The Senate’s approval of the GENIUS Act represents a significant milestone in stablecoin legislation as it marks the first instance where such legislation has cleared one Congressional chamber with bipartisan support. The bill, designed to establish federal standards for the issuance, trading, and custody of stablecoins, garnered a 68-30 vote that included backing from 18 Democrats.
The House’s Role
For the bill to become law, it now needs to be passed by the House. Although the Senate’s passage was challenging, with some notable crypto critics present in the chamber, Wester, Director of Cryptocurrency at Javelin Strategy & Research, commented that this outcome is a major breakthrough.
Global Impact
About 97% of stablecoins are denominated in U.S. dollars, meaning that regulations in the U.S. could have significant implications for the global crypto industry. European banks, recognizing these potential effects, are also taking action. For instance, France’s Société Générale is launching a USD-stablecoin after its euro-backed stablecoin struggled to gain traction.
The Framework of the GENIUS Act
The GENIUS Act sets up a federal framework for Permitted Payment Stablecoin Issuers while allowing state-supervised issuers to continue operating under national standards. This is expected to provide financial institutions and large entities with clear, consistent pathways to market compliance. Reports suggest that Walmart and Amazon are among the organizations exploring stablecoins within this legal framework.
According to the law, each stablecoin token must be fully backed by U.S. dollar reserves, which will undergo monthly audits. This ensures issuers maintain sufficient reserves to support their stablecoin’s value, thereby safeguarding investors and promoting market stability.
All stablecoin issuers would also have to comply with anti-money laundering (AML) and Know Your Customer (KYC) regulations.
Next Steps
The bill still needs to be approved by the House of Representatives. While the House is considering its own STABLE Act, there are key differences between the two proposals, particularly regarding yield-bearing stablecoins and issuer authorization.
Wester believes that reconciliation efforts aiming to align GENIUS with the House’s STABLE Act could prove contentious but also indicates progress in establishing a comprehensive regulatory framework. He suggests that this development signifies real momentum towards legally clarifying how bank-issued, fintech-issued, and platform-issued stablecoins can comply.
If successful, such reconciliation could lead to the U.S. adopting a framework that provides clear compliance paths for various types of stablecoin issuers. This, Wester notes, is long overdue.