Foresight Foresight Research June 02, 2025 18:26 Portugal 
TL;DR
Main content
Dimension
Key Clauses
Meaning and Impact
Applicable Objects
Only for "payment stablecoins" pegged to the U.S. dollar and with 100% external high-liquidity reserves.
Algorithm stablecoins are excluded from the scope of compliance due to insufficient collateral.
Dual-Track Licenses
Federal Path: One of the three, the Federal Reserve/OCC/FDIC, is the main supervisor; there is no scale limit. State Path: The issuance balance is ≤ US$10 billion, and it can remain in the state regulatory system that is determined to be 'substantially equivalent' by the Secretary of the Treasury. The balance must be upgraded to a federal license or the balance sheet must be reduced within 12 months if it exceeds the limit.
Resolve the "50-state fragmentation" problem, retain state innovation space, and implement unified prudential supervision for large-volume issuers.
Reserve Rules
Permitted assets: cash, Federal Reserve accounts, FDIC insured deposits, U.S. Treasury bonds with a term of ≤ 90 days and their overnight/short-term repurchase agreements; re-pledging or other uses are prohibited.
Prevent shadow leverage; ensure T+1 redemption capability at face value.
Interest Rate Policy
Interest cannot be paid to coin holders, but reserve interest belongs to the issuer and its use must be disclosed.
Stablecoins are positioned as payment tools rather than wealth management products, avoiding direct competition with deposit-taking.
Bankruptcy Isolation
Reserve assets are listed as trust property before Section 507 of the (Bankruptcy Law); coin holders enjoy first priority for compensation.
Solves the long-term pain point of "issuer bankruptcy = users getting burned."
Interstate Exemptions
Issuers who obtain a federal or "substantially equivalent" state license automatically enjoy federal pre-emption and can operate nationwide without having to apply for MTLs in each state.
Significantly reduce compliance thresholds and costs.
Big Tech Restrictions
Non-financial giants can issue, but must set up a specialized subsidiary, accept the same capital and prudential supervision, and must not abuse user data.
Responds to concerns about Libra-style monopolistic currency.
Overseas Issuers
After a 3-year transition period, overseas stablecoins not licensed in the U.S. cannot be publicly issued or listed in the U.S.; the Treasury Department may issue a "non-compliance list."
Tighten the market share of overseas coins such as USDT in the US market, forcing them to increase transparency or exit.
Freezing and AML
Issuers must have built-in freezing/seizure interfaces and fully implement BSA/OFAC.
Very centralized, leaves a back door for law enforcement, and increases compliance pressure on DeFi.
Historical legacy issues resolved
Historical Legacy Issues
GENIUS Act Solution
Unclear Bankruptcy Isolation
Reserves are listed as trust property, and coin holders are the first in line for compensation
Licenses need to be obtained separately in 50 states
Dual-Track Licenses + Federal Pre-emption, Ending the Era of 'Collecting 50 State MTLs'
Is Stablecoin a Security?
Payment stablecoins are clearly defined as non-securities and non-commodities, and interest-bearing stablecoins are securities
Reserve Re-Pledging Risk
Comprehensive prohibition of re-pledging/misappropriation, only exempting ≤ 7-day repurchases
Regulatory blank spot for algorithm stablecoins
100% External Reserve Threshold + Two-Year Risk Assessment Attached by Both Houses
Big Tech shadow banking
Subsidiary Licenses + Business Isolation + Data Abuse Ban
Ambiguous Freezing Rights
Mandates issuers to have the technical ability to freeze, destroy, etc.
Overseas Stablecoin Arbitrage
Transition Period + Non-Compliance List + Cash Equivalent Denial Clause
Main Content Overview
Licensing and Issuing Entities
Payment stablecoins are defined as digital assets used for payment or settlement, pegged to a fixed fiat currency (such as the US dollar), and promising redemption at a fixed amount. The bill allows subsidiaries of banks and credit unions, as well as non-bank institutions, to act as qualified issuers, but the issuing entity must be registered and approved by the relevant regulatory authority. A "dual-track" system is implemented for issuing licenses:
Federal financial regulatory agencies (such as the Office of the Comptroller of the Currency OCC) are responsible for the approval and regulation of federal licenses.
