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In a seminal development, President Trump has now officially signed the GENIUS stablecoin act, more formally known as the Guiding and Establishing National Innovation for U.S. Stablecoins Act, into law. This marks the first time the US has enacted a significant crypto-focused law.
The legislation stumbled earlier this week when some House members raised concerns regarding the supposed lacunae within the GENIUS stablecoin act, including its failure to safeguard self-custody of crypto assets, as well as the lack of a formal preclusion of a Central Bank Digital Currency (CBDC).
President Trump then invited some of the discenting members to the White House, ultimately managing to win over 11 out of the 12 additional Congress members required to ensure the passage of the act.
For the benefit of those who might not be aware, the GENIUS stablecoin act creates a comprehensive framework for regulating stablecoins. Among other things, it mandates that stablecoins pegged to the US Dollar have to be backed by eligible reserves - consisting of US Treasuries with maturities of 93 days or less, US dollars, or similar liquid assets - on a 1:1 basis. The legislation also requires regular reserve audits and monthly disclosures. Large stablecoin issuers, with a market cap of $50 billion or more, will be subjected to an annual financial audit.
Under the proposed framework, banks and other eligible entities can issue stablecoins without the onerous requirements entailed under securities laws. However, all issuers will have to comply with anti-money laundering laws and regulations, including rules pertaining to the so-called Know Your Customer (KYC) framework.
The law also prioritizes a stablcoin holder's claims to the issuer's reserves over the claims of creditors in the event of a bankruptcy.
The law also prevents domestic and foreign issuers of stablecoins from offering interest to the holders of these coins.
The GENIUS stablecoin act is expected to provide a major boost to the USD-pegged stablecoins, with the sector's TAM expected to grow from around $240 billion right now to $750 billion by the end of 2026.
Of course, the House has also passed two other bills in what was widely dubbed as the Crypto Week: the anti-CBDC Act and the Clarity Act, which formally divides regulatory jurisdiction over the crypto sector between the SEC and CFTC and creates a framework for consumer protection. Both of these bills are now headed to the Senate.
Meanwhile, in what constitutes a significant development, the asset management titan BlackRock is now manifestly favoring Ethereum over Bitcoin. This suggests a new altcoin mania might be at hand.
So What Happens Next?
Under the GENIUS stablecoin law, stablecoin issuers must procure either a federal or state license to operate. The federal licenses have to be procured from the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC).
Of course, small stablecoin issuers - with a market cap of under $10 billion - can opt for either a state or federal license. However, this choice is not available to larger issuers, who are mandated to seek federal licenses under the GENIUS stablecoin law. The chosen regulator has to decide on a given application within 120 days.
As a part of the licensing framework, applicants must demonstrate sufficient capitalization and their possession of liquid, high quality reserves on a 1:1 basis representing a 100 percent backing of all issued stablecoins, robust internal control mechanisms, and compliance with Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) rules and regulations.
Bear in mind that existing stablecoin issuers such as Circle have a grace period to ensure compliance with the law.
GENIUS stablecoin law becomes effective at the earliest of either 18 months after its passage or 120 days after final regulations are issued.
GENIUS Stablecoin Law Does Create Some Losers
Ths biggest loser under the law is Tether, which is a foreign issuer and can't legally distribute it's USDT stablecoin the US now.
As such, non-compliant stablecoins have to be phased out within 3 years. Tether can, however, create a new US-based subsidiary or partner with an approved stablecoin issuer to maintain its footprint in the US.
Of course, Tether's biggest backer is the investment bank Cantor Fitzgerald, whose former chairman, Howard Lutnick, is the current US Treasury Secretary. So, there is hope yet for Tether.
Big Tech also loses under the GENIUS stablecoin law as these companies - which are not primarily involved in the financial services sphere - will now have to win a unanimous approval from the Stablecoin Certification Review Committee - comprised of the Treasury Secretary (chair), the Fed Chair/Vice Chair for Supervision, and the FDIC Chair - to issue their bespoke stablecoins.
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