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This is needed as part of the evolving DeFi ecosystem with the prospect of future institutional participation.
The GENIUS Act, officially titled the Guiding and Establishing National Innovation in U.S. Stablecoins (GENIUS) Act, was introduced by Senator Bill Hagerty and co-sponsored by Senators Tim Scott, Kirsten Gillibrand, and Cynthia Lummis. The bill aims to regulate stablecoins by establishing clear licensing and supervisory requirements, balancing federal and state regulatory authority, and ensuring transparency through audits and reporting.23
Under the GENIUS Act, stablecoin issuers with a market capitalization of $10 billion or less can opt out of federal regulatory frameworks and operate under state-level oversight, provided their state’s regulatory frameworks are “substantially similar” to federal standards. State regulators must certify this annually to the Treasury Secretary. Issuers whose market cap grows beyond $10 billion have 360 days to opt into the federal regulatory framework implemented by the Federal Reserve Board or Comptroller of the Currency.34
The bill also mandates that stablecoin issuers back their stablecoins with fiat currency or high-quality liquid reserves, such as central bank deposits or U.S. treasury securities, in a fixed 1:1 ratio. Only federally or state-approved entities, such as depository institution subsidiaries, federally qualified nonbank payment stablecoin issuers, and state-qualified issuers, can legally issue stablecoins in the U.S..34
Senator Tim Scott, who chairs the Senate Banking Committee, aims to have the legislation ready for the President’s signature within 100 days. The bill is seen as a landmark federal effort to regulate the payment stablecoin industry in the U.S. and aims to facilitate faster, cheaper, and competitive transactions in the digital world, as well as seamless cross-border payments.23
A companion bill, the STABLE Act, was released by House Financial Services Committee Chairman French Hill and Representative Bryan Steil, which generally aligns with the GENIUS Act.23
The GENIUS Act is designed to address concerns about a potential “race to the bottom” where states might compete to attract stablecoin issuers by lowering requirements. It does this by prescribing the requirements for reserve assets, ensuring that stablecoin issuers operate under provided regulatory standards.
