May 5, 2025, 01:22 PM IST

The U.S. Senate’s landmark stablecoin legislation, tagged #USStablecoinBill, has hit a major roadblock just days before its expected procedural vote. The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, aimed at creating the first federal framework for stablecoin issuers, is now in jeopardy after nine Senate Democrats withdrew their support, citing unresolved concerns over national security, anti-money laundering (AML) provisions, and financial stability. This article examines the latest developments, the bill’s implications, and what’s next for the stablecoin market.


The Current State of the #USStablecoinBill


The GENIUS Act, introduced by Senator Bill Hagerty, seeks to regulate stablecoins—digital tokens pegged to the U.S. dollar, like $USDC and Tether ($USDT)—by requiring 100% reserve backing with U.S. dollars or short-term treasuries, monthly public reserve disclosures, and annual audits for issuers with over $50 billion in market cap. The bill, which passed the Senate Banking Committee with a bipartisan 18-6 vote in March, was set to be a cornerstone of President Trump’s pro-crypto agenda, with a goal of passing crypto legislation by August 2025.

However, on May 3, nine Senate Democrats, including crypto-friendly senators like Ruben Gallego (Ariz.) and Mark Warner (Va.), issued a joint statement refusing to support the bill in its current form. They argue it lacks robust safeguards against illicit financial flows, stricter oversight of foreign stablecoin issuers like Tether, and stronger guarantees to protect the financial system’s stability. This reversal, reported by Politico, threatens the bill’s passage, as it needs at least seven Democratic votes to clear the Senate.


Why the Democrats Backed Out


The Democrats’ concerns center on several gaps in the bill. They demand tougher AML rules to prevent stablecoins from being used for money laundering or terrorist financing, especially by offshore issuers like Tether, which dominates the market with a $145 billion market cap but operates outside U.S. jurisdiction. They also want stricter national security provisions, fearing stablecoins could be exploited by adversarial nations. Additionally, the senators are wary of the Trump family’s involvement in the crypto space—World Liberty Financial, a Trump-affiliated venture, recently launched USD1, a stablecoin used in a $2 billion Abu Dhabi investment in Binance, raising conflict-of-interest concerns, as noted by Senator Elizabeth Warren.


The timing of this pushback is notable. Senate Minority Leader Chuck Schumer reportedly urged Democrats not to commit to the bill, reflecting broader political tensions as Trump’s administration prioritizes crypto-friendly policies. Meanwhile, a parallel bill in the House, the STABLE Act, is also advancing but faces similar criticism for not adequately regulating offshore issuers, a flaw dubbed the “Tether loophole” by the Atlantic Council.


Market Implications: $USDC and Beyond


The uncertainty around this #USStablecoinBill has immediate implications for stablecoins like $USDC, which has a $62.3 billion market cap and is a key player in the U.S. market. $USDC, issued by Circle, aligns well with the bill’s transparency requirements, with 88% of its reserves in Treasury bills. However, delays in the bill could slow institutional adoption, as firms await regulatory clarity. Circle’s recent initiatives—like partnering with Visa for real-time $USDC-to-fiat conversions and launching the Circle Payments Network—may face headwinds if the regulatory landscape remains murky.


Conversely, offshore issuers like Tether could benefit from the bill’s failure, as they’d face less pressure to comply with U.S. rules. Tether, planning a U.S.-based stablecoin launch this year, has been lobbying in Washington to shape the legislation, but its lack of transparency continues to draw scrutiny. The stablecoin market, valued at $238 billion as of March 2025, is projected to hit $2 trillion by 2028, making regulatory clarity crucial for growth.


Broader Context: A Pro-Crypto Shift Under Trump


This #USStablecoinBill is part of a broader pro-crypto pivot under Trump’s administration. His first 100 days have seen sweeping changes, including support for a Bitcoin strategic reserve and the repeal of anti-crypto IRS rules. The crypto industry, buoyed by Trump’s election, has pushed for stablecoin legislation as a foundational step to legitimize the sector. However, the Senate Democrats’ reversal highlights the challenge of balancing innovation with security—a tension also evident in the EU’s #EUPrivacyCoinBan, which targets privacy coins but indirectly boosts transparent stablecoins like $USDC.


What’s Next?


The US Stable Coin Bill's fate hinges on whether Senate Republicans can address the Democrats’ concerns before the procedural vote, expected this week. If the bill stalls, it could delay broader crypto regulation, potentially benefiting offshore players while frustrating U.S.-based firms like Circle and Coinbase, which have lobbied for clarity. Coinbase, a $USDC partner, has even pushed to pause the bill, favoring a more comprehensive crypto framework, a move that’s caused friction within the industry.


Critical Perspective: A Flawed Approach?


While the GENIUS Act aims to bring stability to the stablecoin market, its focus on domestic issuers while leaving giants like Tether unchecked undermines its effectiveness. The bill’s reserve requirements are a step toward transparency, but without global enforcement, illicit use of stablecoins may persist. Moreover, the Trump family’s involvement raises ethical questions—USD1’s role in a major Binance deal suggests potential conflicts, especially as Trump pushes pro-crypto policies. The Democrats’ pushback, while politically charged, highlights real gaps that need addressing for the legislation to truly protect the financial system.


Conclusion


The US Stable Coin Bill was poised to be a landmark for the crypto industry, but the Senate Democrats’ withdrawal has thrown its future into doubt. As the stablecoin market grows, the need for regulation is undeniable—but so is the need for a balanced approach that addresses security without stifling innovation. For now, the industry watches closely as the Senate navigates this critical juncture. Will the bill evolve to win bipartisan support, or will it become another casualty of political gridlock?