A Guide to the GENIUS Act

*This article appears in the fourth quarter 2025 issue of Bank Director magazine.

On July 18, 2025, President Donald Trump signed into law the Guiding and Establishing National Innovation for U.S. Stablecoins Act, better known as the GENIUS Act, which provides a framework for the regulation of “payment stablecoins.” Stablecoins are digital assets that are issued for payment or settlement and are pegged to a currency, such as the dollar, and are redeemable for a fixed value, such as $1 per stablecoin. Accordingly, the value of a dollar-pegged stablecoin on an open market is expected to mirror the redemption value or reflect a de minimis discount. The act is the first legislation of its kind in the United States and could result in a cryptocurrency becoming mainstream in the payment system.

Consumer Safeguards
The act includes many safeguards intended to protect consumers. Under the legislation, issuers must honor requests to redeem stablecoins at their fixed value and represent that they will create a reasonable expectation that the stablecoin will maintain a stable value. Issuers are required to back each stablecoin on a one-to-one basis in highly liquid assets, such as bank deposits; short-term Treasury bills; repurchase agreements and reverse repurchase agreements backed by Treasury bills; qualifying money market funds and central bank reserves. The act prohibits issuers from pledging, rehypothecating or reusing these reserves except in connection with a limited set of activities, such as redemptions, payments for custodial services and use as collateral in repurchase and reverse repurchase programs.

On a monthly basis, issuers must publish reports disclosing the number of outstanding stablecoins and the composition of their reserves, with certifications by the issuer’s CEO and chief financial officer. A registered public accounting firm must then examine the month-end report during the following month. The legislation only requires audited annual financial statements if an issuer exceeds $50 billion in consolidated outstanding stablecoins (if not otherwise required as a Securities and Exchange Commission reporting company).

Issuers may not pay any form of interest or yield to stablecoin holders and cannot require customers to buy additional paid products or services as a condition for using or purchasing that issuer’s stablecoin. However, the act does not prohibit the current practice of third parties, such as cryptocurrency exchanges, from offering stablecoin holders cash payments through participation in “reward programs.” There have been discussions in Congress to restrict or eliminate this practice.

Eligible Issuers
The act only permits the following entities to issue stablecoins: subsidiaries of insured depository institutions regulated by a federal banking agency, nonbank institutions supervised by the Office of the Comptroller of the Currency and state-chartered entities subject to either federally imposed standards, including approval by the appropriate federal banking agency, or substantially similar state regimes. Nonbank public companies are limited to financial firms unless the Treasury secretary and chairs of the Federal Reserve and the Federal Deposit Insurance Corp., which make up the Stablecoin Certification Review Committee, unanimously find that the proposed issuer does not pose material risks to the banking system or to financial stability and will comply with certain requirements regarding data use. All stablecoin issuers, including nonbanks, must comply with the requirements of the Bank Secrecy Act.

Under the GENIUS Act, a state-chartered bank with a subsidiary that acts as a permitted payment-stablecoin issuer may conduct stablecoin-related activities across state lines without obtaining separate licenses, as long as it meets certain capital and liquidity conditions. 

The legislation requires the primary federal and state regulators to promulgate implementing regulations, including capital, liquidity and risk management rules, within one year after enactment. The act will then become effective on the earlier of Jan. 18, 2027, which would be 18 months after enactment, or 120 days after federal banking regulators issue final implementing regulations.

Takeaways
While the full ramifications of the GENIUS Act will only become clear with time, stablecoins are likely to become more relevant as an alternative payment mechanism. Given their existing relationships with depositors, banks are uniquely positioned as potential stablecoin issuers or partners of current issuers. 

However, banks that do not participate could be at risk if a substantial portion of the customer base is interested in a stablecoin product and is forced to move its business to another bank. We encourage bankers to monitor the rulemaking process and consider the implications of wider stablecoin adoption for their institutions.