On June 17, 2025, the Senate passed the GENIUS Act, shorthand for the Guiding and Establishing National Innovation for U.S. Stablecoins Act, by a bipartisan vote of 68-30, with 18 Democratic Senators supporting the Bill.  The GENIUS Act would amend the Securities, Securities Exchange, Investment Advisers, Investment Company, Securities Investor Protection, and Commodities Exchange acts to exclude from each a “payment stablecoin issued by a permitted payment stablecoin issuer . . .”

Later in June, House Majority Whip Tom Emmer stated that the GENIUS Act will only advance in the House if it is paired with the broader Digital Asset CLARITY Act, which provides that most oversight of covered digital assets will be conducted by the Commodity Futures Trading Commission.[1]  Later in June, it was announced that the CLARITY Act would be subject to a full House vote in July.

The GENIUS Act makes unequivocally clear that the primary federal payment stablecoin regulator will be the appropriate federal banking agency of an insured depository institution or the National Credit Union Administration with respect to a subsidiary of an insured credit union.  The SEC and the CFTC will have no direct role in regulating stablecoins.

In place of the type of oversight provided by the SEC or the CFTC, the GENIUS Act purports to create a Stablecoin Certification Review Committee, chaired by the Secretary of the Treasury.  Any action by the committee would require a 2/3 vote of its members, but the bill does not specify who the members of this committee would be.  We discuss this committee more below.

To issue permitted payment stablecoins, the GENIUS Act specifies that a permitted issuer “shall maintain identifiable reserves backing the outstanding payment stablecoin . . . on at least a 1-to-1 basis with reserves comprising (i) United States coins and currency . . . (ii) funds held as demand deposits (or other deposits that may be withdrawn upon request at any time) or insured shares at an insured depository institution   . . . subject to limitations established by the [FDIC] and the National Credit Union Administration, as applicable, to address safety and soundness risks of such insured depository institution; (iii) Treasury bills, notes, or bonds [with a remaining or initial maturity of 93 days or less]; (iv) money received under repurchase agreements . . . or; (v) [specified] reverse repurchase agreements.”

Either the primary federal or state payment regulator is to establish capital, liquidity, and risk management requirements, which can be varied among issuers by taking into account their capital structure, model profiled, complexity, financial activities, size, and any other risk-related factor.

Permitted payment stablecoin issuers will be treated as financial institutions under the Bank Secrecy Act and are to be subject to “all Federal laws applicable to a financial institution located in the United States related to economic sanctions, prevention of money laundering, customer identification, and diligence.”

In a major victory for state regulation of stablecoins, “a State qualified payment issuer with a consolidated total outstanding issuance of not more than $10,000,000,000 may opt for regulation under a State-level regulatory regime, provided that the State-level regulatory regime is substantially similar to the Federal regulatory framework under this Act.”

There are some financially sound steps forward in the GENIUS Act.  Stablecoins are limited to those with a fixed amount of monetary value and do not include algorithmic stablecoins such as those that sunk TerraUSD.  Reserves largely are limited to the equivalent of United States coins, currency, Treasury bills, notes, or related securities and would not include, as the 2007-2008 example involving the precarious fate of AIG illustrated, unregulated derivative securities.  Payment stablecoins and their reserves generally are subject to United States regulation, including audits when a permitted stablecoin issuer has more than $50 billion in consolidated total outstanding issuance.  This avoids some of the organizational weaknesses experienced by FTX or Binance, which largely operated overseas.  These are welcome features. But they are not sufficient protection, not the least reason being they exist among broad exemptions that would eviscerate these protective requirements for many potential investors.  The GENIUS Act, however, does not preclude ongoing or future private crypto litigation.

These advantages of the GENIUS Act are overwhelmed by substantial weaknesses that should be addressed before any further congressional action.

First, stablecoins are designed to be functionally equivalent to money or deposits and to operate globally, and their advocates argue they are neither securities nor commodities.  If so, the most appropriate regulator for the entities that issue them would seem to us to be an existing federal banking regulator, with an existing staff and existing approaches to the many tasks that are involved in prudently and efficiently regulating and supervising issues of cash-like interests, such as the Federal Reserve or the Comptroller of the Currency.  If a state-level regulatory option is to make sense, the federal equivalent against which the state regime is to be benchmarked should be robust.  We caution, too, that custody banks under some state laws are essentially unsupervised at present, and this bill may only encourage a race to the bottom.

