On July 18, 2023, President Donald Trump signed the Guiding and Establishing National Innovation for US Stablecoins Act, known as the GENIUS Act, establishing a federal regulatory framework for stablecoins. This significant legislative move follows the House of Representatives’ approval of the GENIUS Act with a decisive vote of 308 to 122 during what has been dubbed ‘Crypto Week’ in Washington, D.C., after the Senate had passed the bill the previous month.
The White House hailed the GENIUS Act as a ‘historic piece of legislation’ that positions the United States to lead the global digital currency revolution. According to the White House’s fact-sheet, the act prioritizes consumer protection, strengthens the US dollar’s reserve currency status, and bolsters national security.
President Trump expressed support for the GENIUS Act, emphasizing its role in protecting consumers from unscrupulous financial market practices. The law mandates that stablecoins maintain a 100 percent reserve backing with liquid assets, such as US dollars or short-term treasuries. Furthermore, stablecoin issuers are required to make monthly public disclosures regarding the composition of these reserves to promote stability and trust in stablecoins.
In the context of stablecoins, which are cryptocurrencies designed to maintain a stable value typically pegged to fiat currency, the significance of the GENIUS Act cannot be overstated. Tether and USD Coin, the two largest stablecoins by market capitalization, exemplify this model as both are pegged to the US dollar.
To ensure consumer protection, the GENIUS Act introduces stringent marketing requirements for stablecoin issuers, prohibiting misleading claims that stablecoins are government-backed, federally insured, or classified as legal tender. It aims to create a cohesive regulatory environment by aligning state-level and federal stablecoin frameworks, ensuring fair and consistent regulation across the country.
In instances of insolvency among stablecoin issuers, the act prioritizes the claims of stablecoin holders over all other creditors, establishing a robust layer of consumer protection. Additionally, the GENIUS Act is expected to increase demand for US debt, thereby reinforcing the dollar’s status as the world’s reserve currency.
The fact-sheet underlines that the act is poised to boost fintech innovation by offering a clear legal framework that promotes responsible innovation within the stablecoin market. In terms of combating illicit activities connected to digital assets, the GENIUS Act subjects stablecoin issuers to the Bank Secrecy Act, thus obligating them to create effective anti-money laundering and sanction compliance programs. This includes conducting risk assessments, verifying sanctions lists, and identifying customers to enhance enforcement capabilities against illicit activities.
In the broader context of digital financial technology, President Trump signed an executive order titled ‘Strengthening American Leadership in Digital Financial Technology’ shortly after beginning his second term. The executive order heralded his commitment to positioning the United States as the ‘crypto capital of the world,’ a significant shift given his previously anti-crypto stance during his first term. The administration has since taken several pro-crypto actions, including hosting events like the ‘Digital Assets Summit’ at the White House as part of its strategy.
The White House’s fact-sheet notes that signing the GENIUS Act fulfills President Trump’s campaign promise to establish America as a leader in cryptocurrency. In conjunction with the GENIUS Act, the House of Representatives also advanced two other legislative measures during ‘Crypto Week’: the Digital Asset Market Clarity Act (Clarity Act) and the Anti-CBDC Surveillance State Act, both of which target the regulatory landscape for digital assets and cryptocurrencies. The Clarity Act intends to create a comprehensive regulatory framework for digital assets, while the Anti-CBDC Act seeks to obstruct the issuance of a retail central bank digital currency (CBDC).
Both the Clarity Act and the Anti-CBDC Act received support in votes on July 17, passing with 294 to 134 and 219 to 210, respectively. These bills are currently awaiting consideration in the Senate. Financial Services Committee Chairman French Hill expressed optimism about working collaboratively with President Trump and Senate colleagues to advance these legislative efforts.
The GENIUS Act will not become effective immediately; it will either come into force 18 months after its signing (January 18, 2027) or 120 days following the issuance of final regulations by the main federal stablecoin regulators, whichever occurs earlier.
State-level initiatives in the US have also emerged, with several states implementing their own regulations concerning stablecoins. Wyoming is notably working on introducing the first fiat-backed, fully-reserved stablecoin issued by a public entity, dubbed the ‘Wyoming Stable Token,’ as part of a groundbreaking public sector digital money initiative.
On the global stage, the United States has been accelerating its steps towards cryptocurrency regulation, although it has lagged behind the European Union in implementing crypto-related laws. The EU’s comprehensive regulation, known as the Markets in Crypto-Assets (MiCA) framework, is set to become fully effective by December 2024.
In the United Kingdom, the Financial Conduct Authority (FCA) recently commenced a consultation on proposed rules and guidance for stablecoin issuance and cryptoasset custody, reflecting ongoing efforts to refine the regulatory landscape. As the global dialogue on stablecoin regulation progresses, participants in the digital asset and fintech sectors have expressed a pressing need for greater regulatory certainty to foster wide-scale adoption. Varun Paul, senior director for financial markets at Fireblocks, highlighted how developments such as Europe’s MiCA regulation have sparked a desire among industry participants to engage with regulators to clarify the rules and provide a roadmap for ensuring compliance.
As the US concludes its ‘Crypto Week’ with the signing of the GENIUS Act and the advancement of significant legislative measures, the implications for the future of digital currencies and the regulatory environment are set to unfold in the coming months.
image source from：globalgovernmentfintech
