The GENIUS Act 101: What It Means for Stablecoins and the Onchain Finance
In a milestone move for the US crypto policy, on June 17, 2025 Senate passed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. It’s the first comprehensive federal framework for stablecoins. The key question is whether such a cautious approach addresses the complex realities of onchain finance and DeFi.
Spotlight on Payment Stablecoins.
After years of federal regulatory limbo and patchworked state-level approaches, the US is finally moving towards hard-coded federal rules for stablecoins. But the GENIUS Act doesn’t attempt to regulate the full suite of digital assets, deliberately limiting the oversight to “payment stablecoins”, defined as tokens fully backed 1:1 by “national currency”, redeemable at par, and treated as digital cash equivalents (essentially, the most conservative form of stablecoins, like USDC or USDT). Algorithmic stablecoins, crypto-collateralised tokens, commodity-backed tokens, or any designs generating yield or interest are explicitly excluded under Act’s provisions. The Regulator has effectively endorsed the simplest stablecoin architecture: one token equals one dollar, with that dollar sitting in reserve.
Cross-Party Breakthrough After Past Misfires.
The GENIUS Act passed the Senate with strong bipartisan support, a rare moment of agreement on approach to digital assets regulation. Co-sponsored by both Republicans and Democrats, the bill reflects a growing view in Washington to establish guardrails for stablecoins. While earlier proposals such as the 2020 STABLE Act failed to advance, they helped shape key ideas now embedded in GENIUS, including full-reserve backing, prudential licensing of issuers, mandated consumer protections, independent audits and transparency disclosures. In many ways, Congress is codifying and federalising standards already seen in state regimes (for example, New York’s BitLicense) and traditional money transmitter laws. The Act doesn’t invent new rules so much as impose homogenous compliance on stablecoin issuers.
Part of a Broader Digital Assets Framework.
But the GENIUS Act isn’t an isolated move. It's part of a broader push to bring digital assets under federal control. Just one week before GENIUS passed the Senate, on June 10, 2025, the House advanced the Digital Asset Market CLARITY Act of 2025 (CLARITY), an updated market structure bill building on the Financial Innovation and Technology for the 21st Century (FIT21) Act. Clarity Act gives the CFTC primary oversight of “digital commodities” (a newly defined term for decentralised crypto tokens), while SEC retains authority over anything that constitutes an investment contract, including those that involve “digital commodities”. One innovative element is an introduction of a decentralisation test based on a notion of “mature blockchains”, defined as a “blockchain system, together with its related digital commodity, that is not controlled by any person or group of persons under common control”. These types of tokens would be encompassed by CFTC’s oversight and not fall under the SEC’s jurisdiction. In other words, the more a crypto project can demonstrate a level of decentralisation, the more it falls into a commodities regime rather than securities law. The SEC would still police initial offerings or schemes that look like securities, but once a token is out in the wild on a mature, user-controlled network, it would, in theory, be carved out of the SEC’s jurisdiction. The GENIUS and CLARITY Act have often been framed as complementary: GENIUS regulates the safer end of crypto, the fiat-backed, payment stablecoins, while CLARITY Act intends to tackle the trading and investment side of the market.
Alongside GENIUS and CLARITY, Congress is also advancing One Big Beautiful Bill Act, a trillion-dollar reconciliation package that passed the Senate 51-50 on July 1, 2025 and now awaits House approval. While primarily focused on tax cuts, spending, AI, and immigration reforms, the act notably included proposals for crypto-friendly amendments such as Senator Lummis’s proposal to clarify taxation of staking and mining, and de minimis exemptions for smaller crypto transactions; but all were stripped out in the Senate’s final version due to time constraints. Even without these amendments, the bill’s momentum shows Congress is treating digital assets as part of mainstream fiscal policy.
Catching Up to Global Peers.
US Regulators are aware that the rest of the world have not waited around to bring stablecoins and other assets under the regulatory umbrellas. The GENIUS Act’s approach closely mirrors trends seen in the EU, UK, and Asia, suggesting a global convergence on what a “safe” stablecoin looks like. Virtually, all these regimes insist on the same core principles: full 1:1 reserve backing, redemption at par, capital and liquidity requirements for issuers, and no interest paid to users. The EU’s MiCA prohibits interest-bearing stablecoins and mandates full reserves and prompt redemption, though its scope may not apply to sufficiently decentralised projects, assessed case-by-case based on control and governance. The UK’s 2025 draft framework brings fiat stablecoins under its e‑money licensing, with oversight by the FCA and Bank of England, mirroring EU’s standards. The UK is finalising rules to bring stablecoins under the FCA’s e-money licensing standards especially for any stablecoin that grows large enough to be deemed “systemic”. But issuers of fiat-backed stablecoins would only be within scope of the UK-proposed regime if they are established in the UK. Similarly, Hong Kong and Singapore are ensuring stability and transparency by only allowing fully-backed, single-currency stablecoins, with Hong Kong disallowing algorithmic tokens and Singapore imposing rigid capital and reserve rules, and banning yield-bearing tokens. Dubai’s VARA regime similarly mandates licensing, reserve attestations, and treats interest‑bearing coins as separate instruments. In short, global jurisdictions are aligning in defining stablecoins as regulated digital cash, not investment vehicles, even if regulatory details (like extrajurisdictional reach or decentralisation tests) vary.
With the Senate-approved GENIUS Act now headed to the House, it’s becoming clear that US regulation is finally catching up, but at a glacial pace and often feels out of sync with real-world, on‑chain use. Mandates like yield bans and decentralisation tests may read well on paper, but they ignore that users are engaging in staking, liquidity pools, and broader DeFi ecosystem, not just basic payment stablecoins. Once the Act becomes law, agencies like Treasury, FinCEN or the Fed will craft licensing, auditing, and reserve frameworks while issuers prepare to launch products under the new regime. This would ideally boost confidence and adoption in ecommerce, remittances, and everyday finance. But the real test will be whether law catches up to onchain reality and meets the market where it is, or simply drives innovation offshore.
Sources:
- Digital Asset Market CLARITY Act of 2025
https://www.congress.gov/bill/119th-congress/house-bill/3633/text/ih
- U.S. Senate Advances GENIUS Act, Chainalysis, May 21, 2025.
https://www.chainalysis.com/blog/us-senate-advances-genius-act/
- Fiat-Backed Stablecoin Regulation Compared: UK, EU, Hong Kong, and US, Morgan Lewis, June 12, 2025.
- House Committees Advance Digital Asset Market CLARITY Act, Morgan Lewis, June 20, 2025.
- US Passes Deploying American Blockchains Act: What it Means for Crypto, Be in Crypto, June 27, 2025
https://beincrypto.com/congress-greenlights-blockchain-bill-us-web3-strategy/
- Trump’s Big Beautiful Bill in overtime as senators jam crypto clauses, Cointelegraph, July 1, 2025
https://cointelegraph.com/news/trump-big-beautiful-bill-overtime-senators-cram-crypto-amendments
- The One Big Beautiful (Crytpo Tax) Bill
https://x.com/CryptoTaxGuyETH/status/1932167858060177569