Stablecoins have sat in a regulatory grey zone for years, too big to ignore, but too fragmented to control. That changed in July when the U.S. passed the GENIUS Act, its first federal stablecoin law. This isn’t just another crypto headline. For compliance leaders, GRC providers, and regulators, it marks the start of a new regulatory architecture built on structured disclosures, continuous oversight, and higher barriers to entry. The USA has always been a jurisdiction that many others benchmark against and a market that most want to sell into, so the GENIUS Act could set the tone for how other countries regulate these sectors.
The Guiding and Establishing National Innovation for U.S. Stablecoins ‘GENIUS’ Act
The Guiding and Establishing National Innovation for U.S. Stablecoins ‘GENIUS’ Act was signed into law on July 18, 2025. The GENIUS Act is the United States’ first primary crypto legislation and establishes the first comprehensive federal regulatory framework specifically for payment stablecoins, which are digital assets designed to maintain a stable value relative to a fiat currency like the U.S. dollar. The Act represents a decisive move to bring a rapidly growing and systemically important sector of the crypto economy, valued at approximately $250 billion, into the U.S. regulatory perimeter.
The Act seeks to close a long-standing regulatory gap that fostered market uncertainty, consumer risk, and the potential for regulatory arbitrage. To achieve this, the Act introduced a consumer protection regime centred on stringent operational standards. Key among these are a mandatory one-to-one backing of all issued stablecoins with high-quality liquid assets, such as cash and short-term U.S. Treasuries, and a transparency mandate requiring monthly, independently examined public disclosures of these reserves. These measures are designed to mitigate the risk of “bank run” scenarios that could destabilise the broader financial system.
Historical Context and Policy Objectives
Prior to the enactment of the GENIUS Act, the U.S. regulatory landscape for stablecoins was best described as a ‘regulatory gap or a ‘grey area’. The market operated within a fragmented and uncertain legal environment, characterised by a patchwork of state-level rules, most notably New York’s ‘BitLicense’ regime, but lacked a cohesive federal policy framework. This ambiguity created market uncertainty for issuers and investors alike and fostered risks of regulatory arbitrage. This regulatory vacuum existed alongside the explosive growth of the stablecoin market. By 2025, the sector had swelled to a market capitalisation of approximately $250 billion. The scale of this market, deeply integrated into the global cryptocurrency trading ecosystem and increasingly used for cross-border payments, made the absence of federal oversight untenable for policymakers concerned about financial stability and consumer protection.
Further, a critical catalyst that galvanised political will for comprehensive legislation was the dramatic collapse of the algorithmic stablecoin TerraUSD (UST) and its sister token LUNA in May 2022. This event erased an estimated $40 billion in market value in a matter of days. This provided a real-world demonstration of the catastrophic risks posed by unbacked or poorly collateralised stablecoins, highlighting the potential for contagion and massive consumer losses. This crisis moved the debate over stablecoin regulation from a theoretical exercise to an urgent policy imperative.
Problems Addressed by the GENIUS Act
The GENIUS Act was crafted to address a set of distinct and pressing problems that had emerged from the unregulated growth of the stablecoin market. These can be categorised into three primary areas of concern.
First and foremost was the issue of financial stability and systemic risk. The primary fear among regulators was the potential for a “bank run” on a major stablecoin issuer. In such a scenario, a sudden loss of confidence could trigger a wave of mass redemptions, forcing the issuer into a fire sale of its reserve assets to meet demand. Given the size of major stablecoins, such a fire sale, particularly of assets like commercial paper or corporate bonds, could have a destabilising effect on broader credit markets. The GENIUS Act directly confronts this risk by prohibiting the use of riskier reserve assets like corporate debt or equities and mandating that all stablecoins be backed 1:1 by a narrow range of high-quality liquid assets, primarily cash and short-term U.S. Treasuries.
Second was the need for consumer and investor protection. In the pre-GENIUS Act environment, consumers using stablecoins faced a multitude of risks. These included the risk that an issuer did not actually hold sufficient reserves to back its tokens (unstable reserves), a lack of transparency into the issuer’s operations and financial health, and no clear legal recourse in the event of an issuer’s failure or insolvency. The Act seeks to rectify this by instituting a regime of radical transparency, including mandatory monthly public disclosures of reserves and audited financial statements for large issuers. Crucially, it also establishes a legal priority for stablecoin holders in bankruptcy proceedings, ensuring their claims on the reserve assets are senior to those of all other creditors.