Second, the guardrails in the act are weak.  The Stablecoin Certification Review Committee and its protective powers, as discussed above, are particularly unclear.  This committee is intended to replace the SEC and CFTC and their regulations of securities, derivatives, and commodities, but very little is set forth about this committee.  Who is on it?  What powers will it have?  What regulations must it adopt, and what regulations will be discretionary for it, and within what limits?  Is it subject to judicial review?  Criminal enforcement is only occasionally referenced in the act.  The bill does mention procedures involving a referral to the Secretary of Treasury of knowing and willful violations;  the thinness of the act’s treatment of enforcement is in striking contrast to the traditional role of the Department of Justice to enforce the criminal laws or the elaboration of enforcement powers conferred on sister regulatory agencies.

Third, the importance of getting regulation right from the outset is underscored by the fact that the stablecoin proportion of all crypto sales is large, $240 billion, with expectations that it will dramatically grow in coming years with companies such as Visa and MasterCard, among others, likely entering the sector. Absent a discrediting scandal or fraud, it may become among the central, perhaps the central, mechanism of the international payment system. But the core issue posed by a growing number of stablecoin sellers is how will they be regulated if they are not the issuers of the stablecoins.  Some 90 percent of stablecoins today are issued into the secondary market by crypto platforms.[2] This web of actors needs a regulatory overlay akin to that we find in our capital markets and banking systems.

Fourth, the exemptions in the bill are far too generous.  The omission of an audit requirement for issuers of up to $50 billion is in striking contrast to how even small banks are regulated.  Audits are fundamental and should not be optional for any but the smallest financial firms.

Last, we reflect here the widely expressed concerns that the bill fails to prohibit the president from profiting from stablecoins, an omission that has been much criticized.[3]

These are not trivial concerns.  We urge the House of Representatives to take into account these issues before committing to the final draft of any version of the GENIUS Act.

ENDNOTES

[1] See Vivien Nguyen, Majority Whip Tom Emmer Says House Will Vote on GENIUS Stablecoin Bill if Paired with CLARITY Act, Crypto Briefing (June 25, 2025).  Emmer also has reintroduced the Anti-CBDC Surveillance State Act, which passed the House last year but not the Senate, to bar the federal government from issuing its own central bank digital currency.  Tech Brief, House Republicans Plan Crypto Week Votes on Industry-Backed Bills (July 8, 2025).

[2] See SEC Commissioner Caroline Crenshaw, “Stable” Coins or Risky Business? (Apr. 4, 2025) (dissenting from SEC Staff position excluding stablecoins from the definition of securities).

[3] Merkley quoted Julia Shapero, Senate Passes Stablecoin Framework in Major Crypto Milestone, The Hill (June 17, 2025).  This has been widely recognized, for example, by Senator Merkley, who declaimed:  “Passing the GENIUS Act without strong anti-corruption measures stamps a Congressional seal of approval on President Trump selling access to the Government for personal benefit.”  President Trump, among other crypto related projects, has a financial stake in World Liberty Financial with its own stablecoin USD1.  Trump reported earning $57.35 million from token sales at World Liberty Financial in 2024.  Passage of the GENIUS Act in the Senate was slowed by reports that the Trump organization would finalize a $2 billion investment agreement with UAE-backed investment fund MGX, Binance and World Liberty Finance.  Warren and Merkley Lead Charge against Trump’s GENIUS Act – Crypto’s Latest Regulatory Battleground, CryptoSlate (May 12, 2025); see also Robert Jimison, Senate Passes Cryptocurrency Legislation, Handing the Industry a Major Victory, N.Y. Times (June 18, 2025).

This post comes to us from the Shadow SEC, whose members are professors John Coates at Harvard Law School, John C. Coffee, Jr. at Columbia Law School, James D. Cox at Duke University School of Law, Merritt B. Fox at Columbia Law School, and Joel Seligman at Washington University School of Law.