For the first time in U.S. history, stablecoin issuers may soon have a clear regulatory framework to operate under. On March 13, the Senate Banking Committee advanced the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, a landmark bill aiming to regulate stablecoin issuers at both federal and state levels.
Introduced on February 4 by Senator Bill Hagerty (R-TN), the bill is designed to modernize U.S. financial infrastructure to keep up with global advancements in digital payments. Backed by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY), the legislation passed the committee with an 18-6 bipartisan vote, moving it one step closer to becoming law.
The next hurdle is a full Senate vote, after which, if approved, it will reach President Donald Trump’s desk for signing. If enacted, this would mark the first stablecoin-specific regulatory framework in the U.S., offering clarity to an industry that has long operated in a legal gray area.
Decoding the Bill
The GENIUS Act introduces a structured approach to stablecoin regulation, defining:
- Who can issue stablecoins
- How they must be backed
- What consumer protection measures must be in place
The bill implements a tiered system, distinguishing between smaller and larger stablecoin issuers based on market capitalization:
- Issuers with less than $10 billion in market cap will fall under state-level oversight, allowing more flexibility while maintaining compliance with financial regulations.
- Issuers exceeding $10 billion in market cap will transition to direct supervision by the Federal Reserve and the Office of the Comptroller of the Currency (OCC), which regulate major U.S. banks.
The legislation also mandates strict reserve backing for stablecoins. Issuers must maintain one-to-one reserves in U.S. dollars or highly liquid assets, ensuring that every token is backed by real, available funds. To reinforce this, stablecoin providers must publish monthly liquidity reports, increasing transparency and reducing systemic risk.
Senator Warren’s Warning
While the GENIUS Act has garnered significant bipartisan support, it has also faced criticism from key figures, most notably Senator Elizabeth Warren (D-MA). Warren has voiced concerns that the bill lacks sufficient consumer protections and may inadvertently increase financial risks.
One of her key objections is that stablecoin users do not have the same fraud protection as traditional banking customers. Additionally, she has warned that the bill may allow bad actors—such as individuals convicted of financial crimes—to own or operate stablecoin businesses.
Another pressing issue is the potential for stablecoins to be used for illicit activities. Warren fears that without tighter regulatory controls, entities in sanctioned nations like Russia, North Korea, and Iran could exploit stablecoins to circumvent financial restrictions.
Citing a recent report labeling stablecoins as the “new kingpin of illicit crypto activity,” Warren and advocacy groups like Public Citizen argue that the bill needs stronger enforcement mechanisms to prevent money laundering and terrorism financing.
Industry Reaction: Circle Celebrates, Tether in Trouble?
Not all industry leaders share Warren’s concerns. Jeremy Allaire, CEO of Circle, the issuer of USDC, welcomed the bill, calling it “a huge step toward providing regulatory clarity for stablecoins” and an opportunity to make the U.S. dollar more competitive in a digital world.
However, for Tether (USDT), the world’s largest stablecoin issuer, the GENIUS Act presents significant challenges. Headquartered in El Salvador, Tether has traditionally backed its reserves with a mix of assets, including U.S. Treasury bills, corporate paper, and Bitcoin. A recent report from JPMorgan raised concerns about whether Tether’s Bitcoin holdings would meet the bill’s strict reserve requirements.
If the law passes, Tether may be forced to liquidate some of its Bitcoin reserves to comply with U.S. regulations, potentially affecting its ability to maintain a stable peg to the U.S. dollar.
Additionally, the bill requires stablecoin issuers to have mechanisms for freezing, blocking, or burning tokens when ordered by regulators. Legal experts suggest that this could force companies to redesign their technological infrastructure, further complicating compliance for issuers like Tether.
What’s Next for Stablecoin Giants?
If the GENIUS Act passes through the House and is signed into law, the stablecoin landscape will undergo a major transformation. Key provisions in the bill ensure that foreign-issued stablecoins meet the same standards as U.S.-based issuers, leveling the playing field and increasing regulatory oversight on global players like Tether.
For U.S.-based stablecoins such as USDC and Ripple USD (RLUSD), the bill may have minimal impact, as these companies already comply with existing U.S. financial regulations. However, Tether’s compliance strategy will likely be under intense scrutiny, as U.S. regulators push for transparency and accountability.
In response to growing regulatory pressure, Tether recently appointed Simon McWilliams as its Chief Financial Officer, signaling efforts to improve financial transparency. Despite repeated promises of a full audit, Tether has only provided quarterly attestations through BDO, raising concerns among U.S. regulators.
The GENIUS Act represents a historic shift in the U.S. regulatory approach to stablecoins. While proponents see it as a much-needed framework for legitimizing digital assets, critics warn that the bill fails to address key financial risks and could enable illicit activity if not properly enforced.
If the bill passes, U.S.-based stablecoins may benefit from greater institutional adoption, while foreign issuers like Tether could struggle to meet compliance requirements. Whether this legislation fosters stability or introduces new challenges remains to be seen, but one thing is certain—the stablecoin industry is on the brink of a major transformation.
