The U.S., a longtime holdout on crypto regulation, signed the first piece of crypto legislation into law on July 18, 2025. Passed by Congress and then signed into law by the president, the Guiding and Empowering Nation’s Innovation for US Stablecoins Act (GENIUS Act) builds legal and rudimentary regulatory frameworks around stablecoin issuance in the U.S.
The GENIUS Act provides a monumental step forward to building a regulatory U.S. framework for cryptocurrency investing. However, advisors should still approach stablecoin investments with the utmost caution.
A Stablecoin Primer
A stablecoin is a type of cryptocurrency whose value is pegged to another asset. It can be linked to real assets like gold, fiat currency like the dollar, or other cryptocurrencies. Though ratios often differ, the stablecoins regulated by the GENIUS Act will have a fixed 1:1 ratio to the dollar. They’ve long existed in a gray area regarding regulation, but the GENIUS Act works to bring more definition to the asset class.
Stablecoins have a number of use cases, including as a means to streamline payments. As with cryptocurrencies broadly, they offer a decentralized way to make payments globally. They also provide an almost instantaneous way to make payments as opposed to going through traditional means, such as banks.
Stablecoins are also becoming an attractive alternative to popular cryptocurrencies for some investors. Because they are often pegged to fiat currencies or real assets, they offer the potential for less volatility. They also facilitate moving into and out of other cryptocurrencies easily.
Risks Specific to Stablecoins
It’s worth noting that stablecoins have been plagued with a host of issues in the past. Largest among those is that issuers fail to maintain the correct reserves of the backing asset. In 2021. the CFTC fined Tether for failing to maintain 100% fiat reserves of its stablecoin in the U.S. dollar, instead averaging just 27.6% backing between 2016-2018. The company also used nonregulated entities to hold reserves as well as a number of other accusations including failure to provide audits.
Transparency has been a significant risk factor for the stablecoin ecosystem. With disparate and sometimes zero regulatory oversight, the Tether story is unfortunately not an uncommon one. U.S. regulatory frameworks and oversight could help to improve this, but do not resolve many existing issues and concerns.
And sometimes stablecoins just fail. Such was the case for Terra’s spectacular collapse of TerraUSD (UST) in 2022. In early May, the token decoupled from its peg to the U.S. dollar, crashing alongside LUNA, which was the primary backed asset for UST. While a number of factors likely contributed to the collapse, they underscored the risk inherent in the space. Collectively, UST and LUNA’s collapse erased $45 billion in market cap in the space of a single week.
Breakdown of the GENIUS Act
The GENIUS Act is the first piece of legislation passed in the U.S. that regulates a facet of the crypto economy. It regulates who can issue stablecoins and establishes some frameworks. It also sets an 18-month timer for current issuers of stablecoins to align with the new requirements.
- The law specifies that only U.S. banks, nonbanking financial companies with an OCC license, and certain state-regulated institutions may issue stablecoins. Additionally, foreign issuers registered with the OCC and from a country with similar regulations may also issue stablecoins.
- It stipulates that all stablecoins issued will be pegged at a 1:1 ratio to either cash or U.S. Treasuries. Issuers cannot use leverage to establish their reserve. Additionally, issuers must undergo monthly audits by an independent party and make their reserve holdings publicly available.
- Stablecoins do not generate interest, as they are used solely for payments.
- The law establishes a means of enforcement for violators of the law, with civil penalties up to $100,000 daily. It also establishes Federal oversight by a Federal payment stablecoin regulator that can prevent issuers from launching stablecoins that violate the law in any way, as well as regulating those in circulation.
What the GENIUS Act Means for the Near Term
Proponents of the Act appreciate the efficiency that stablecoins could bring for businesses. Stablecoins could potentially make back-end operations run more smoothly. A major sticking point for many businesses is the processing fees they pay to credit companies. With stablecoin, businesses can bypass this system entirely, saving on fees.
Additionally, companies that issue their own stablecoin could do so with incentive in the form of discounts or added benefits when using it to pay. And instead of needing to go through a multistep process for payments across borders, stablecoins could streamline the process, reducing fees while increasing expediency.
The concerns and fears of those opposed to the GENIUS Act center around the lack of regulation, and impacts to the dollar. While the ACT builds some frameworks around regulation, it sets up the potential for individual issuers to become, in essence, a bank. Corey Frayer, director of Investor Protection for the Consumer Federation of America, discussed the dangers of a self-policing entity acting as a bank with NBC.
“The reason that banking insurance and consumer protections exist is because of the Great Depression and the Great Recession,” he explained. “If we go back to a system with a whole bunch of unregulated banks being allowed to issue stablecoins, we will end up with another financial crisis.”
Banks Weigh in on StableCoins
A number of banks have also raised the alarm that stablecoins provide a direct threat to customer deposits, reported the WSJ. Treasury Department findings in April put a price tag of $6.6 trillion in potential outflows for deposits due to stablecoins. This in turn weakens the ability of banks to issue loans as they rely in part on consumer deposits for funding and diminishes currency flow throughout the economy. The potential economic impacts warrant concern.
Not all banks see stablecoins as a threat, however. The WSJ previously reported JPMorgan, Citigroup, Bank of America, Wells Fargo, and other major banks are considering banding together to issue a joint stablecoin. The underlying motivation is to unify the traditional finance entities against growing competition from the crypto economy. By launching their own stablecoin, traditional banks would retain a greater degree of customer deposits and transactions.
Whether a proponent or a skeptic of stablecoins, the GENIUS Act brings with it a new era of U.S. crypto adoption.
“The broader signal from crypto week is this: after years of confrontation, the U.S. is shifting from a mode of containment to one of configuration,” CoinShares wrote in The Node. “Policymakers are no longer merely trying to control digital assets—they are beginning to shape them.”
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