How are payment stablecoins regulated in the United States under the new federal framework established by the GENIUS Act? Enacted in mid-2025, the GENIUS Act introduces a thorough set of federal rules aimed at standardizing the issuance and operation of payment stablecoins, which must be backed 1:1 by high-quality liquid assets such as U.S. dollars or Treasury securities. This legislation clarifies that stablecoins are distinct from securities, commodities, deposits, or legal tender, yet it imposes stringent requirements on issuers, including reserve transparency, redemption guarantees, and compliance with operational controls. The regulatory structure divides oversight between federal banking agencies, the Office of the Comptroller of the Currency (OCC), and state regulators, depending on the size and nature of the issuer, with a clear threshold at $10 billion in market capitalization determining the applicable regime. This framework reflects a broader trend of regional authorities imposing rigorous standards to ensure stability and trust, as seen in the UAE’s regulatory approach to crypto assets. State qualified issuers may operate under state regulation if the regimes are substantially similar to federal standards, allowing some regulatory flexibility for smaller players. Additionally, the Act explicitly prohibits issuance of payment stablecoins by entities other than permitted issuers, establishing clear issuer restrictions to ensure market integrity.
The tiered regulatory framework inherently favors larger, established organizations by imposing a $10 billion market cap cutoff that triggers mandatory federal oversight, compelling issuers above this threshold to comply with more rigorous standards or halt issuance. Smaller entities may remain under state supervision, provided state rules align substantially with federal guidelines, though these smaller firms face challenges related to fragmented oversight and annual certification processes. Additionally, non-financial public companies encounter significant hurdles, including the requirement of unanimous approval from the Stablecoin Certification Review Committee to enter the market, which may deter new entrants and limit competitive diversity.
Operationally, the Act mandates complex compliance obligations, including maintaining bankruptcy-remote reserves and providing monthly, audit-level disclosures of reserve compositions, which introduce substantial administrative and financial burdens. These demands can disproportionately impact smaller or newer issuers lacking the resources to manage extensive regulatory engagement, thereby reinforcing the dominance of industry giants capable of absorbing such costs. Moreover, leadership restrictions barring individuals with certain financial crime convictions add another layer of compliance that may constrain organizational flexibility. While these measures aim to enhance market integrity and consumer protection, they also contribute to a regulatory environment that favors well-capitalized, experienced firms, potentially limiting innovation and competition in the stablecoin sector.