State regulators can issue state licenses provided that similar regulatory standards are met.
It is worth noting that the bill does not directly prohibit large technology companies (Big Tech) from issuing stablecoins, but the above-mentioned license and business isolation requirements mean that even if large technology companies participate, they need to set up a regulated subsidiary to specialize in stablecoin business. This is in response to previous regulatory concerns about stablecoins such as Libra, while not completely excluding Big Tech from the market.
Reserve requirements
To ensure the stability of the currency value and redemption, the bill requires that the value of reserve assets must not be less than US$1 for every US$1 of stablecoins issued. Compliant reserve assets are strictly limited to safe and highly liquid asset classes, including: cash and coins, Federal Reserve account balances, deposit-taking accounts of banks/credit unions, US Treasury bonds with a remaining maturity of no more than 90 days, repurchase/reverse repurchase agreements pledged with Treasury bonds, government money market funds, etc., and other similar government-issued assets approved by regulators.
Algorithm stablecoins (i.e., stablecoins that mainly rely on algorithms or internal digital assets to maintain anchoring) do not meet the definition of "payment stablecoins" due to the lack of sufficient external reserves, and are in fact excluded from the scope of compliant issuance. The corresponding bill (STABLE Act) proposed by the House of Representatives even explicitly implemented a two-year suspension of the issuance of new algorithm stablecoins, pending further research and regulatory measures. The GENIUS Act does not immediately and comprehensively ban algorithm stablecoins, but requires regulators to closely monitor the risks of such products. In essence, it still uses the 100% reserve principle to ensure that all stablecoins on the market have physical support, so as to prevent the barbaric growth of algorithm coins without reserve support.
Reserve assets must not be arbitrarily misappropriated or re-pledged. Issuers are prohibited from using reserves for purposes other than redemption and specific safe investments, and are only allowed to participate in low-risk operations such as treasury bond repurchases in limited circumstances. This provision blocks the space for issuers to use reserves for high-risk investment arbitrage and prevents "shadow banking" risks.
Redemption and priority redemption
The bill strengthens the redemption rights of coin holders. At the same time, it requires monthly disclosure of the number of stablecoins in circulation and their corresponding reserve composition, signed and confirmed by the CEO and CFO, reviewed quarterly by independent accountants, and issuers with a scale exceeding US$5 billion must also submit audited annual financial reports.
In the event of bankruptcy, the bill grants stablecoin holders priority right to compensation by amending the federal bankruptcy law: stablecoin reserve assets should first be used to meet the redemption needs of holders during the issuer’s bankruptcy liquidation, with priority over other general claims of the issuer.
This is equivalent to legally isolating the reserve from the issuer's own assets in bankruptcy, preventing stablecoin holders from suffering losses due to the issuer's bankruptcy. This priority redemption arrangement fills the gap in stablecoin bankruptcy protection in the past and is regarded as a key consumer protection measure.
Operating Restrictions
Prohibit paying interest or dividends to coin holders - the bill clearly stipulates that payment stablecoins shall not pay any interest or income to holders. In other words, coin holders do not enjoy the interest generated by reserves for holding stablecoins. This provision avoids stablecoins from being packaged as investment products, thereby circumventing securities regulations or triggering runs. In fact, the interest income generated by current stablecoin reserves will be owned by the issuer, and the law does not force the issuer to share it with users, which has also become one of the sources of income for the issuer's business model.
In addition, the bill requires issuers to focus on core businesses: stablecoin issuers are only allowed to engage in business activities directly related to issuing and redeeming stablecoins, managing reserve assets, and providing custody services for stablecoins and their private keys. Unless additional permission is obtained from regulators, issuers shall not engage in other unrelated mixed operations to reduce complex risks.
