Source: Galaxy; Compiled by: Baishui, Golden Finance
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Introduction
As of the writing of this article, the total amount of stablecoins in circulation worldwide has exceeded $243 billion. Among them, $218 billion (90%) are fully collateralized and denominated in USD. It is expected that by 2025, these stablecoins will conduct over 120 million transactions per month, with a transaction value exceeding $700 billion. Stablecoins are widely used for cross-border payments, with transaction costs far lower than traditional remittances. However, at present, they primarily exist in a legal gray area in the United States, where existing companies lack sufficient regulation to truly grow within the traditional system, while traditional participants face excessive regulatory uncertainty, making it difficult to utilize cryptocurrency pathways.
The U.S. Stablecoin National Innovation Guidance and Establishment Act of 2025 (the “GENIUS Act”) is the U.S. Senate’s stablecoin authorization and regulation bill designed to bring clarity and certainty to this gray area. The bill was introduced by Senator Bill Hagerty, Republican of Tennessee, and was introduced by Senator Tim Scott, Republican of South Carolina, Senator Kirsten Gillibrand, Republican of New York, Senator Cynthia Lummis, Republican of Wyoming, and Senator Angela Brown, Democrat of Maryland. Co-sponsored by Angela Alsobrooks.
The bill will establish a strong supervisory and regulatory regime for stablecoins and their issuers in the United States, paving the way for innovation and enhancing the dollar’s position as a global currency for issuance and reserves. Stablecoins issued under this framework will be subject to strict federal standards, regardless of whether they are regulated by federal banking regulators, U.S. states, or foreign issuers. The Senate Banking Committee voted down the bill in March by a vote of 18 in favor and 6 against, which included 5 Democrats.
On May 1st (Thursday), the updated draft was released, which included several substantive updates that strengthened the wording regarding national security, financial system safety, and regulatory accountability. On Saturday, May 3rd, nine Democrats issued a statement saying they would oppose ending the debate in Parliament unless further improvements were made in five areas.
This article outlines the “GENIUS Act,” explaining the regulatory framework that the act will create, and highlights the main differences between the latest version and the version passed by the Senate Banking Committee.
Content of the GENIUS Act
The GENIUS Act establishes a comprehensive framework for regulating stablecoin issuers located in the United States or whose stablecoins circulate or trade in the United States. Currently, stablecoin issuers typically register with the Department of the Treasury’s Financial Crimes Enforcement Agency (FinCEN) (MSB) and/or hold licenses in certain states, but there is no comprehensive national regulatory regime to regulate collateral processing, other than those in some states, AML/CFT compliance, creation and redemption mechanisms, regulation, consumer safety, bankruptcy isolation, and many more. Essentially, dollar-backed stablecoins are barely regulated in the U.S. at the moment.
The table below describes the framework established by the latest version of the “GENIUS Act” released on May 1 (Thursday).
Interpretation of the provisions of the “GENIUS Act”
- Institutions authorized to issue stablecoins (Article 2(23), 2(11), 2(30); Article 3(a)):
Only “payment stablecoin issuers approved to issue stablecoins” can issue stablecoins in the United States:
Federal Qualified Issuer:
— The Office of the Comptroller of the Currency (OCC) approved non-bank entities under Section 5 [§2(11)(A)]
— National Bank uninsured chartered by the Office of the Comptroller of the Currency [§2(11)(B)]
— Approved federal branch by the Office of the Comptroller of the Currency [§2(11)©]
Qualified Issuer:
— An entity legally established under state law and approved by the state payment stablecoin regulatory agency [§2(30), §3(a)]
According to the approved subsidiary of the deposit-taking institution under Article 5 [§2(23)(A)(i)]
- Three-Year Grace Period (Article 3(a))
Within 3 years from the date of promulgation of this law, digital asset service providers shall not offer or sell stablecoins issued by issuers without permission.
- Regulatory Supervision (Article 2(25), 4(b), Articles 7, 13)
Federal regulatory agencies: Office of the Comptroller of the Currency (OCC), Federal Reserve, Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA)
State regulatory agencies: responsible for state-level regulation [§7(a)], can choose to join joint regulation or reciprocal arrangements [§4©, §7(b), §18(d)]
- Foreign issuers and the principle of reciprocity (Article 3(b)(2), 8, 18)
Foreign issuers must:
— From jurisdictions with similar systems [§18(a)(1), §18(b)]
— Registration with the Auditor General [§18©]
— Comply with US legal orders [§3(b)(2), §8(a)(1)]
The Ministry of Finance may establish reciprocal arrangements [§18(d)]
- Yield-bearing stablecoin (Article 2(23)(B))
Prohibited: Issuers may not provide yield or interest payments on the issued stablecoins.
