What Is the GENIUS Act?
The Guiding and Establishing National Innovation for U.S. Stablecoins Act, signed into law on July 18, 2025, represents the first federal framework regulating payment stablecoins in the United States. It creates legal clarity for digital tokens pegged to monetary value and intended for payment purposes, replacing years of regulatory ambiguity with enforceable standards.
A payment stablecoin under the Act is a digital asset designed to be used as a means of payment where the issuer is obligated to maintain stable value relative to a fixed monetary amount. The law explicitly excludes central bank money, bank deposits, and traditional securities from its definition.
Who Can Issue Stablecoins?
The GENIUS Act limits stablecoin issuance to three categories of permitted issuers:
Subsidiaries of insured depository institutions — Bank-affiliated entities supervised by their parent institution’s federal regulator (OCC, FDIC, or NCUA). Banks and credit unions cannot issue stablecoins directly but must establish subsidiaries.
Federal qualified issuers — Nonbank entities and uninsured national banks approved by the Office of the Comptroller of the Currency (OCC) to issue stablecoins under federal oversight.
State qualified issuers — Entities operating under state-approved regulatory regimes that have been certified as substantially similar to federal standards. This path is available to issuers with less than $10 billion in outstanding stablecoins.
A critical restriction: permitted stablecoin issuers cannot pay holders any yield or interest on their payment stablecoins.
How Does the Dual-Track Regulatory System Work?
The Federal Path
Issuers of any size can seek federal approval through the OCC (for nonbank entities) or their primary federal regulator (for bank subsidiaries). Federal oversight includes comprehensive supervision over capital, liquidity, reserves, and operational risk management.
The State Path
Issuers with less than $10 billion in outstanding stablecoins may operate under a state regulatory regime — but only if that regime has been certified as “substantially similar” to federal standards by a Stablecoin Certification Review Committee composed of representatives from Treasury, the Federal Reserve, and the FDIC.
The $10 Billion Transition
State-qualified issuers that exceed $10 billion in outstanding stablecoins must transition to federal oversight within 360 days or obtain a waiver permitting continued state supervision. This ensures that systemically significant issuers operate under direct federal authority.
What Are the Reserve Requirements?
Issuers must maintain identifiable reserves backing outstanding payment stablecoins on at least a 1-to-1 basis. Permitted reserve assets include:
- U.S. currency and Federal Reserve notes
- Demand deposits at insured depository institutions
- Treasury bills and notes with 93-day maximum maturity
- Overnight repurchase agreements backed by short-term Treasury securities
- Money market funds investing in government-issued assets
- Tokenized reserve assets compliant with applicable law
Reserves cannot be commingled with operational funds or rehypothecated. Issuers must publish monthly reserve disclosures and submit to regular audits by registered public accounting firms.
What Consumer Protections Does the Act Establish?
Customers retain a clear, enforceable right to redeem stablecoins for the reference currency on demand. Issuers must publish redemption policies in plain language with disclosed fees capped at specified levels. Any fee changes require seven days’ advance notice.
What Is the Legal Classification?
The Act settles a longstanding ambiguity: compliant payment stablecoins are neither securities nor commodities. This clarification removes them from SEC and CFTC jurisdiction and establishes their regulatory home within the banking supervision framework. Non-compliant stablecoins, however, cannot be treated as cash equivalents or used for margin, collateral, or banking settlement purposes.
What Is the Implementation Timeline?
The Act becomes effective at the earlier of 18 months after enactment or 120 days after implementing regulations are finalized. Exchanges and custodians may continue selling non-compliant stablecoins during a transition period ending July 2028 — three years after enactment.
The Coinbax Perspective
Paul Hastings’ analysis maps the complete regulatory architecture that financial institutions must now navigate. The dual-track system, reserve requirements, and consumer protections create a clear framework — but also a demanding set of operational requirements.
For banks and credit unions, the subsidiary model means building dedicated infrastructure for stablecoin operations: reserve management, 1:1 backing verification, redemption processing, and compliance monitoring. The prohibition on commingling reserves and the requirement for monthly audited disclosures demand real-time asset tracking and segregation capabilities. Programmable escrow, built-in reversibility, and automated compliance are not optional features in this regulatory environment — they are the operational foundation that the GENIUS Act requires.
Frequently Asked Questions
Can any company issue stablecoins under the GENIUS Act?
No. Only three categories are permitted: subsidiaries of insured depository institutions (banks and credit unions), federal qualified issuers approved by the OCC, and state qualified issuers operating under certified state regimes with less than $10 billion outstanding.
Why can’t stablecoin issuers pay interest or yield?
The prohibition on paying yield or interest distinguishes payment stablecoins from deposit products and investment securities. This classification keeps them outside SEC and CFTC jurisdiction and prevents them from competing directly with insured bank deposits on a yield basis.
What happens if a state-regulated issuer grows past $10 billion?
The issuer must transition to federal oversight within 360 days or obtain a waiver for continued state supervision. This threshold ensures that large, systemically significant stablecoin issuers operate under direct federal regulatory authority.
Are existing stablecoins like USDC and USDT affected?
Yes. All stablecoin issuers must come into compliance with the GENIUS Act’s requirements by the end of the transition period in July 2028. Exchanges may continue listing non-compliant stablecoins during this window, but issuers that fail to comply will lose their legal status.
How does the GENIUS Act affect foreign stablecoin issuers?
Foreign issuers may operate in the U.S. under specified circumstances, but must meet comparable regulatory standards. Treasury is responsible for determining whether foreign regulatory regimes satisfy the Act’s requirements.