Seven Things to Know About the Federal Stablecoin Bill, the GENIUS Act

Background

On February 4, 2025, Senator Bill Hagerty (R-TN) introduced the Guiding and Establishing National Innovation for U.S. Stablecoins (“GENIUS”) Act. The Act is co-sponsored by Senate Banking Committee Chairman Tim Scott (R-SC) and Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY), and is based on the discussion draft that Senator Hagerty released in October 2024. The legislation establishes a federal licensing and supervisory framework for payment stablecoins and their issuers.

On the same day, White House AI and Crypto Advisor David Sacks (also known as the “crypto czar”) held a press briefing focused on digital assets. He outlined the Trump administration’s legislative priorities for the crypto industry, emphasizing two key legislative efforts: the GENIUS Act and a regulatory framework for market structure. Senate Banking Committee Chairman Tim Scott expressed confidence during the briefing that both bills would move forward swiftly, with the GENIUS Act taking the lead.

On February 6, 2025, House Financial Services Committee Chairman French Hill (R-AR) and Representative Bryan Steil (R-WI) released a discussion draft of stablecoin legislation (called the Stablecoin Transparency and Accountability for a Better Ledger Economy (“STABLE”) Act of 2025) in an effort to commence the companion legislative process in the House of Representatives. In a press release on the draft, Representatives Hill and Steil indicated their willingness to work with their Senate colleagues to pass payment stablecoin legislation. The House discussion draft generally aligns with the GENIUS Act, but we will continue to closely monitor the progress of both bills.

Here are our seven key takeaways for the GENIUS Act introduced in the Senate:

Takeaway 1: The bill prohibits the issuance of a payment stablecoin in the United States by any person that is not a “permitted payment stablecoin issuer.” 

Under Section 5 of the Act, only permitted payment stablecoin issuers are legally authorized to issue payment stablecoins. Specifically, an issuer must be one of the following:

1. Subsidiary of an insured depository institution approved to issue stablecoins (a subsidiary that is regulated by the appropriate federal banking agency);
2. Federal qualified nonbank payment stablecoin issuer (a non-FDIC insured institution that is regulated by the Office of the Comptroller of the Currency (“OCC”)); or
3. State-qualified payment stablecoin issuer operating under federal standards or state standards that are substantially similar to the federal standards (a state-chartered entity regulated by a state banking agency).

Stablecoin issuers with greater than $10 billion in market capitalization would be subject to federal regulation by the appropriate federal banking agency, while stablecoin issuers with $10 billion or less in market capitalization would have the option of state regulation by the relevant state banking agency, as long as the state regulation satisfies certain federal standards.

Takeaway 2: The bill defines “payment stablecoin” as a digital asset that maintains a fixed value through backing by fiat currency or other secure reserves.

The bill defines a “payment stablecoin” as a digital asset designed for use as a means of payment or settlement. The bill mandates that these stablecoins must be fully backed on a 1:1 basis with U.S. dollars or other approved high-quality liquid assets such as Treasury bills and repurchase agreements. Additionally, stablecoin issuers must maintain public redemption policies and take necessary steps to ensure price stability relative to the U.S. dollar.

Takeaway 3: The bill imposes federal standards on permitted payment stablecoin issuers, including requirements for fully backed reserves, segregation of reserves, monthly certification, and capital and liquidity requirements, as well as a prohibition on rehypothecation.

Under the Act, stablecoin issuers would be required to comply with prudential standards, including:

1. Maintaining reserves backing the issuer’s payment stablecoins on at least a 1:1 basis;
2. Segregating the aforementioned reserves from operational funds;
3. Avoiding rehypothecation (i.e., the use of reserves for purposes other than backing the stablecoin);
4. Completing a monthly certification that attests to the sufficiency of reserves; and
5. Satisfying capital and liquidity requirements.

Takeaway 4: The bill allows state-regulated payment stablecoin issuers to issue stablecoins, but only if the regulatory regime that applies is substantially similar to the federal regime.

A stablecoin issuer with a total market capitalization of $10 billion or less may opt for state regulation, provided that the state regulatory regime is “substantially similar” to the federal regulatory regime that will be created under the bill. Additionally, state banking agencies can enter into agreements with the Federal Reserve Board to allow for federal supervision, examination, and enforcement over state-approved stablecoin issuers.

If a state-regulated stablecoin issuer reaches $10 billion in total assets, it must transition to federal oversight within 360 days or cease issuing new stablecoins until it falls below the threshold. This will ensure that larger stablecoin issuers operate under the federal framework, while allowing smaller issuers to operate under state frameworks.

Takeaway 5: The bill gives the federal banking agencies enforcement authority over permitted payment stablecoin issuers that is analogous to the authority in section 8 of the Federal Deposit Insurance Act over insured depository institutions and their holding companies and institution-affiliated parties.

The bill authorizes the Federal Reserve, OCC, and FDIC to take enforcement action against payment stablecoin issuers, including – in certain circumstances – those issuers that are subject to regulation by a state banking agency. The bill provides analogous authority as the authority under Section 8 of the Federal Deposit Insurance Act, allowing these agencies to take regulatory actions such as issuing civil money penalties, revoking licenses, or imposing cease and desist order on issuers that fail to meet compliance standards.

Takeaway 6: The bill imposes customer protection standards on persons that provide custody services for permitted payment stablecoins, including supervision and regulation, segregation of funds, commingling prohibition standards, and monthly audited reports on fiat reserves.

Entities providing custody services for payment stablecoins must comply with certain consumer protection requirements that align with the federal prudential requirements described above, including:

1. Regulatory supervision by a federal or state agency;
2. Segregation of customer assets to prevent misuse;
3. Prohibition on mingling customer funds with the firm’s own assets;
4. Filing monthly audited reports of compliance; and
5. Enhanced cybersecurity measures to protect customer holdings against hacking and fraud.

Takeaway 7: The bill prohibits the federal banking agencies, NCUA, and SEC from requiring an asset held in custody to be treated as a liability. The bill also amends federal securities laws to make clear that payment stablecoins are not securities.

The Act restricts the SEC, federal banking agencies, and the National Credit Union Administration (“NCUA”) from classifying or requiring an entity to classify payment stablecoins as securities, ensuring that stablecoins are treated as payments instruments rather than investment products. Additionally, the bill includes provisions preventing custodied assets from being classified as liabilities on financial statements. This measure ensures that customer funds remain separate from issuer liabilities, providing clarity for financial institutions and the accounting treatment of custodied assets and stablecoins. These provisions would curtail future rules or guidance resembling SEC Staff Accounting Bulletin 121 (“SAB 121”), which required entities safeguarding crypto-assets for others to recognize a liability and corresponding asset on their balance sheets.[1]

The GENIUS Act represents a landmark federal effort to regulate the payment stablecoin industry in the U.S. by establishing clear licensing and supervisory requirements. The bill balances federal and state regulatory authority, ensures transparency through audits and reporting, and establishes clear enforcement mechanisms. If passed, the Act could pave the way for a more uniform regulatory framework for stablecoins and progress towards an established role for digital assets in the financial system.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Financial Services group.