President Trump on July 18 signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the "Genius Act") into law, establishing the first federal framework for regulating payment stablecoins—a crucial category of digital assets designed to maintain a stable value relative to fiat currency. Passage of the law marked the first major crypto-focused legislative development following Trump's promise during the 2024 Presidential campaign to create a more hospitable regulatory environment for cryptocurrency. Other crypto-focused bills that may be significant, relating to issues other than stablecoin regulation, are currently working their way through Congress.
Background
The regulatory environment for cryptocurrency in the US has changed dramatically in the past year. Under President Biden, the US Securities and Exchange Commission (the "SEC") brought numerous enforcement actions arguing that cryptocurrency and similar digital assets are "securities" for purposes of US securities laws, based on the SEC's interpretation of a 1946 US Supreme Court decision (SEC v. W.J. Howey Co.) setting out certain criteria for determining whether an asset qualifies as an "investment contract," and therefore a "security" within the 1930s-era statutes that (as amended) the SEC enforces. In the months leading up to the 2024 Presidential election, then Republican presidential nominee Trump expressed strong support for the industry, promising to promote a more friendly regulatory environment if he was elected.
Overview of the Genius Act
The Genius Act, the first substantial piece of crypto-related legislation enacted during the second Trump Administration, covers a subset of stablecoins that are: used for payments or settlement; redeemable for a fixed amount of money; and intended to maintain a stable value. While they make up a relatively small share of digital assets by number, payment stablecoins account for over $240 billion in issuance and serve as foundational infrastructure for both crypto trading and more traditional usage, particularly in economies with unstable national currencies.
Under the Act, it will become illegal to issue or sell payment stablecoins in the U.S. without proper authorization, following a three-year transition period. However, certain personal uses are exempt—peer-to-peer transfers, transfers between personal accounts, and transactions via self-custody wallets remain permissible.
Entities seeking to become permitted payment stablecoin issuers must be domiciled in the United States and approved by the Office of the Comptroller of the Currency (a major federal bank regulator), operate under a certified state regulatory regime (if issuing less than $10 billion in value), or function as an insured depository institution through a separate legal entity and under federal oversight. Non-US issuers may also qualify if their home country's regulations are deemed equivalent by the U.S. Treasury.
Approved issuers are subject to strict regulatory requirements. They must maintain reserves on a one-to-one basis in liquid, low-risk assets such as cash and short-term government securities. Their operations are limited to issuing, redeeming, and managing those reserves. Issuers must publish monthly reserve disclosures, undergo independent audits, clearly communicate redemption terms and fees, and are prohibited from offering interest or yield on their tokens. Violations can result in fines of up to $1 million per infraction and up to five years in prison.
The Impact of the Act and Future Action
The Genius Act is a critical step toward building a coherent regulatory framework for crypto. It clarifies the rules for a foundational financial instrument and introduces safeguards to protect consumers and the financial system. It addresses insolvency risks by ensuring that stablecoin holders have priority claims on reserve assets in the event of an issuer's bankruptcy—a likely response to recent collapses like FTX and Terra Luna.
Some of the Act's provisions are especially notable. The prohibition on offering yield makes stablecoins functionally equivalent to cash, potentially increasing their stability but limiting opportunities for passive income without reinvesting the stablecoin in other financial products. The Act does not provide any specific privacy rights for users. Issuers must comply with the AML provisions of the Bank Secrecy Act, including implementing know-your-customer procedures and maintaining transaction records. The Genius Act also includes provisions relevant to decentralized finance. For example, it exempts certain personal uses—such as peer-to-peer transfers—from regulatory requirements. It also affirms that operating on a decentralized network is not, by itself, grounds to deny authorization to a payment stablecoin. However, it remains unclear how a fully decentralized payment stablecoin would satisfy the issuer requirements under the Act. Also, while issuers are required to clearly disclose their redemption policies, the Act does not impose any substantive standards on what those policies must include.
The Act also does not address many of the key issues important to the broader crypto ecosystem. Notably, it does not cover algorithmic stablecoins or those not backed by fiat, and it provides no guidance on how to classify other digital assets—such as whether a token is a security or a commodity. These questions remain subject to future legislation and regulatory interpretation.
Other Legislation Under Consideration
Two other bills pending in Congress – the Digital Asset Market Clarity Act (the "Clarity Act"), which would establish crypto market regulations and transition regulatory oversight of crypto away from the SEC and toward the Commodity Futures Trading Commission (the "CFTC"), and the Anti-CBDC Surveillance State Act (the "Anti-CBDC Act"), which would ban the Federal Reserve from issuing its own central bank digital currency – are still making their way through Congress.
The Clarity Act
The House of Representatives passed the Clarity Act on July 17, and it now heads to the Senate. The Clarity Act creates a regulatory framework for digital assets and divides their federal oversight between the CFTC and the SEC. Under the Clarity Act, the CFTC would be primarily responsible for regulating digital commodities, defined as assets that are intrinsically linked to and derive value from a blockchain system. Regulated entities would be required to register with the CFTC. The SEC would retain anti-fraud authority over certain digital commodities and have jurisdiction over certain digital commodities, such as permitted payment stablecoins. The Clarity Act also would require that the CFTC and SEC, along with other government entities, engage in rulemaking and submit reports to Congress, with most rules and reports due one year after the date of enactment.
The Clarity Act would pre-empt state laws regulating digital commodities but leaves uncertain how entities previously regulated by the SEC might be affected by CFTC oversight. Some observers have questioned whether the Clarity Act provides adequate protections for the market generally and consumers, and it could face more resistance in the Senate than the Genius Act.
The Anti-CBDC Act
The House of Representatives passed the Anti-CBDC Act on July 17, and it now heads to the Senate. The Anti-CBDC Act bans U.S. Federal Reserve banks from issuing a central bank digital currency ("CBDC"), either directly or indirectly. It also prohibits the Federal Reserve Board of Governors from studying, testing, or using a CBDC to implement monetary policy. Proponents of the Anti-CDBC Act argue that creating a CBDC would lead to increased government oversight and surveillance. Those opposing the Anti-CBDC Act argue that a Congressional declaration that the U.S. does not support a CBDC leaves the country far behind in an expanding arena of national and private digital currency alternatives.
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