The GENIUS Act: A Step Toward Stablecoin Clarity or Regulatory Ambiguity?

The mania in Washington around financial services regulation has settled a bit. In fact, the focus has now turned toward a decidedly traditional function in the nation’s capital, and that’s legislating.

Specifically, the House held a hearing Tuesday (March 11) and the Senate is poised to vote on Thursday (March 13) on legislation governing stablecoins.

Note that we said that the mania had settled. It hasn’t gone away entirely, and there are some issues with the bill, which has bipartisan support. Those issues made up the bulk of the weekly conversation between former assistant secretary of the treasury Amias Gerety and PYMNTS CEO Karen Webster.

“We just need to make sure that we do this legislation right,” Gerety said. “So something is going to pass. There’s a permission structure for Democrats to vote for this, to vote for something.

“And I think the real question is, will [Congress] fix some of the obvious problems in the bill? Or is it going to sail through without much modification? I don’t know how that’s going to go. But I think some form of the bill will pass.”

The bill that was the subject of the House hearing as well as the Webster-Gerety conversation is known as the GENIUS Act, an acronym for Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 Act. Several legal experts have chimed in on its merits, including Davis Polk, who testified at the hearing. According to Polk and several other interpretations, the act introduces a structured regulatory framework for payment stablecoins in the United States.

According to Polk’s interpretation, the act facilitates entities either associated with insured banks or operating independently to issue stablecoins, subjected to either federal or state oversight based on predefined criteria. This includes comprehensive bank-like regulations concerning capital, liquidity and risk management standards.

A significant attempt at compromise in the act is the optional state-level regime, providing smaller issuers a choice to adhere to state-specific regulations that mirror federal standards.

Defining Issues

However, Polk as well as Gerety and Webster picked up on a potential issue with the act’s definition of “payment stablecoin,” which might not cover stablecoins on private blockchains, as it primarily focuses on those issued on public ledgers. This ambiguity could lead to regulatory gray areas, particularly concerning the ledger type used for stablecoin issuance.

The Federal Reserve says, “Stablecoins facilitate trades on crypto exchanges, serve as the underlying asset for many crypto loans, and allow market participants to avoid inefficiencies stemming from converting back to fiat currency for crypto trades. They essentially serve as both a means of payment and store of value for these transactions. As the name suggests, stablecoins attempt to provide a stable value relative to other crypto assets by pegging their value to a real-world asset, known as the reference asset, such as the U.S. dollar.”

One of the most significant issues with the current stablecoin bill is its failure to clearly define what a stablecoin actually is. As Gerety pointed out, “The bill is totally silent on the question of what a stablecoin is. It only says what it isn’t. It says that it’s not a security.”

This ambiguity creates confusion, especially when considering products that could potentially be both securities and stablecoins. The lack of clear definition represents what Gerety called “an obvious problem in the bill that might get fixed” as it progresses through the legislative process.

Beyond definitional issues, Gerety believes the bill fails to address critical consumer protection concerns, particularly regarding what happens to customer funds if a stablecoin issuer fails.

“When people have money, what they want to know is that money is theirs,” Gerety told Webster. Unlike traditional financial products where separate resolution regimes exist to protect consumer funds in case of institutional failure, he believes the current stablecoin legislation lacks similar protections.

“If you have money at a broker, you have the Securities Investor Protection Corp. regimes,” Gerety said. “If you have money in a bank, that money comes back to you with a guarantee from the federal government,” Gerety added, noting that the previously considered McHenry-Waters version of the bill addressed this issue, but the current legislation does not provide the same clarity.

Divided Banking

The banking sector appears divided on stablecoin regulation. Gerety noted that bankers “haven’t reconciled” their views on the matter, with some seeing opportunity and others recognizing potential threats.

“For the largest banks this is probably quite good. I think the largest banks will succeed as stablecoin issuers,” Gerety said. However, he cautioned that community banks would struggle to compete with potential stablecoin issuers like Apple or Meta.

This creates a tension for banks that “have not come out clearly in favor” of the legislation. “I don’t think there’s two camps of bankers. I think that the bankers haven’t worked through what they really want here,” Gerety said.

The legislation could lead to increased fragmentation in the stablecoin market, which Gerety suggested may be intentional. “I think there’s going to be a lot more fragmentation in stablecoins because of this bill,” he said. “I think that’s actually what the people who are writing this bill want.”

While representatives of the pro-regulation and free market approaches were present at the House hearing Tuesday, notably absent from the discussion was any meaningful consideration of international developments. “Not a single mention of Brazil, not a single mention of India,” Gerety observed, despite these countries having “moved fastest and furthest to make their payment ecosystems accessible, cheap and easy.”

According to Gerety, this domestic focus could limit the bill’s effectiveness in addressing cross-border payment challenges that stablecoins purportedly aim to solve.

Washington’s Broader Uncertainty

The conversation eventually shifted to the broader economic climate in Washington, where tariff policies have created significant uncertainty. “Nobody understands what is going on in tariffs,” Gerety said, expressing concern about potential economic consequences.

This uncertainty is having tangible effects on the economy. As Webster noted, “You’re seeing a freeze on investment. You’re seeing a freeze on hiring … because you’re not really sure day to day what’s going to happen.”

Despite achieving what Gerety called the previously thought impossible “soft landing” with “high growth” he warned that businesses and consumers are “super nervous” about overall economic direction, stablecoins included.