GENIUS Act to set stablecoin rules, Circle celebrates: Is Tether’s compliance headache just beginning?

For the first time in U.S. history, the regulatory framework for stablecoins is on the verge of becoming law. On March 13, the Senate Banking Committee introduced the National Stablecoin Innovation and Leadership Act. The bill aims to establish clear rules for stablecoin issuers at both the federal and state levels.

On February 4, the bill was introduced by Senator Bill Hagerty (R-Tennessee), who said it is necessary to maintain the United States' competitiveness in the global financial sector. As other countries modernize their payment systems, Hagerty made it clear that the U.S. "cannot fall behind."

Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) also supported the bill. The committee approved it by a bipartisan vote of 18 to 6.

It will now go to the full Senate for a vote. If approved, it will be sent to President Donald Trump for signature, which could become the first regulatory framework for stablecoins in the United States.

But what exactly does this bill include, and what does it mean for the future of stablecoins in the US? Let’s dive in.

The GENIUS Act introduces a structured approach to regulating stablecoins in the United States. It sets out clear rules.

Rather than taking a one-size-fits-all approach, the bill differentiates between small and large stablecoin issuers based on market capitalization.

Issuers with a market capitalization of less than $10 billion are subject to state-level supervision, giving them more operational flexibility while complying with financial laws.

Once an issuer crosses the $10 billion threshold, it falls under the direct supervision of the Federal Reserve and the Office of the Comptroller of the Currency, the same regulators that oversee big banks.

The layered regulatory model ensures that the largest players, who can impact the broader financial system, are subject to more oversight, while smaller issuers have room to grow under state jurisdiction.

Another important aspect of the bill is its emphasis on transparency and redundancy. Stablecoins are designed to maintain a fixed value, often pegged to the US dollar, but for this to work, issuers must prove that they actually own the reserves they claim to have.

The Genius Act requires monthly liquidity reports, under which issuers are required to regularly disclose financial information. Additionally, all stablecoins must be backed one-to-one by the US dollar or highly liquid assets, to ensure that each token in circulation corresponds to a real, accessible asset.

This provision aims to eliminate uncertainty created in past disputes where stablecoin issuers were suspected of not having sufficient reserves, leading to market volatility.

The bill also placed a greater focus on foreclosure rights and consumer protection. Stablecoin holders must be able to convert their tokens into cash on demand, and issuers are legally obligated to honor these requests without delay.

To increase accountability, the Federal Reserve and the OCC have the authority to suspend the licenses of or impose fines on issuers that fail to meet these obligations.

These enforcement measures protect against mismanagement of funds and ensure that issuers are sensitive to consumer needs, especially during market volatility.

The law also places greater emphasis on anti-money laundering and know-your-customer issues.

Issuers must follow the same financial crime prevention measures as traditional banks to ensure that stablecoins cannot easily be used for illicit activities.

While the Genius Act paves a way forward, critics say it lacks necessary safeguards.

Democrats on the Senate Banking Committee attempted to introduce several amendments to tighten regulatory oversight, but each was blocked along party lines.

Senator Elizabeth Warren has been one of the most vocal opponents of the bill, warning that in its current form it could pose a serious threat to both the economy and national security.

One of Warren's main concerns is the lack of consumer protection. She pointed out that stablecoin users may not receive the same fraud protection as traditional financial products.

Another important issue is that stablecoins could be used for illicit financing. Warren argues that the bill does not do enough to prevent people convicted of financial crimes from owning or operating stablecoin companies.

The bill in its current form could open the way for foreign adversaries such as Iran, North Korea.a