Senate’s GENIUS Stablecoin Bill Calls for Shared State and Federal Oversight

No matter how groundbreaking the impact, innovations can’t outrun regulation forever, particularly when that innovation occurs in the highly regulated space of payments and financial services.

Enter the humble stablecoin, which now has a growing list of regulatory frameworks centered on ensuring its nominal stability attracting attention on Capitol Hill.

Stablecoins, like much of cryptocurrency, have operated under a regulatory gray area in the United States, attracting scrutiny from lawmakers and financial watchdogs who fear their potential to destabilize markets and facilitate illicit transactions while also garnering interest from banks and FinTechs weighing their potential to transform payments.

The most prominent of the stablecoin bills, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was introduced in the Senate by Sen. Bill Hagerty of Tennessee; Sen. Cynthia Lummis of Wyoming; Sen. Kirsten Gillibrand of New York; and Senate Committee on Banking, Housing and Urban Affairs Chairman Tim Scott of South Carolina. The bill is undergoing markups.

“Stablecoins enable faster, cheaper and competitive transactions in our digital world and facilitate seamless cross-border payments,” Scott said in a Feb. 4 statement. “This legislation will expand financial inclusion and provide much-needed clarity to ensure the industry can innovate and grow here in the United States, while protecting consumers and promoting the U.S. dollar’s global position.”

Gillibrand added in the statement: “The bipartisan Guiding and Establishing National Innovation for U.S. Stablecoins Act protects consumers by requiring stablecoin issuers to maintain one-to-one reserves; prohibiting algorithmic stablecoins; and requiring issuers to comply with U.S. anti-money-laundering and sanctions rules. Importantly, it will empower responsible innovation, maintain U.S. leadership in digital assets and blockchain technology, and keep crypto companies and jobs onshore.”

The GENIUS Act proposes a regulatory balance between state and federal oversight that allows smaller issuers to operate under state supervision while placing larger stablecoin providers under federal jurisdiction, among other requirements.

Read also: Regulations Become Crucial as Stablecoins Push Payments Frontier

Walking the Legislative Tightrope on Crypto

Stablecoins are a subset of cryptocurrencies designed to maintain a stable value by pegging their price to a reserve asset, typically a fiat currency like the U.S. dollar. This stability makes them attractive for various applications, including efficient digital payments and as a bridge between traditional finance and the burgeoning decentralized finance (DeFi) ecosystem.

To date, they have operated without a regulatory framework to abide by within the U.S.

The GENIUS Act introduces several pivotal measures to regulate and promote the stablecoin market by establishing clear procedures for institutions seeking licenses to issue stablecoins, ensuring that only qualified entities can participate in the market.

The act mandates that issuers maintain reserves backing their stablecoins on at least a one-to-one basis. Acceptable reserve assets include U.S. coins and currency, demand deposits at insured depository institutions, Treasury bills, notes or bonds, and certain repurchase agreements.

For issuers with more than $10 billion in stablecoins, the Federal Reserve’s regulatory framework applies to depository institutions, while the Office of the Comptroller of the Currency (OCC) oversees nonbank issuers. Issuers under the $10 billion threshold are allowed to operate under state regulation, preserving a strong state pathway to stablecoin issuance. The act also provides a waiver process for issuers exceeding the threshold to remain state-regulated.

See also: 5 Blockchain Projects the World’s Biggest Banks Are Behind

Stablecoin issuers like Tether (USDT) and Circle’s USD Coin (USDC) may need to adjust their operational practices and reserve management to align with the new regulatory requirements.

For that reason, the GENIUS Act is not without controversy. Paolo Ardoino, CEO of USDT stablecoin issuer Tether, the biggest stablecoin by market cap which has long faced controversy in the U.S., took to social platform X Feb. 24 to vent frustration around what he alleged to be “regulatory capture” by Tether’s stablecoin competitors, including issuers like Circle that have a history of regulatory compliance.

I don’t comment directly on regulation much but I would like to flag an emerging regulatory battle that is happening in D.C.

The soon-to-be revealed stablecoin markup apparently has requirements to shut off access to the treasury market to centralized international stablecoin…

— Vance Spencer (@pythianism) February 24, 2025

“There’s a tremendous opportunity with regulatory clarity coming,” said Circle CEO Jeremy Allaire via an interview with Fox Business posted on X Tuesday (March 4).

“There’s a tremendous opportunity with regulatory clarity coming.”@jerallaire joined @FoxBusiness highlighting how USDC can help households and small businesses save on fees, putting money back in pockets. pic.twitter.com/Smrg3Uevyf

— Circle (@circle) March 4, 2025

The GENIUS Act is not the sole legislative effort addressing stablecoin regulation. The Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act was introduced in the House last month as a discussion draft by Rep. French Hill of Arkansas and Rep. Bryan Steil of Wisconsin.

Elsewhere, Rep. Maxine Waters of California introduced an unnamed piece of draft stablecoin legislation in the House last month.