- Anti-Money Laundering (AML) and Compliance (Article 4(a)(5), 5(i), Sections 6, 8, 9)
The issuer must:
— Comply with the Bank Secrecy Act [§4(a)(5)(A)]
— Implement anti-money laundering/sanctions programs and customer verification [§4(a)(5)(A)]
— Annual Compliance Certification [§5(i)(1)]
— Submit the report and accept the audit [§6, §9(d)]
- State and federal regulatory framework (Articles 4©, 4(d), 5(h), 7, 13)
≤ 10 billion USD issuance: may still be subject to state government regulation [§4©(1)]
The state government’s regulatory system must be certified [§4©(4)]
$10 billion issuance: must be converted to federal regulation unless exempted [§4(d)]
- Reserve and collateral requirements (Article 4(a)(1), 4(a)(2), 4(a)(3))
Must maintain a 1:1 reserve:
— US currency, insured deposits, short-term government bonds, qualified repurchase agreements[§4(a)(1)]
No further collateralization (exceptions apply) [§4(a)(2)]
If the reserve amount exceeds 50 billion US dollars, reserve disclosures and audits will be conducted monthly [§4(a)(10)]
- Bankruptcy Protection (Chapter 11)
— Holders of stablecoins have priority in bankruptcy [§11(a)]
— Reserve assets are not included in the estate [§11(e)]
— Redemption rights are protected [§11©]
- Marketing and Consumer Protection (Article 4(a)(9), 4(a)(10), 4(e))
— Do not mistake stablecoins for fiat currencies or insured currencies [§4(e)(2)]
— Violations may be subject to a fine of up to $500,000 [§4(e)(3)(B)]
- Interoperability and International Coordination (Article 12, Article 18 (d))
— Can work with NIST to develop interoperability standards [§12]
— The Ministry of Finance can establish a reciprocal international framework [§18(d)]
Broadly speaking, the bill establishes a strictly regulated framework for the issuance of stablecoins in the United States:
- By requiring issuers to accept similar banking regulations, regardless of whether they are banks themselves, consumer protection is ensured. It has strict requirements for short-term collateral, making the stability of stablecoin reserves comparable to that of money market funds. In the event of the issuer’s bankruptcy, stablecoin holders have priority claims, and in any bankruptcy proceedings, the reserve assets are treated as “bankruptcy-remote.”
- By placing the currency supervisory authority (OCC) in a primary regulatory position for stablecoin issuers, the safety and soundness of the financial system is protected. Whether for banks or non-bank institutions, stablecoin issuers must be registered in states where the OCC or their own regulatory level is deemed to be equivalent to federal minimum standards. The liquidity of collateral reserves and their full reserve backing ensures that stablecoins can compete with money market funds.
- Promote the vigorous development of innovation. Given the transparency, speed, and efficiency of public blockchains, stablecoins have significant utility and represent the vanguard of using such blockchains for financial transaction settlement. They are widely used around the world, covering individuals, businesses, and nation-states, significantly enhancing the existing financial tracks of dollar liquidity. The bill grants U.S. “digital asset service providers” (essentially U.S. trading firms and exchanges) a three-year grace period to trade existing but unregistered stablecoins, allowing the industry and market to smoothly transition to the new system.
- Consolidate and expand the dominance of the US dollar. Although the influence of the US dollar faces resistance due to international trade and geopolitical developments, it remains unrivaled in cyberspace. Currently, over 99% of circulating stablecoins are denominated in US dollars. Including stablecoins within the regulatory scope of the world’s most advanced and trusted capital market regulatory systems will increase their usage and help in the global export of the US dollar.
- Supports U.S. debt issuance. The growth of stablecoins, requiring a full reserve almost entirely composed of U.S. Treasury bonds, signifies an increase in the U.S. government’s borrowing capacity.
Criticism of the Democratic Party
Nine Democrats have stated that they will vote against ending debate on the GENIUS Act, including six members of the Senate Banking Committee, five of whom had previously voted in favor of the bill’s submission for committee review.
The nine Democrats wrote in a statement on Saturday evening: “However, the bill still has many urgent issues that need to be addressed, including the addition of stronger provisions, such as anti-money laundering, foreign issuers, national security, ensuring the safety and soundness of the financial system, and holding accountable those institutions that do not meet the requirements of the bill. While we are eager to continue working with colleagues to resolve these issues, we will not be able to vote in favor of ending debate if the current version of the bill is ultimately submitted to Parliament.”
Politico reported this statement with the headline “Democrats Change Strategy, Oppose Senate Cryptocurrency Bill,” but Senator Gallego denied this change, stating, “This is not an arbitrary change by the Democrats,” and that “the bill submitted for full consideration has regressed on many of the advances we’ve made and does not include other improvements we are seeking.”
Updated Revised Bill
The following will analyze the differences between the latest draft of the bill (revised) and the version passed by the Senate Banking Committee. We have analyzed these changes based on five aspects where Gallego and the Democrats have expressed ongoing concerns: 1) Anti-money laundering; 2) Foreign issuers; 3) National security; 4) Maintaining the safety and soundness of our financial system; and 5) Holding accountable actions that do not comply with the bill.
National Security
- Comply with legal orders (Article 4(a)(6))
- Require stablecoin issuers to demonstrate their technical ability to comply with lawful orders in the United States (such as freezing, destroying, or blocking tokens).
- Definition of “legal order”
- Now includes specific requirements and requests for judicial or administrative review.
