Written by: Haim Ravia, Dotan Hammer
The “Guiding and Establishing National Innovation for U.S. Stablecoins Act” (GENIUS Act) was recently enacted and signed into law, becoming the first federal legislation that purposefully governs cryptocurrency. The Act establishes a federal framework for payment “stablecoins”, digital currencies that are backed by reliable and more stable assets, such as the U.S. Dollar.
The Act prescribes limits on who may issue stablecoin in the U.S., requiring either regulatory approval or a charter. It also mandates certain financial practices aimed at increasing stability. The Act requires issuers to maintain dedicated 1:1 reserves of highly liquid assets, publicly disclose their redemption policy, and issue monthly reserve disclosures to be reviewed by a public accounting firm.
Issuers must also adhere to compliance requirements related to capital management, liquidity standards, and asset diversification, and are treated as financial institutions under the Bank Secrecy Act for all anti-money laundering compliance obligations. Finally, issuers are barred from paying any form of interest or yield to stablecoin holders. Regulatory supervision will be carried out by the Office of the Comptroller of the Currency at the Department of the Treasury, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and state-level regulatory frameworks.
While the Act’s framework creates a sense of increased stability and legal clarity, it clarifies that stablecoins remain uninsured by the federal government, leaving holders vulnerable to issuer insolvency while granting priority to their claims in such cases.
Click here to read the full text of the GENIUS Act.
