By Jason Gottlieb, Will Roth, and Vani Upadhyaya
Blockchain technology and digital assets are transforming traditional financial systems with new ways of conducting transactions. Starting with the advent of Bitcoin, digital assets have exploded into numerous categories, including governance tokens, tokenized real-world assets and securities, meme coins, nonfungible tokens, and stablecoins. The latter category has garnered particular interest because it is pegged to government-issued currencies like the U.S. dollar.
The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was signed into law on July 18, 2025. The act establishes a regulatory framework for “payment stablecoins” issued, offered, or sold in the United States, going into effect on either January 18, 2027, or 120 days after the primary federal stablecoin regulators issue any final regulations implementing the act, whichever comes earlier.
Key Provisions
The GENIUS Act defines a payment stablecoin as a digital asset intended to be used for payments or settlements. To qualify as a payment stablecoin, its issuer must promise to exchange, redeem, or buy back the stablecoin for a fixed amount and maintain its value relative to said amount. These stablecoins cannot be traditional national currencies or securities regulated under federal securities law (i.e., they are mutually exclusive categories). The act makes it illegal for anyone other than an approved entity — known as a permitted payment stablecoin issuer — to issue payment stablecoins in the United States. Approved issuers can be subsidiaries of insured depository institutions, nonbank companies or uninsured national banks approved by regulatory authorities, approved federal branches, or state-approved entities that are not banks or their subsidiaries.
Foreign companies may also offer and sell payment stablecoins in the United States, but they must meet certain criteria. Their home jurisdictions must have similar regulations, which they must comply with; they also must register with U.S. regulators, keep sufficient reserves in U.S. financial institutions, avoid operating in countries under U.S. sanctions or with money laundering concerns, and be able to comply with U.S. legal orders, such as freezing or burning stablecoins if required. Foreign issuers that do not meet these requirements are barred from the U.S. stablecoin market.
The act defines a digital asset service provider as anyone who, for compensation or profit, engages in the business of exchanging digital assets, transfers them to third parties, acts as a digital asset custodian, or offers related financial services in the United States. These persons or entities cannot make payment stablecoins available to U.S. persons unless those stablecoins are issued by permitted payment stablecoin issuers or compliant foreign issuers. In effect, the act permits foreign issuers to offer or sell payment stablecoins in this country only through third-party providers.
For oversight and approval of permitted payment stablecoin issuers, the act establishes parallel federal and state tracks. Banking organizations such as federally insured institutions must obtain approval directly from federal regulators. In contrast, nonbank businesses and state-chartered trust companies have a choice: They can apply for approval through either state or federal regulatory authorities. Once a stablecoin’s market capitalization reaches $10 billion, however, the stablecoin will presumptively fall under federal oversight, subject to the possibility of receiving a waiver to remain under state jurisdiction. This approach may offer a path for issuers to grow in size while remaining under state regulatory oversight.
Violations of the act can result in penalties that include civil fines of up to $100,000 for each day a violation continues as well as criminal charges for more severe offenses such as issuing stablecoins without authorization or filing false reports, which can lead to additional fines of up to $1,000,000 per violation, imprisonment, or both. Federal regulators also have the authority to issue cease-and-desist orders and revoke licenses for entities that do not comply with the act’s requirements.
Complexity in State Versus Federal Regulation
State-level regulatory regimes must be “substantially similar” to the federal framework created under the act, as determined by the newly established Stablecoin Certification Review Committee (SCRC). The SCRC is responsible for reviewing and certifying state regimes to ensure they align with federal requirements so that consistent oversight across state lines is maintained.
Accordingly, states now have strategic choices to make. Some will likely move quickly to establish their own stablecoin regulatory systems and seek early approval from the SCRC, aiming to become leaders in the space and attract industry participants. Others may take a wait-and-see approach, monitoring front-runner states and federal guidance before shaping their own rules. Whether and to what extent states diverge in their approaches remains to be seen. While some states may initially lead in stablecoin regulation, companies’ decisions on where to operate could change over the years with shifting market and political winds.
