Written by: Marcus Wolter and Crystel Saraie

On March 13, 2025, the Senate Banking Committee passed the Guiding and Establishing National Innovation for US Stablecoins Act, commonly known as the GENIUS Act, by a bipartisan vote of 18-6 [1]. This landmark legislation represents the first comprehensive federal framework for regulating stablecoins in the United States, marking a significant step forward in clarifying regulatory expectations around digital assets.

Background on Stablecoins

Stablecoins are digital assets designed to maintain a stable value by being pegged to a reserve asset, such as the U.S. dollar. They offer faster and cheaper transactions, making them valuable for remittances, payments, and decentralized finance (DeFi) applications. They currently have a market capitalization of over $216 billion [2]. However, despite their growing influence, the absence of a clear regulatory framework and a few very notable collapse like Terra Luna have raised concerns about systemic risk and market stability.

In Comes the GENIUS Act

Definition of Payment Stablecoins

The Act formally defines payment stablecoins as digital assets pegged to a fixed monetary value used primarily for payments and settlements. This definition distinguishes them from speculative crypto assets like Bitcoin that go up and down in value compared to Fiat Currencies.

Licensing and Regulatory Framework

The GENIUS Act establishes a licensing system for institutions issuing stablecoins, setting guidelines for:

• Reserve requirements: Issuers must back their stablecoins with tangible, liquid assets such as U.S. Treasuries or cash equivalents.
• Transparency mandates: Regular audits and disclosures are required to ensure solvency and protect consumers.
• Compliance mechanisms: Issuers must adhere to anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.

State and Federal Oversight

A key feature of the Act is the dual regulatory oversight system:

• State regulators will oversee stablecoin issuers with a market capitalization of less than $10 billion.
• Federal oversight will apply to larger issuers, ensuring systemic risk mitigation and compliance with broader financial policies.

Consumer Protection Measures

The Act prioritizes consumer protection by mandating:

• Full asset backing to prevent de-pegging incidents, where a stablecoin’s value deviates significantly from the asset it is supposed to track or maintain parity with, typically a fiat currency.
• Clear redemption policies, allowing users to convert stablecoins into fiat currency seamlessly.
• Regular third-party audits to enhance trust and market integrity.

Future Outlook

The Act is highly likely to pass as it has already been publicly endorsed by President Trump and there is broad political consensus on the need for stablecoin regulation. It has disruption potential for traditional settlement systems and revolutionary implications for crypto banking by providing instant settlements and reducing reliance on traditional banking intermediaries. We expect that the resulting reduced risks associated with unregulated stablecoins and increased investor confidence will encourage further developments in crypto banking and accelerate mainstream adoption of blockchain-based payments, benefiting businesses and consumers alike.

Furthermore, more clear cut regulation re stable coins should facilitate overall growth in the crypto ecosystem as it will lead to saver and more straight forward onboarding for crypto newcomers.

On the other hand, the Act has the potential to reshape the competitive dynamics of the sector as smaller players may struggle with increased regulatory costs and compliance burdens, creating market concentration among larger players and potential M&A opportunities. It may lock in the current competitive landscape and stifle newcomers as increasing banking regulations made it more difficult for neo banks to emerge. In addition, for foreign stablecoin issuers, strict compliance requirements could make U.S. market access a challenge. However, not meeting the requirements may create market consolidation in favour of U.S. entities due to the enhanced credibility under clear regulatory oversight. The GENIUS Act will, therefore, be pivotal in reshaping the banking industry and will require U.S. and foreign entities alike to review their compliance and stay on top of regulations.

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Sources:

[1] Ram, S. (2025, March 14). Senate Banking Committee Advances Genius Act 2025: A major step toward Stablecoin Regulation. DailyCoin. https://dailycoin.com/stablecoin-bill-moves-forward-senate-banking-committee-advances-genius-act/

[2] Key takeaways from the new stablecoin bill (the genius act). AlphaPoint. (2025, March 1). https://alphapoint.com/blog/stablecoin-bill/

[3] Genius act passes Senate Banking Committee: A win for Stablecoins?. Cryptomus. (2025, March 14). https://cryptomus.com/blog/genius-act-passes-senate-banking-committee-a-win-for-stablecoins-news

[4] Evans, T. M. (2025, March 13). Genius act clears Senate Banking Committee: What it means for stablecoins. Forbes. https://www.forbes.com/sites/tonyaevans/2025/03/13/genius-act-clears-senate-banking-committee-what-it-means-for-stablecoins/