The GENIUS Act passes in the U.S. Congress: Analysis of the historic stablecoin legislation

We have spoken numerous times about the GENIUS Act and its implications for stablecoins in the U.S. Trump signed the law today at 2:30 PM in Washington, D.C. Several cryptocurrency companies were present: Allaire from Circle, Ardono from Tether, and Nazarov from Chainlink. This marks the beginning of the rules and regulations that will reduce coins, tokens, and blockchains. Now that this part of the package is approved and signed, we must discuss its implementation. Remember: first adoption, then implementation. Like most laws, once passed, they can be gradually implemented or assigned parameters to meet before full application. This law is no different. Let's get started! ⬇️

➡️ Effective date: The GENIUS Act states that its effective date will be 18 months after its enactment or 120 days after the issuance of final regulations by the primary federal regulators of payment stablecoins, whichever occurs first. This means it will only take effect after all federal and state regulators have issued joint rules on how to implement the parameters of the law. Similar to the gradual implementation of MiCA regulations in the EU, each state will have to create and adopt its own regulations that fit within the framework.

➡️ What happens before the effective date?

🔹 The main framework comes into effect. Only Authorized Payment Stablecoin Issuers (PPSIs), approved at the federal or state level, will be allowed to issue or transact with payment stablecoins from that date. Issuers outside the PPSI framework will not be able to issue or facilitate payments with stablecoins in the U.S. Let's now look at the timelines for creating and adopting rules within this framework. ⬇️

🔹 Regulators must publish implementation regulations within one year of its enactment (signing of the bill today). Therefore, they must publish an implementation plan within one year from today. Three years after its enactment, no stablecoin not issued by a PPSI may be offered or sold in the U.S. by entities such as exchanges or custodians. There is a 12-month transition period after the effective date during which existing or pending issuers may operate while seeking PPSI approval. ⬇️

➡️ The U.S. Treasury acts as the primary federal agency to coordinate stablecoin policy and interagency oversight of this Act ⬇️

🔹 Within one year of its enactment, the Treasury must issue rules to evaluate the regulatory regimes of foreign stablecoins (determinations of "substantially comparable") and define national standards for systemic risk, financial crime mitigation, and operational resilience of stablecoin systems. This allows foreign stablecoin issuers to operate in the U.S. without needing duplicate licenses, if recognized. ⬇️

🔹 The Treasury may designate a stablecoin payment or class of stablecoins as systemically important, triggering stricter oversight, FSOC involvement, and higher standards of capital, liquidity, and governance. The Treasury coordinates with the Federal Reserve (especially regarding systemic risk), the SEC/CFTC (on token classification), state banking supervisors, and the FSOC and OFAC (sanctions compliance).

🔹 Through FinCEN. The Treasury administers the Innovation Period in AML (30-day comment period + 3-year guidance period).

During this period, stakeholders (including issuers, developers, compliance experts, and the public) may submit proposals or comments on new technologies, frameworks, or compliance procedures in AML for stablecoin transactions. The guidance should clarify how new approaches in AML (such as decentralized identity, on-chain analysis, or automated KYC/AML) can meet the requirements of the Bank Secrecy Act (BSA) and related laws. FinCEN is also working with FATF to harmonize global standards. GLOBAL STANDARDS

➡️ Compliance of custodians

Under the GENIUS Act, custodians (entities that safeguard the reserve assets backing payment stablecoins) are explicitly regulated and must meet strict compliance requirements. Any custodian holding reserve assets on behalf of an Authorized Payment Stablecoin Issuer (PPSI) MUST comply.

➡️ Special provisions

🔹 Multi-custodian structures are allowed, but each custodian must comply independently.

🔹 Foreign custodians can only qualify if they are part of a Treasury-approved regime.

➡️ Default risks

🔹 Stablecoin issuers cannot legally operate if their designated custodian does not comply with GENIUS standards. Regulators may revoke a PPSI license if their custody relationships are deficient.

➡️ The GENIUS Act also amends the Bankruptcy Code.

The reserves of stablecoins are protected. The money backing the stablecoins (reserves) cannot be used to settle other debts of the company. It is reserved exclusively for stablecoin holders. If the reserves are insufficient, stablecoin holders still have priority in recovering their money from the remaining assets of the PPSI, ahead of any other creditor. ⬇️

🔹 Reserves excluded from the bankruptcy estate

Adds to Article 541(b) of Title 11 of the United States Code (11 U.S.C.): "(11) the required payment of stablecoin reserves under Section 4 of the GENIUS Act, provided that... Article 362 of this title applies to such reserves." This ensures that reserved funds backing stablecoins are not considered property of the bankrupt PPSI.

🔹 Automatic stay with reimbursement avenue

Amend Article 541(b) of Title 11 of the United States Code (11 U.S.C.) §362(a) and (d) to include: "Stablecoin reimbursement of required reserves... provided that the court makes every effort to start distributions within 14 days of the reimbursement request." Therefore, while a freeze (stay) applies, there is a fast track for holders to begin claiming their funds.

🔹 Elevation of holders to 'Claim' status

Amends 11 U.S.C. §101 by adding: "(40C) ... any person who holds a payment stablecoin issued by the PPSI shall be considered a holder of a claim." This grants standing to holders within the bankruptcy process.

🔹 Superpriority in bankruptcy

Updates 11 U.S.C. §507(a) with: "If a holder cannot redeem the reserves, any remaining claim... will have priority over any other claim... to the extent that compliance with Section 4... requires additional reserves." This makes the claims of remaining token holders the highest priority unsecured claims, even above administrative expenses.

🔹 Intervention rights of regulators

Adds to Article 1109 of Title 11 of the United States Code: "The OCC or the state stablecoin regulator shall 'raise, appear, and be heard on any matter... in a case... in which the debtor is a PPSI.' Regulators have explicit legal standing in PPSI bankruptcies.

➡️ https://www.morganlewis.com/pubs/2025/07/genius-act-passes-in-us-congress-a-breakdown-of-the-landmark-stablecoin-law

➡️ https://www.jdsupra.com/legalnews/us-establishes-first-federal-regulatory-9686451/?utm

➡️ https://www.congress.gov/bill/119th-congress/senate-bill/1582/text?ut