The U.S. Treasury revealed a comprehensive framework to regulate stablecoins and related digital assets, proposing measures intended to balance innovation with consumer protection and financial stability. The GENIUS Act, passed with bipartisan support in 2025 amid concerns over stablecoins’ rapid market growth and potential impacts on Treasury financing, seeks to provide regulatory clarity that limits illicit activity and preserves the U.S. dollar’s role in digital payments. The proposal emphasizes interagency collaboration, directing coordinated implementation among Treasury, the Federal Reserve, and other federal regulators, and it frames stablecoin policy as both a market integrity and national financial-security priority. The Act imposes strict reserve requirements, mandating 1:1 asset-backed reserves held mainly in physical currency, U.S. Treasury bills, repurchase agreements, or other low-risk assets approved by regulators, and it requires monthly transparency reporting on reserve composition. Regular audits conducted by registered public accounting firms are prescribed to verify reserve holdings and detect shortfalls or fraud, and the Treasury’s public comment process explicitly seeks clarity on custody arrangements for those reserve assets. Those measures aim to bolster market confidence, reduce run risk associated with redeemability, and limit opportunities for reserve-layer manipulation. Issuer eligibility is narrowly defined, allowing only insured depository institutions, including banks, credit unions, and Fed-approved nonbank financial institutions, to sponsor stablecoins, with credit unions granted parity and permission for credit union service organizations to issue through subsidiaries. A federal licensing process is set forth, requiring detailed demonstrations of legal, operational, and financial capacity, and regulators are tasked with coordinating reviews to ensure consistent supervisory standards across institutions. The licensing regime intentionally raises entry standards to lower systemic risk while channeling issuance through regulated entities. Consumer protection and AML obligations are central, with explicit adherence to Bank Secrecy Act provisions, enhanced surveillance, suspicious activity reporting, and continuous transaction monitoring required of issuers. An Advance Notice of Proposed Rulemaking opened a shortened 30-day comment period in September 2025, posing nearly 60 technical questions to inform final rules, reflecting urgency but also seeking targeted industry and public input before formal regulations are drafted. The Treasury has also signaled it will address sanctions compliance and tax treatment as part of this rulemaking process. The Act also aligns with international approaches by emphasizing global cooperation on regulatory standards. This approach to regulation reflects a broader trend of imposing transparency and security measures similar to those found in tokenized asset frameworks.