Anti-Money Laundering and Freezing Obligations
The bill incorporates stablecoin issuers into the scope of "financial institutions" stipulated in the (Bank Secrecy Act) (BSA). Issuers must establish risk-based anti-money laundering (AML) and sanctions compliance programs, including user identification and suspicious activity reporting.
No ability to resist censorship: It is worth mentioning that the GENIUS Act has added technical capability requirements, stipulating that issuers must have the technical means to freeze, seize, destroy or prevent the transfer of issued stablecoins when receiving a legal order from a federal court or regulatory agency. In other words, issuers need to have the ability to execute blacklists to freeze or revoke the stablecoins they issue, so as to cooperate with law enforcement agencies to combat illegal activities. This requirement provides an enforcement interface at the stablecoin smart contract level, which will have an indirect impact on the DeFi and other decentralized application ecosystems.
At the same time, the Financial Crimes Enforcement Network (FinCEN), a subsidiary of the Treasury Department, is required to develop new methods for monitoring illegal activities targeting digital assets to improve the ability to discover suspicious transactions on the chain.
Restrictions on Overseas Issuers
The bill sets out gradually tightening regulations for stablecoins such as Tether (USDT), which are registered overseas but serve American users. Three years after the bill takes effect, the issuance or sale of unlicensed foreign stablecoins to the public in the United States will be prohibited. This means giving the market a transition period, after which American users will basically only be able to use compliant licensed stablecoins.
The Treasury Department may negotiate and sign "regulatory equivalence" mutual recognition agreements with foreign regulators, recognizing stablecoins issued by jurisdictions whose regulatory framework is comparable to that of the United States and which have the ability to freeze transactions. Compliant stablecoins from eligible countries/regions, such as those with technical means to freeze illegal transactions, a commitment to comply with U.S. legal orders, and sufficient reserves held within U.S. financial institutions to meet domestic redemptions, may be licensed for trading and use within the United States. Even so, overseas issuers must still register with the OCC and be subject to ongoing supervision, and U.S. regulators reserve the power to waive specific requirements.
In addition, the bill also sets up a "disfavored status" clause: unlicensed foreign stablecoins will not be treated as cash equivalents, and U.S. regulated institutions (such as brokers, clearing houses, etc.) shall not include them in capital or collateral. For example, if a stablecoin issuer fails to comply with U.S. "freezing orders," U.S. brokers may be prohibited from providing transaction matching for it. These measures are designed to block the arbitrage space for overseas stablecoins under supervision and encourage overseas coins such as USDT to either exit the U.S. market or improve compliance transparency to gain access. Overall, the bill reduces the unfair competition of stablecoins not regulated by the United States against compliant products through regulatory discrimination measures and prevents funds from circulating out of order through overseas channels.
Focus 1 – Regulations on whether interest is allowed
The GENIUS Act clarifies that payment stablecoin holders themselves shall not receive interest or income as a result of holding stablecoins. That is to say, stablecoins do not provide interest returns. Unlike bank deposits, stablecoins are more like prepaid value instruments that can be cashed at any time.
There are multiple considerations for the legislation to do so: First, to avoid packaging stablecoins into financial products, thereby bypassing securities laws or inducing consumers to treat them as investments; Second, to prevent issuers from engaging in high-risk interest rate competition in order to compete for users, endangering reserve safety. However, the law does not prohibit the reserve assets themselves from generating interest income. In fact, issuers are allowed to invest reserves in safe assets such as short-term U.S. Treasury bonds and repurchases, which will generate interest or repurchase income. The legal ownership and distribution of this part of the income are not required by the bill to be returned to the coin holders, so it is defaulted to be owned by the issuing institution.
In the future, with changes in the interest rate environment and market competition, it is not ruled out that some issuers will voluntarily take out part of the income to give back to users, but at the regulatory level, the superficial characteristic of "zero interest" will still be maintained so as not to trigger securities or deposit-like supervision. In short, the GENIUS Act positions stablecoins as payment instruments rather than income instruments, and clarifies the boundary with savings products by prohibiting interest payments to coin holders, consolidating their legal attributes as non-securities' 'substantially equivalent' status.
