Client Alert: What You Need To Know About the GENIUS Act

What You Need To Know About the GENIUS Act

Key Takeaways

• On July 18, 2025, the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”) was signed into law. The Act is the first major U.S. legislation regulating cryptocurrency. It will become effective either 18 months after its enactment (January 18, 2027), or 120 days after the final regulations are issued – whichever date arrives first.
• The Act will limit the entities which may issue payment stablecoins to a class of “permitted issuers.” To be approved as a permitted issuer, an entity must apply either to its governing federal banking agency, the Office of the Comptroller of the Currency (the “OCC”), or the Stablecoin Certification Review Committee (the “SCRC”). As discussed later in this article, issuers will have a certain degree of freedom in choosing whether to be governed by state or federal regulation.
• Permitted stablecoin issuers must hold approved assets – like U.S. dollars or treasury bonds – to fully back every payment coin they issue and must comply with monthly disclosure obligations.
• The Act contains potentially significant implications for securities and bankruptcy law. It clarifies that payment stablecoins issued by permitted issuers do not qualify as securities or commodities. It also provides holders of payment stablecoins first-priority to recover in the event of a bankruptcy proceeding brought about by a shortfall in payment stablecoin reserves.

 

Background

The GENIUS Act is one, amongst a few, pieces of legislation aimed at regulating the digital asset space. The CLARITY Act, currently pending in Congress, promises to address an even broader range of issues. The trend seems to reflect the Government’s growing acceptance of the digital asset industry and highlights its use of comprehensive regulation frameworks to address concerns regarding volatility and instability.

The GENIUS Act specifically deals with a type of digital asset known as payment stablecoin. A stablecoin is a type of digital currency designed to maintain a stable value, typically by being pegged to an asset such as the U.S. dollar or a commodity. A payment stablecoin, as defined by the GENIUS Act, is a digital asset which is designed to be used as a means of payment or settlement, the issuer of which is obligated to (1) convert, redeem, or repurchase for a fixed monetary value, and (2) represent that the stablecoin will maintain a stable value relative to a fixed amount of monetary value.

Permitted Issuers

The GENIUS Act prohibits the issuance of payment stablecoins by any entity that does not qualify as a permitted issuer. It establishes three categories of permitted issuers, each with its own application and compliance requirements:

1. Subsidiaries of Insured Depository Institutions: A bank or credit union subsidiary may issue payment stablecoins based on approval from its parent organization’s federal banking agency.
2. Federal Qualified Nonbank Issuers: A nonbank entity, uninsured national bank, or a federal branch of a foreign bank may issue payment stablecoins if they are approved by the Office of the Comptroller of the Currency.
3. State Qualified Issuers: An entity established under a state’s regulatory scheme – provided that the Stablecoin Certification Review Committee certifies the state regulations to be “substantially similar” to federal standards may issue payment stablecoins. An entity may only qualify for state regulation if it has less than $10 billion in market value for its outstanding stablecoins. If an issuer initially qualifies for state oversight – but later exceeds the $10 billion cap, the Act requires the issuer to transition to federal regulation within 360 days.

State versus Federal Regulation

The GENIUS Act addresses concerns regarding the volatility of the digital asset space by establishing a regulatory framework which incorporates opportunities for both federal and state oversight. Issuers that do not exceed the $10 billion cap on market value may weigh the benefits offered by state governance against the requirements for approval set by the statute. Issuers seeking to be state regulated must apply to the SCRC for approval. To approve an entity to become a state qualified issuer, the SCRC must make a finding that the applicant will not pose a material risk to the safety and soundness of the United States banking system, the financial stability of the United States, or the Deposit Insurance Fund. Approval by the SCRC requires a unanimous vote. The committee comprises the Treasury Secretary, Federal Reserve Chair or Vice Chair, and FDIC Chair.

Reserve and Compliance Requirements

Permitted issuers must maintain identifiable reserves backing the outstanding payment stablecoins on at least a 1-to-1 basis. Permissible reserves include, amongst others, U.S. coins and currency; treasury bills, notes or bonds with a remaining tenor of 93 days or less; and funds held as demand deposits at insured depository institutions. Issuers must publish monthly disclosures regarding their reserve composition to be reviewed by an independent accounting firm. Further limitations on issuers include a prohibition on paying interest to stablecoin holders, and offering, selling or otherwise making available a stablecoin issued by a foreign payment stablecoin issuer, unless the foreign issuer complies with the GENIUS Act’s requirements.

Conclusion

The GENIUS Act is the first legislative effort to provide guidance and regulation on a constantly evolving and rapidly growing market. It ties together a combination of federal and state oversight, incorporating a variety of financial and governance institutions.

The Act does not explicitly create a private right of action for issuers or holders of payment stablecoins. However, through its invocation of a broad range of regulatory and commercial requirements – it implicates litigation matters ranging from bankruptcy priority disputes to claims of issuer fraud in registration and disclosure.

Sher Tremonte will continue to monitor all developments related to Government involvement and litigation in the digital asset space. If you have any questions about the GENIUS Act or disputes concerning digital assets, please contact Justin Gunnell, Brian Kidd, or any other Sher Tremonte attorney.