The passage of the GENIUS Act by the Senate marks an important milestone in stablecoin legislation, as it is the first such bill to pass either chamber. The bipartisan support for the bill resulted in a 68-30 vote, including backing from 18 Democrats.

The Path Forward

The House of Representatives now needs to approve the bill for it to become law. The Senate’s approval was particularly significant given the presence of some of the more vocal critics of cryptocurrencies and digital assets in that body.

This clears a major hurdle, especially considering how strongly certain opponents of crypto and digital assets have stood up,” remarked James Wester, Director of Cryptocurrency at Javelin Strategy & Research.

With approximately 97% of stablecoins denominated in U.S. dollars, regulation in the U.S. could have a significant impact on the global crypto industry. For instance, European banks are taking note: France’s Société Générale is launching a stablecoin pegged to the U.S. dollar after its euro-backed stablecoin failed to gain traction.

The Framework in Detail

The GENIUS Act sets up a federal framework for Permitted Payment Stablecoin Issuers, allowing state-supervised issuers to operate under national standards. This is expected to provide clear and consistent guidelines for financial institutions and large entities entering the market. Reports suggest that both Walmart and Amazon are considering developing stablecoins within this regulatory framework.

Each stablecoin token must be fully backed by U.S. dollar reserves, verified through monthly audits. The law aims to ensure issuers maintain adequate reserves to support their stablecoins’ value, thus safeguarding investors and promoting stability in the market.

All stablecoin issuers will also be required to comply with anti-money laundering and Know Your Customer regulations.

Next Steps

The bill must still pass through the House of Representatives, which has its own STABLE Act. Key differences remain between the two proposals, particularly concerning yield-bearing stablecoins and authorized issuers.

Wester noted, The next step is reconciliation to align the GENIUS Act with the House’s STABLE Act. This could be contentious but shows significant momentum. The debate now is not whether stablecoins will be regulated, but how.”

This process aims to provide a clear path for bank-issued, fintech-issued, and platform-issued stablecoins to become compliant. It’s long overdue,” Wester concluded.