- Fiscal Coordination Requirements
- Where feasible, the Ministry of Finance must coordinate with the issuer when blocking digital assets.
- Exemptions for intelligence and law enforcement agencies (Article 8(e)(3))
- Exempt from the obligation to comply with key restrictions on U.S. intelligence and law enforcement operations.
- National Security Exemption (Article 8(e)(2))
- If necessary for national security, the Treasury may waive the secondary transaction restrictions after consulting with the Director of National Intelligence and the State Council.
foreign issuer
- Foreign Issuer Restrictions (Section 3)
- Foreign issuers shall not provide stablecoins to Americans unless new requirements are met (e.g., similar foreign regulations, U.S. reserves, registration).
- Reciprocity Mechanism (Articles 16 and 18)
- The Ministry of Finance may determine that a foreign jurisdiction has equivalent regulatory standards, allowing issuers to participate under the following conditions:
- Must be registered with US regulatory authorities.
- Must comply with U.S. laws and regulations.
- Must be held in U.S. custody reserves for U.S. users.
- 90-day revocation safe harbor
- If the Ministry of Finance withdraws comparability status, a 90-day grace period allows the market to adjust before the restrictions take effect.
- Prohibit secondary market trading (Article 8©)
- Prohibit the trading of non-compliant foreign stablecoins in the United States after designation—unless exempted by the Treasury, enforcement will be mandatory.
Anti-Money Laundering (AML)
- Expanding anti-money laundering program requirements (Article 4(a)(5))
- The issuer must:
- Execute anti-money laundering/criminal investment plan/sanctions compliance regulations,
- Monitor and report suspicious activities,
- Maintain records and conduct enhanced due diligence.
- Annual Anti-Money Laundering Certification (Article 5(i))
- Officials must prove their compliance with anti-money laundering regulations every year; false certification will trigger criminal liability and the risk of revocation.
- Added “Anti-Money Laundering Innovation” section (Section 9)
- The Ministry of Finance must explore new tools (such as artificial intelligence and blockchain forensics) to enhance anti-money laundering compliance; the Financial Crimes Enforcement Network needs to follow up with guidance or rule-making.
- Anti-Money Laundering Regulations for Foreign Issuers (Article 8(b))
- If a foreign issuer fails to comply with legal orders related to anti-money laundering, the Treasury must designate it as non-compliant.
The robustness and security of the financial system
- Reserve and asset support (Article 4(a)(1))
- Strengthen 1:1 asset support requirements; assets must be of high quality and high liquidity.
- Bankruptcy Protection (Chapter 11)
- Ensure that stablecoin holders have priority claims over other creditors; require timely redemption in the event of issuer bankruptcy.
- Federal Financial Risk Assessment (Article 15)
- Increased the requirements for FSOC to assess risks related to stablecoins in its annual financial stability report.
- Coordination between State and Federal Systems (Section 7)
- Strengthen the Department of the Treasury’s oversight of state-regulated issuers by requiring the federal government to certify state systems that are “substantially similar.”
- Prohibition on the issuance of income-generating stablecoins (Article 2(23))
- Institutions authorized to issue stablecoins must not provide returns or interest for their stablecoins.
Accountability and Law Enforcement
- Civil penalties for family unlawful acts (Article 6©(5))
- Unauthorized issuance may result in a maximum fine of $100,000 per day.
- Knowing the violation, the maximum fine is $200,000 per day.
- Accountability after leaving the job can last up to six years.
- Penalties for violations by foreign issuers (Article 8©(4))
- After being deemed in violation, the maximum fine amount is $1,000,000 per day.
- The Ministry of Finance may seek an injunction to suspend its trading in the United States.
- Judicial review of actions by the Ministry of Finance (Article 8(d))
- Allows foreign issuers to appeal to the U.S. District Court for the District of Columbia regarding non-compliance designations.
- Strengthen regulatory powers (Article 6)
- Authorization revocation, dismissal of officials, issuance of cease-and-desist orders, and other regulatory tools of federal regulatory agencies.
Each of the modifications mentioned above was made in the weeks following the committee’s overwhelming vote (18 in favor, 6 against, with 5 Democrats and Republicans joining forces) to pass the bill. Many of these modifications reflect the specific demands of members of the Senate Banking Committee, who either voted against the bill in committee or called for such modifications before the bill was submitted for parliamentary review. Our analysis shows that nearly all modifications have made the bill’s regulation of stablecoin issuers stricter compared to the version passed by the Senate Banking Committee.
Conclusion
Overall, the latest version of the GENIUS Act represents a strong victory for the cryptocurrency industry and traditional finance in promoting innovation and protecting consumers. It creates a reasonable registration pathway while implementing strict oversight and regulatory provisions, imposing severe penalties for violations. The passage of the GENIUS Act will enhance the influence of the dollar both domestically and internationally, making it easier for individuals and businesses to conduct everyday transactions in domestic, cross-border, or international trade. All stakeholders stand to gain significantly: the cryptocurrency industry gains a viable path for development while being regulated; it protects the financial system and helps the United States succeed in the geopolitical landscape and the rapidly changing global economy.
