Understanding the GENIUS Act
Overview of the GENIUS Act
The Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (GENIUS Act) is the first U.S. federal law to create a comprehensive regulatory framework for payment stablecoins–digital tokens pegged to a monetary value (e.g. the US dollar) and intended for payments. Enacted in July 2025, this law defines for the first time who is allowed to issue stablecoins, how they must be backed, and which regulators will oversee them. The GENIUS Act’s core goals are to protect consumers, ensure stablecoin reliability through strong reserves, reinforce the U.S. dollar’s reserve currency status, and prevent illicit use of stablecoins. By replacing the previous patchwork of state-by-state rules with a unified federal approach, the Act aims to bring clarity and confidence to the stablecoin market in the United States.
Purpose and Key Provisions
Consumer Protection and Reserves: The GENIUS Act creates the first federal oversight system for stablecoins, emphasizing safety and transparency. Stablecoin issuers must hold 100% reserve backing in highly liquid assets (like U.S. dollars or short-term Treasury bills) for every coin issued. They are required to publish monthly public reports detailing the total stablecoins in circulation and the composition of their reserves. These reports must be certified by the issuer’s CEO/CFO and reviewed by independent auditors, providing ongoing transparency and accuracy. No interest can be paid to stablecoin holders, ensuring the tokens function purely as a payment medium rather than an investment product. In case an issuer fails, the law prioritizes stablecoin holders’ claims in bankruptcy above other creditors, adding an extra layer of protection for consumers. It also forbids deceptive marketin—issuers cannot mislead users that a stablecoin is government-backed, insured, or legal tender.
Regulatory Oversight (Federal and State): The Act tightly controls who may issue stablecoins. Only approved and regulated entities – known as “permitted payment stablecoin issuers” – are allowed to issue payment stablecoins in the U.S.. This includes entities like insured banks (or their subsidiaries), specially licensed non-bank companies approved by federal regulators, and state-chartered issuers in states with robust equivalent rules. In other words, an issuer must obtain a license/approval under the GENIUS Act framework to legally issue stablecoins. All permitted issuers fall under prudential supervision: they must meet capital, liquidity, and risk management standards set by regulators (tailored to stablecoin business models) and are subject to periodic examinations by their primary regulators. The law strikes a balance between federal and state authority: smaller issuers (under $10 billion in stablecoin circulation) can operate under qualified state regulatory regimes, but larger issuers or those opting into federal oversight will be directly supervised by federal agencies (such as the Office of the Comptroller of the Currency for non-banks). This dual pathway allows innovation under state programs while maintaining high, uniform standards nationwide.
Financial Integrity and National Security: To combat illicit finance, stablecoin issuers are explicitly subject to the Bank Secrecy Act (BSA) and related anti-money laundering (AML). Every issuer must implement robust AML and sanctions compliance programs – verifying customer identities, monitoring transactions, and screening for risks–just as traditional financial institutions . Regulators (FinCEN) are directed to create tailored AML rules for stablecoins and even explore novel methods to detect illicit activity in digital assets. Additionally, issuers must maintain the technical capability to freeze or disable tokens when required by law (e.g. in response to sanctions or court orders). By instituting these measures, the Act aims to prevent stablecoins from being misused for money laundering or sanctions evasion, leveling the playing field between U.S. and foreign issuers on compliance obligations.
U.S. Dollar Support: A strategic objective of GENIUS is to bolster the U.S. dollar’s role in the global economy. By requiring that stablecoins be backed largely by U.S. currency and Treasury assets, the law will drive demand for U.S. Treasuries and strengthen the dollar’s reserve currency status. Lawmakers anticipate that clear regulations will attract more stablecoin business onshore, spurring innovation in the U.S. while ensuring that growth in this sector also supports U.S. fiscal strength and competitiveness.
What Is a "Fully Regulated Stablecoin" Under the GENIUS Act?
A “fully regulated stablecoin” refers to a stablecoin that is issued in full compliance with the GENIUS Act’s requirements–in practice, a stablecoin issued by a licensed permitted stablecoin issuer and meeting all the operational standards set by the new law. Key characteristics of a fully regulated stablecoin include:
Licensed Issuer: It can only be issued by a “permitted payment stablecoin issuer,” meaning the issuer is a U.S. entity that has obtained regulatory approval to issue stablecoins under the Ac\. This category covers three groups: (1) an FDIC-insured bank’s subsidiary (approved by federal bank regulators), (2) a federally qualified nonbank issuer (a new charter/approval granted by the OCC for stablecoin issuance, including certain uninsured national banks or U.S. branches of foreign banks), or (3) a state-qualified issuer approved by a state regulator in a state with regulations deemed comparable to the federal standards. Ineligible companies (especially large tech or “non-financial” firms) cannot issue stablecoins unless they receive a special unanimous approval from the Treasury, Federal Reserve, and FDIC via a Stablecoin Certification Review Committee. This licensing ensures that every fully regulated stablecoin comes from an entity under ongoing government supervision.
Full 1:1 Reserves: Every fully regulated stablecoin must be 100% backed by high-quality, liquid reserve assets at all times. The GENIUS Act defines what counts as eligible reserves–primarily U.S. cash and cash equivalents such as insured bank deposits, short-term U.S. Treasury bills, and other low-risk instrument. Issuers cannot lend out or risk these reserves beyond very limited uses (e.g. holding them in safe collateralized arrangements), and they must be kept segregated from the issuer’s own funds. This means that for every $1 of a stablecoin in circulation, there is at least $1 in real dollar assets or Treasury-backed assets held in reserve. Such strict reserving is meant to guarantee that holders can always redeem a fully regulated stablecoin one-for-one for U.S. dollars, preserving price stability and confidence.
Transparency and Audits: The law imposes strong transparency and audit requirements on stablecoin issuers to qualify as fully regulated. Monthly reserve reports must be posted publicly, detailing the number of stablecoins issued and the exact makeup of the reserves backing them. Each monthly report is subject to an independent examination: a registered public accounting firm must review (“attest”) the reserves and the issuer’s CEO and CFO must formally certify that the disclosures are accurate. In addition, larger issuers (those with over $50 billion in stablecoins outstanding) are required to undergo annual full financial audits by an independent auditor and submit these audited financial statements to regulators. These audit and disclosure rules ensure ongoing verification that the stablecoin is truly fully reserved and that any user can trust the stability of the coin’s value. Regulators also receive regular reports and can conduct their own examinations, so a fully regulated stablecoin operates under a level of oversight similar to traditional financial institutions.
In summary, a “fully regulated stablecoin” under the GENIUS Act is one issued by a duly authorized, regulated company, with complete reserve backing and frequent auditing/reporting to prove that backing. It adheres to all the Act’s safeguards–from licensing and capital requirements to transparency and compliance measures—distinguishing it from unregulated or offshore stablecoins. Such coins are intended to offer the public a secure, trustworthy digital payment instrument on par with other well-regulated financial products.