wrap stablecoins with yield, staking or structured features. If marketed sloppily, those should still land under SEC/CFTC rules, but expect issuers and platforms to probe the gray zone between a non-security payment token and a yield-bearing product. The Act’s clarity reduces friction for payments, but creates incentives to engineer around capital-markets oversight.
“Not a Payment Stablecoin” ≠ “Not a Risk”
Algorithmic or under-collateralized coins aren’t “payment stablecoins” under the Act. They’re fenced out of cash-equivalent treatment and major market uses, but retail users can still hold and trade them in unregulated venues, and the law doesn’t directly police their marketing beyond general consumer-protection laws. That’s a perimeter loophole: harm can still occur outside the regulated lane.
Supervision Thresholds and Coordination
The supervision sections try to avoid duplicative exams and give the Fed special powers in exigent circumstances over state-qualified issuers. But fragmented oversight can yield gaps at the seams, for example, timing and content of AML/sanctions certifications, or differences in capital/liquidity add-ons across issuers. Those are solvable with high-quality joint rulemaking/MOUs, but until finalized, they’re implementation risks.
Politics and Conflicts Optics
News coverage has flagged concerns that the law’s ethics restrictions don’t fully reach the executive branch, raising perceived conflicts given the Administration’s crypto ties. Whatever one’s view, those optics can affect public trust and enforcement vigor, another kind of policy risk.
What to Watch Next
- Rulemaking calendars. The real bite of GENIUS will come from capital/liquidity/risk-management rules, deposit-concentration caps and comparability standards for foreign regimes. Those will determine how tight (or loose) the “guardrails” are.
- Accounting & market plumbing. As the “non-permitted” coin restrictions filter through accounting standards and margin policies, expect shifts in what collateral large intermediaries will accept.
- State–federal playbook. Watch how New York and a handful of other proactive states align their rules with the federal template and how the Fed uses its exigent-circumstances lever, if at all.
- Foreign reciprocity. The first comparability determinations (e.g., for the EU or certain Asian hubs) will signal how open U.S. markets are to offshore issuers.
Bottom Line
The GENIUS Act finally drags U.S. dollar-stablecoins into a bank-grade regulatory perimeter for core payment use: fully reserved, redeemable at par, examined and supervised. That’s a big win for consumers and for the dollar’s digital footprint. But the statute also leaves flex points, in reserve design, jurisdictional choice and product structuring, that savvy players can test. The success of the law will hinge on how the agencies write and enforce the rules and how tightly they coordinate with states and credible foreign regimes to prevent venue shopping. In other words: the scaffolding is strong; the workmanship will decide the building.
Risk Checklist Under the GENIUS Act
For Issuers
- Reserve Eligibility Drift – Stay within the statute’s reserve menu and monitor for regulator-approved “similar” assets creeping toward riskier territory.
- Bank Deposit Concentration – Track concentration limits to avoid breaching thresholds during high inflows.
- Disclosure Accuracy – Monthly reserve reports and CEO/CFO certifications carry criminal liability if false or misleading.
- Product Boundary Testing – Avoid yield-bearing or structured features that could reclassify your coin as a security or commodity.
- Foreign/State Pathway Scrutiny – If relying on state qualification or foreign comparability, monitor ongoing compliance as revocation risk can be abrupt.
For Banks
- Settlement Asset Screening – Ensure only permitted issuer coins are accepted for margin, collateral, or wholesale settlement.
- Counterparty Due Diligence – Vet issuers’ compliance programs, especially AML/sanctions certifications, before onboarding.
- Liquidity Planning – Model scenarios where reverse repos or MMFs impose liquidity gates, affecting redemption timelines.
- Operational Segregation – If holding stablecoins for customers, maintain clear custody segregation to preserve priority rights.
- Cross-Regulatory Coordination – Prepare for both prudential regulator exams and stablecoin-specific supervisory requests.
For Custodians
- Segregation & Insolvency Priority – Align custody agreements and operations with the Act’s customer priority rules.
- Tokenized Reserve Handling – If storing tokenized Treasury/MMF shares, ensure they remain within eligibility criteria and are fully redeemable.
- Intermediary Risk Disclosure – Inform clients about potential settlement delays if issuers hit liquidity or operational limits.
- Tech & Cyber Safeguards – GENIUS compliance won’t shield you from liability for breaches or operational losses—monitor blockchain custody risks closely.
- Regulatory Reporting – Expect to interface with both issuer regulators and your own prudential supervisor for information-sharing requests.
Contact
For questions about how the GENIUS Act may affect you or your business, please contact KJK partner Jessica Groza (JLW@kjk.com).