The GENIUS Act is passed in the U.S. Congress: Analysis of the historic stablecoin law

We have discussed the GENIUS Act numerous times 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: adoption first, then implementation. Like most laws, once approved, they can be implemented gradually or be assigned parameters to meet before full enforcement. 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 apply the law's parameters. Similar to the gradual implementation of MiCA regulations in the EU, each state will need to create and adopt its own regulations that fit within the framework.

➡️ What happens before the effective date?

🔹 The primary framework comes into effect. Only Authorized Payment Stablecoin Issuers (PPSIs), federally or state approved, will be authorized to issue or conduct transactions 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 (bill signing 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 can 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 assess the regulatory regimes of foreign stablecoins (determinations of "substantially comparable") and define national standards for systemic risk, financial crime mitigation, and the operational resilience of stablecoin systems. This allows foreign stablecoin issuers to operate in the U.S. without duplicative licensing, if recognized. ⬇️

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

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

During this period, stakeholders (including issuers, developers, compliance experts, and the public) can submit proposals or comments on new technologies, frameworks, or AML compliance procedures for stablecoin transactions. The guidance must clarify how new approaches to 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 also collaborates with FATF to harmonize global standards. GLOBAL STANDARDS

➡️ Custodian compliance

Under the GENIUS Act, custodians (entities that hold 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 regime approved by the Treasury.

➡️ Default risks

🔹 Stablecoin issuers cannot legally operate if their designated custodian does not meet 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 stablecoins (reserves) cannot be used to pay off other debts of the company. It is reserved exclusively for stablecoin holders. If the reserves are insufficient, stablecoin holders still have priority to recover their money from the remaining assets of the PPSI, before any other creditor. ⬇️

🔹 Reserves excluded from the bankruptcy estate

Adds to section 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... section 362 of this title applies to such reserves". This ensures that reserved funds backing stablecoins are not considered property of the bankrupt PPSI.

🔹 Automatic suspension with a reimbursement pathway

Amends section 541(b) of Title 11 of the United States Code (11 U.S.C.) §362(a) and (d) to include: "Reimbursement of payment stablecoins from the required reserves... provided that the court shall do its best to begin distributions within 14 days after the reimbursement request". Thus, while a freeze (suspension) applies, there is a fast track for holders to start claiming their funds.

🔹 Elevating holders to the "Claim" category

Amends 11 U.S.C. §101 by adding: "(40C) ... any person holding 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... shall have priority over any other claim... to the extent that compliance with section 4... requires additional reserves". This elevates the claims of remaining token holders to the highest priority unsecured claims, even above administrative expenses.

🔹 Rights of regulatory intervention

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