Last, the Act tackles the persistent problem of illicit finance and sanctions evasion. The speed, global reach, and pseudo-anonymity of some crypto transactions made stablecoins an attractive vehicle for money laundering, terrorist financing, and the circumvention of international sanctions. While data suggests over 99% of stablecoin volume is for legitimate purposes, their use in illicit activities, particularly for terrorist financing, remained a significant concern for national security officials. The Act addresses this by formally defining permitted issuers as ‘financial institutions’ under the Bank Secrecy Act (BSA), thereby subjecting them to the full suite of anti-money laundering (AML) and know-your-customer (KYC) requirements. It also mandates that all issuers possess the technical capability to freeze, seize, and burn assets when presented with a lawful order from authorities.
The New Supervisory Architecture
The cornerstone of the Act’s architecture is its dual federal-state regulatory system. This structure provides prospective issuers with a choice between seeking a federal license or operating under a state-level regime, a key political compromise that was essential for the bill’s passage. Federal Oversight is designated as the primary supervisory path for the largest and most systemically important stablecoin issuers. In a significant policy decision, the Act assigns this authority to federal banking regulators, deliberately excluding the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) from direct oversight of permitted payment stablecoins. The specific primary federal regulator is determined by the corporate structure of the issuer.
State Oversight is preserved as a viable alternative, but with a critical limitation. An issuer may choose to be licensed and supervised at the state level, but only if its total outstanding issuance has a market value of $10 billion or less. This provision creates a distinct pathway for smaller firms and startups, potentially offering a more flexible and less costly entry into the market. However, the $10 billion threshold acts as a firm ceiling. Once a state-regulated issuer surpasses this cap (measured over a 30-day rolling average), it is required to transition to the federal supervisory regime within 360 days or obtain a waiver from federal regulators. This creates a clear two-tiered system where scale dictates the intensity of regulatory oversight.
Taken together, these obligations represent a fundamental and seismic shift from the previous state of affairs. Before the GENIUS Act, there were no universally applicable federal requirements for 1:1 backing, public audits, specific reserve asset composition, or bankruptcy priority for stablecoin holders. The Act replaces a chaotic patchwork of disparate state laws and non-binding federal agency guidance with a single, comprehensive national standard for all large issuers. In doing so, it closes the long-standing regulatory gap and provides the legal clarity and certainty that responsible actors in the industry had been seeking for years.
This means that operating as a permitted stablecoin issuer under the GENIUS Act will be a capital- and resource-intensive endeavour. The costs of compliance are significant and will create a high barrier to entry. Direct Financial Costs are substantial and recurring. Industry analysis suggests that the ongoing annual compliance costs for a mid-sized issuer could range from $2 million to $5 million.
Deliberate Jurisdictional Carve-Out
Perhaps the most structurally significant provision in the GENIUS Act is its treatment of regulatory jurisdiction. The legislation explicitly amends several foundational U.S. financial laws, including the Securities Act, the Securities Exchange Act, and the Commodity Exchange Act, to declare that a payment stablecoin issued by a Permitted Payment Stablecoin Issuer is not a ‘security’ or a ‘commodity’.
This ‘carve-out’ effectively divests the SEC and the CFTC of direct regulatory authority over these specific digital assets. Instead of being treated as capital market instruments, permitted payment stablecoins are placed firmly under a banking regulatory framework, supervised by agencies like the OCC, the Federal Reserve, and the FDIC.
Maybe a Not-so-GENIUS Act
Separately, critics have argued that the Act creates significant direct financial risks for consumers by failing to provide fundamental safeguards. The most critical flaw is the absence of any federal insurance, leaving users completely unprotected if an issuer collapses. This risk is compounded by the lack of a legally guaranteed redemption timeframe, which could trap consumer funds during a crisis, and a reliance on weak executive attestations instead of full, independent audits to verify the security of underlying reserves.
Furthermore, there is a fear that there are major structural flaws in the Act’s regulatory framework that create loopholes for large tech firms to engage in banking without adequate oversight and that its weak state licensing standards could incite a “race to the bottom” in consumer protection. A primary point of contention herein is the Act’s failure to apply foundational laws like the Electronic Fund Transfer Act (EFTA), stripping consumers of standard, essential protections against fraud, errors, and unauthorised transactions.
Why this matters for compliance and regulatory data
The GENIUS Act is more than a milestone for crypto policy — it’s a signal of how regulation is evolving globally.
By mandating transparent, standardised, and auditable disclosures, the Act transforms stablecoin oversight into an ongoing, data-intensive exercise.
For compliance and risk teams, this underscores the need for structured, machine-readable regulatory data to track, interpret, and act on new requirements in real time.
What comes next
Other jurisdictions are already watching the U.S. approach closely. For RegTechs, GRC platforms, and regulators themselves, the GENIUS Act offers both a challenge and an opportunity:
the challenge of adapting to more complex, continuous obligations, and the opportunity to leverage structured regulatory data infrastructure to make compliance scalable and defensible.
