Learn Concept: Legal Framework for Stablecoins in the US

By: Isha Das

The passing of the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act by the US Senate marks a pivotal step in the regulation of stablecoins in the United States. The GENIUS Act provides a comprehensive regulatory framework tailored to stablecoins, emphasizing financial stability, transparency, and consumer protection. The core features of this act include stringent collateralization requirements, where stablecoins must be backed by reserves equivalent to their circulation size, limited to short-term US Treasuries or insured deposits. This ensures that each stablecoin issued has a tangible backing, reducing risks of volatility and improper asset management.

Additionally, the act stipulates that issuers must conform to Bank Secrecy Act compliance protocols and are restricted from offering yield to prevent potential conflicts of interest. For more substantial players in the market with liabilities exceeding $10 billion, a federal charter is mandatory, while smaller issuors can operate under state laws that meet federal criteria.

This legislative act is significant as it brings stablecoins closer to being integral components of the US financial system, underwriting the US-dollar's predominance in the digital economy. The move towards regulating stablecoins also signifies a wider acceptance of cryptocurrency by national governments and provides a clear pathway for innovation within the digital asset sector.

However, as it progresses to the House of Representatives, stakeholders must consider potential amendments addressing financial affiliations and ensure consumer interests are at the forefront. The GENIUS Act has implications not only for the United States but also for global markets as it could set a standard for other countries looking to regulate digital currencies.

This legislative clarity is welcomed by the digital assets sector as it pushes forth with the expansion of blockchain-driven financial solutions, potentially integrating new frameworks for digital currency use at both institutional and consumer levels.

Read more: US Senate Advances GENIUS Act for Stablecoin Regulation