Focus 2 – Core Differences Between State and Federal Regulation
While establishing a federal regulatory framework, the GENIUS Act retains a certain amount of state regulatory space, but clearly divides the powers and standards of the two.
Scope and Size Threshold: The bill adopts a "federal + state" dual-track parallel model, determining the regulatory path based on the size of the issuer.
Non-bank institutions with a total issued market value of less than US$10 billion can choose to remain in the compliant state regulatory system;
Once the issuance scale exceeds 10 billion, it must be converted to federal regulation within 360 days, or stop issuing new coins until the scale drops below the threshold. This mandatory conversion mechanism ensures that large stablecoins are subject to unified federal regulation, preventing huge issuers from roaming outside of federal regulation at the state level.
Regulatory Standards and Information Disclosure: Regardless of federal or state license, the bill requires consistent core regulatory standards: including 1:1 reserve, monthly reserve disclosure, capital adequacy and liquidity requirements, risk control and IT security standards, etc. Federal regulators will formulate detailed implementation rules, and state regulators need to establish equivalent state regulations accordingly. Specifically, requirements such as monthly disclosure of reserve and circulation information, CEO/CFO signatures, and annual audits also apply to state issuers, and they need to report to the federal government for record keeping. Therefore, state supervision is not relaxed in terms of information transparency and risk control requirements.
Interstate Operation and Exemption Mechanism: In the past, stablecoin issuers usually needed to apply for currency transfer licenses (MTL) in multiple states to legally provide services to users across the United States, which was widely criticized. The GENIUS Act solves this pain point through the federal pre-emption mechanism - issuers who obtain a federal license are automatically exempt from the duplicate licensing requirements of each state. For issuers holding state licenses and whose state system has been certified, they can also legally conduct business in other states without having to obtain approval from each state. This essentially establishes a "national single passport" system and unifies market access. It needs to be emphasized that if an issuer obtains a license in one state and expands to the whole country, the state license it holds must maintain consistency with federal standards, otherwise the federal government has the right to revoke its national access qualification. At the same time, federal regulatory agencies (such as the Federal Reserve or the OCC) are given the "bottom-line" enforcement power to intervene in state issuers: in the event of abnormal emergencies or state regulatory failure, the federal government can directly take enforcement actions against state issuers. This two-tier structure ensures respect for state supervision in peacetime, and the federal government can intervene in time to maintain financial stability in chaotic situations.
Historical regulatory pain points addressed by the bill
The introduction of the GENIUS Act specifically addresses many pain points and gray areas in the field of U.S. stablecoin regulation in the past:
Bankruptcy Isolation Problem: Previously, the rights of stablecoin holders lacked clear protection in the event of the issuer's bankruptcy. For example, without a special trust structure, USDC holders were theoretically unsecured creditors in Circle's bankruptcy. The bill gives the reserve the status of trust property by amending the law to ensure that holders have priority redemption. This solves the gap in stablecoin bankruptcy protection and helps stablecoins establish a trustworthy credit base.
State License Fragmentation: For a long time, non-bank stablecoin companies like Circle had to apply for more than 40 currency transfer licenses (MTL) in all 50 states of the United States to operate in compliance, which cost a huge amount of compliance costs and time. Regulatory differences in different states may also lead to compliance arbitrage and regulatory vacuums. The GENIUS Act establishes a parallel system of federal licenses and "substantially similar" state licenses, combined with federal pre-emption, which breaks down the state license barriers in one fell swoop. In the future, stablecoin issuers will no longer need to travel to each state, reducing the market access threshold and alleviating the problem of "regulatory havens."
Unclear Legal Attributes: In the past, the regulatory definition of stablecoins in the United States was vague, and there has always been controversy over whether they are securities. The SEC has hinted that certain stablecoins may constitute securities, which would require them to follow securities laws. The bill clarifies that payment stablecoins are neither securities nor commodities (provided that the issuer is within the licensing framework) and are not federally insured deposits. This clarification excludes stablecoins from the jurisdiction of the SEC and CFTC, eliminating the hidden danger that compliant stablecoin issuers will be sued by the SEC for illegal securities issuance. This fills the regulatory gray area and provides the industry with the legal certainty it urgently needs.
