The GENIUS Act, a landmark bill aiming to regulate stablecoins at the federal level in the United States, recently achieved a significant milestone by passing a cloture vote in the Senate. While this marks a critical step toward its formalisation, the road to becoming law is still fraught with hurdles, including debates over key clauses and procedural complexities. If enacted, the GENIUS Act would be the first federal-level legislation regulating stablecoins, heralding transformative changes in the crypto landscape.
What is the GENIUS Act?
The GENIUS Act, formally introduced on February 4 by Senator Bill Hagerty, seeks to establish a robust framework for stablecoin issuance and regulation in the United States. The bill’s primary objectives include ensuring financial stability, enhancing consumer protection, enforcing anti-money laundering (AML) compliance, and fostering transparency within the stablecoin market.
Key provisions of the act include:
Stablecoin Definition: Stablecoins are defined as digital assets used for payments or settlements, pegged to a fixed currency value, and backed by high-quality liquid assets at a 1:1 reserve ratio.
Licensing and Regulation: Issuers can choose to register at the state or federal level, with larger issuers (market value above $10 billion) falling under federal jurisdiction.
Reserve Requirements: Stablecoins must maintain a 1:1 reserve ratio, with funds held separately from operational accounts and certified monthly.
Transparency and Consumer Protection: Issuers are mandated to publicly disclose reserve assets and redemption policies. Stablecoin holders will have priority claims in bankruptcy scenarios.
Regulatory Classification: Stablecoins are explicitly excluded from being classified as securities or commodities under federal law.
Senate Approval: A Critical Milestone
On May 20, the U.S. Senate passed the cloture motion for the GENIUS Act with a decisive 66-32 vote, overcoming the procedural hurdle of a filibuster. While the bill itself has not yet been passed, this motion ends prolonged debates and allows the Senate to proceed to a full discussion and amendment process.
The GENIUS Act’s advancement has not been without challenges. Earlier in May, the bill narrowly failed a cloture vote. However, revisions addressing concerns related to AML, consumer protection, and regulatory oversight have helped garner bipartisan support.
Core Points of Debate Among Lawmakers
Several contentious issues have sparked intense debate during the GENIUS Act’s legislative journey:
1. Technology Giants Entering Stablecoins
One of the bill’s most debated clauses restricts non-financial technology companies, such as Meta and Google, from issuing stablecoins unless they comply with stringent financial and privacy safeguards. Critics argue this measure could stifle innovation, while proponents believe it prevents market dominance by tech giants.
2. Trump Family Involvement in Crypto
The Trump family’s involvement in stablecoin projects, particularly the USD1 stablecoin, has drawn scrutiny. Critics, including Senator Elizabeth Warren, allege potential conflicts of interest, citing significant financial gains for the Trump family from the burgeoning crypto market. However, recent amendments have removed provisions targeting specific projects, focusing instead on broader consumer protections.
3. Anti-Money Laundering and National Security Concerns
Democratic lawmakers have expressed concerns about the bill’s adequacy in addressing AML and national security risks. Enhanced AML obligations, including consumer identification and suspicious activity reporting, were incorporated in the latest draft to address these issues.
4. Regulatory Oversight and Industry Fragmentation
The bill introduces a “Stablecoin Certification Review Committee” to assess state-level regulatory standards for alignment with federal requirements. Critics worry this may lead to jurisdictional overlaps and prolonged compliance processes, while supporters believe it ensures uniformity across states.
Next Steps in the Legislative Process
With the cloture motion passed, the GENIUS Act will now enter the Senate’s full debate and amendment phase. The revised version will then be voted on by the Senate. If approved, it will proceed to the House of Representatives, where a simpler majority (218 out of 435 votes) is required for passage.
Given the Republican majority in the House (220-215), analysts expect the bill to face fewer obstacles compared to the Senate. Once both chambers approve the final version, the bill will be sent to the President for signing into law.
However, potential vetoes or further amendments could delay the process. If the President vetoes the bill, Congress can override the veto with a two-thirds majority in both chambers, though such occurrences are rare.
Implications of the GENIUS Act on the Stablecoin Market
If enacted, the GENIUS Act will reshape the U.S. stablecoin landscape in several ways:
Industry Consolidation: Smaller issuers unable to meet the stringent reserve and transparency requirements may exit the market, leaving space for well-regulated entities.
Increased Consumer Trust: Strengthened reserve audits and bankruptcy protections are expected to enhance consumer confidence and adoption of stablecoins.
Market Transparency: Comprehensive AML compliance and public disclosure requirements will bolster market integrity and attract institutional investors.
Barriers for Tech Companies: The restrictive clauses on non-financial entities may limit market entry for tech giants, preserving a level playing field.
The GENIUS Act represents a groundbreaking step in providing a unified federal framework for stablecoin regulation in the United States. While it has cleared significant hurdles in the Senate, critical debates over its provisions reflect the complexities of balancing innovation, consumer protection, and financial stability.
If successfully passed, the GENIUS Act will not only set a precedent for stablecoin regulation but also position the United States as a leader in the global digital asset market. For now, all eyes remain on the legislative process as the bill continues its journey through Congress.