Reserve Re-Pledging Risk: Due to the lack of special regulations, how stablecoin reserves are managed previously mainly relied on issuers' self-discipline and market trust. Some people are worried that issuers may misappropriate reserves for risky investments or secondary pledges to obtain income, eroding redemption capabilities. The bill strictly limits the scope of reserve investment (cash, short-term Treasury bonds, etc.) and prohibits the use of reserves for purposes other than redemption and specific safe transactions. At the same time, it requires regular audits and information disclosure to increase transparency. This plugs the loopholes in the abuse of reserves and makes all parties in the market more confident in the safety of the reserve fund.
Freezing Authority and Compliance Obligations: In the past, whether stablecoin issuers needed to fulfill obligations such as sanctions freezes was not explicitly stipulated. Most of them relied on issuers' cooperation (for example, Circle had voluntarily frozen addresses sanctioned by the U.S. government). The bill requires issuers to have the technical ability to freeze illegal transactions for the first time in law and fully incorporate them into the anti-money laundering system. This fills the regulatory gap in stablecoin monitoring of illegal activities and law enforcement cooperation, making the stablecoin network no longer a place outside the law. At the same time, it also responds to law enforcement agencies' long-term concerns about crypto stablecoins being used for money laundering and fraud.
Regulatory Blank Spot for Algorithm Stablecoins: Algorithm stablecoins such as TerraUSD exposed huge risks in the 2022 collapse, but there were no special laws prohibiting such products before. The GENIUS Act, through the 100% reserve requirement, actually blocks algorithm stablecoins that do not have sufficient external reserve support from the scope of "payment stablecoins" and prohibits issuers from impersonating stablecoins to issue algorithm coins to the public from the source. At the same time, the legislative level requires further research and assessment of the risks of algorithm stablecoins to reserve space for future supervision. This preventive measure timely fills the regulatory vacuum of algorithm stablecoins and prevents similar Terra events from happening again.
Large Technology Company Issuance Restrictions: Facebook's attempt to issue Libra stablecoins triggered strong regulatory backlash. Historically, there have been voices suggesting prohibiting non-financial large technology companies from issuing stablecoins (worrying that their user base is too large and may trigger financial stability problems). The GENIUS Act does not explicitly prohibit Big Tech from participating, but ensures that any company issuing stablecoins is subject to the same strict supervision by requiring issuance licenses and business isolation. If large technology companies want to issue, they need to establish a regulated issuing entity, which can only operate stablecoin-related businesses and accept the same prudential supervision as financial institutions. To a certain extent, this eliminates the risk of large technology companies using ecological monopolies to launch "shadow currencies." The bill does not directly name and restrict Big Tech, which is regarded as an open attitude towards innovation, but it also builds a high threshold through unified supervision, so that whether technology giants or small companies must abide by the same rules to prevent the emergence of unregulated technology oligarchy coins.
Overseas Stablecoin Arbitrage Space: For a long time, U.S. dollar stablecoins issued overseas, such as Tether (USDT), are relatively lax in asset transparency and compliance requirements because they are not subject to U.S. supervision, but they can widely enter the U.S. market through crypto trading platforms and compete with USDC, which has higher compliance, forming a regulatory arbitrage. This phenomenon worries regulators and creates unfair competition for compliant issuers. The GENIUS Act basically blocks the channels for overseas stablecoins to enter the United States without supervision by restricting the sale of overseas stablecoins, requiring overseas issuers to register for inspection, and denying the cash equivalent status of non-compliant stablecoins. After a three-year transition period, stablecoins that do not comply with U.S. standards will be difficult to circulate on mainstream platforms, and the convenience for U.S. investors to use such coins will also be reduced. This compresses the arbitrage space for overseas coins such as USDT, forcing them to increase transparency or give way to compliant coins, thereby improving market stability and compliance levels as a whole.
Impact of the bill on different players
Financial Institutions (Banks vs. Non-Banks)
Banks and Credit Unions
Access is opened: Insured banks and credit unions can issue stablecoins through subsidiaries, manage dollar assets on the chain, and access the Federal Reserve's clearing system, meaning that "bank-based digital dollars" become a legal option.
Competition intensifies: The same federal/state license is also open to non-bank giants such as PayPal, Stripe, and Meta; banks must retain customers with brand, compliance, and payment network advantages.
Policy buffer: Regulators have hinted at differentiated capital requirements for community banks, avoiding the double squeeze on small banks from "Big Tech + Big Banks."
Non-bank issuers (Circle, Paxos, etc.)
Rising hurdles: Must meet federal baselines such as quarterly audits, stress tests, and ≥ 3% Tier 1 capital, which small teams can't afford – the market will concentrate towards the top.
Dividend release: Federal or "substantially equivalent" state licenses provide one-time national portability and can apply for Fed accounts or repurchase facilities, reducing reserve and clearing costs.
Business model expansion: With clear legal status, issuers can confidently expand into high-margin businesses such as B2B payments, on-chain lending, and cross-border settlements.
DeFi Ecosystem
Positive Pull: The liquidity and transparency of compliant stablecoins (USDC, PayPal USD, etc.) are both improved, and institutions can confidently engage in DEX trading, yield aggregation, and collateral lending on the chain.
Compliance Thresholds: Issuers must have built-in freeze/blacklist functions; the draft also suggests including front-end developers, RPC nodes, etc. in the BSA/AML scope.
The result may be "two DeFi tracks"
Whitelisted chain + compliant front end, targeting institutions and ordinary users;
Purely decentralized, continue to use decentralized collateral coins (such as DAI) and stay away from American users.
Governance Opportunities: If the project actively connects with compliant stablecoins and supports address filtering, it may be able to obtain liquidity injections and cooperation channels from banks or payment giants in the future.
Overseas stablecoins (USDT, etc.)
Three-year countdown: After the transition period, overseas stablecoins that have not obtained a U.S. license will be delisted by exchanges, brokers, and clearing houses; anonymous OTC may still exist, but liquidity and anchoring strength will weaken.
Two ways out
Compliance - set up an entity in the United States, accept audits, support freezing, and obtain an issuance license;
Withdraw from the United States - continue to serve regions such as Asia and the Middle East, but decouple from the U.S. financial system.
Market Reshaping: Once the share of USDT, etc. shrinks, the proportion of compliant U.S. dollar stablecoins in global DeFi and cross-border payments will increase, and the U.S. dominance will be more easily controlled by U.S. local regulators.
Reference
S.394 GENIUS Act Bill Text – Congress.gov
https://www.congress.gov/bill/119th-congress/senate-bill/394/text
S.919 GENIUS Act Alternate Version – Congress.gov
https://www.congress.gov/bill/119th-congress/senate-bill/919/text
Bloomberg – “Stablecoin Bill Advances in U.S. Senate” (2025-05-19)
https://www.bloomberg.com/news/articles/2025-05-20/stablecoin-legislation-advances-in-senate-in-big-win-for-crypto
Reuters – “Crypto execs lobby Congress to let stablecoins pay interest” (2025-04-03)
https://www.reuters.com/technology/crypto-execs-ask-congress-let-stablecoins-pay-interest-bill-set-advance-2025-04-03/
Ledger Insights – “Senators expect GENIUS Act approval within ten days” (2025-05-15)
https://www.ledgerinsights.com/senators-believe-us-genius-act-will-be-approved-within-ten-days/
House Financial Services Committee – Discussion Draft Press Release (2025-02-06)
https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=409458
OCC Interpretive Letter 1183 – Crypto-asset activities (2025-03-07)
https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1183.pdf
OCC News Release NR-OCC-2025-16 – Clarifies bank stablecoin authority
https://occ.gov/news-issuances/news-releases/2025/nr-occ-2025-16.html