Federalism is another complex piece of this story. Since the act leaves room for states to experiment with regulatory models, there will inevitably be tension to the extent states propose a regulatory regime that does not fully sync with the federal framework. This push and pull will come into greater focus once the Secretary of the Treasury defines, through notice-and-comment rulemaking, overarching principles for evaluating state regimes. In the meantime, the process for resolving inconsistencies or disputes remains largely undefined.
Relatedly, the act includes federal preemption provisions that can override conflicting state licensing or regulatory requirements for certain permitted payment stablecoin issuers, particularly federal qualified payment issuers and approved subsidiaries of insured depository institutions or credit unions. In addition, the existence of the SCRC means federal officials may be able to effectively veto, require amendments to, or grant conditional approvals for state frameworks that are not fully aligned with the federal regime. However, the act does not include a blanket preemption of state regimes, and there is considerable room for interpretation. Notably, the act deliberately does not preempt state consumer protection laws. The specifics of this process will likely be tested (and challenged) in real time as certain states innovate or resist federal mandates.
Finally, it is unclear how “waivers” for preexisting state regimes, such as New York’s Bit License framework, will be deployed. The act contemplates that such existing regimes may be grandfathered in, at least temporarily, to avoid disruption of markets or regulatory confusion. But the mechanism by which these waivers will be reviewed or granted remains unclear. Whether state regulators will have to proactively seek waivers, and on what timelines and criteria, are open questions. And the real test will come when federal authorities reassess older state models against newly established national standards. This process could very well reshape the landscape and regulatory environment for existing market participants across the country.
In sum, the act does not take states out of the regulatory game for stablecoins. Instead, it sets in motion parallel processes, the exact contours of which will have significant consequences for issuers doing business nationwide.
Challenges for Foreign Issuers
Since the act places strict conditions on digital asset service providers’ ability to make foreign-issued stablecoins available in the United States, the inherently cross-border nature of the digital assets industry will also pose challenges for issuers looking to tap the U.S. market. Specifically, digital asset service providers are prohibited from making foreign stablecoins available domestically unless their issuers comply with certain requirements, including registering with U.S. regulators, maintaining liquidity reserves in U.S. financial institutions, and cooperating with U.S. legal orders such as freeze or burn orders. Digital asset service providers will likely need to implement mechanisms to ensure that foreign issuers will abide by these requirements.
Monitoring compliance is poised to be a particularly complex challenge for these stakeholders. The act is also vague on the penalties that foreign issuers face if they violate these rules. While the Office of the Comptroller of the Currency, which supervises these issuers, presumably has the authority to impose civil penalties, bar noncompliant stablecoins, or seek injunctive relief, the act does not clearly outline specific sanctions or enforcement mechanisms for foreign entities. This leaves material uncertainty about the practical enforceability of the law on foreign stablecoin issuers.
Ambiguity for DeFi Platforms and Nonfinancial Services Companies
With respect to decentralized finance (DeFi) platforms, the act’s restrictions on noncompliant stablecoins raise significant questions about enforcement for decentralized exchanges or other DeFi protocols that operate without centralized control and may unintentionally make available noncompliant stablecoins. These platforms could potentially list or facilitate trading of foreign stablecoins that do not meet U.S. regulatory standards, potentially circumventing the act, albeit unintentionally. It is unclear who precisely might be held accountable for lapses in compliance and anticircumvention rules.
A number of related open questions also remain for nonfinancial services companies that wish to jump into the fray. For example, the act introduces specific measures to stymie nonfinancial public
companies, especially large technology companies, from potentially monopolizing the stablecoin market. To prevent Big Tech from unilaterally issuing payment stablecoins and gaining outsized influence over financial systems, the act requires these companies to undergo a separate, stringent certification process before issuing a stablecoin in the U.S. market. This gatekeeping process is overseen by the newly created SCRC, which must unanimously approve any nonfinancial public company seeking to become a permitted payment stablecoin issuer. The requirement extends beyond U.S.-based companies to foreign public companies as well, in an attempt to address risks that could arise from complex corporate structures or cross-border operations.
Among other criteria, the SCRC will evaluate whether these companies pose material risks to the banking system and Americans’ financial safety, and whether they will comply with data use limitations protecting consumer privacy as well as with the tying prohibition (requiring customers to purchase an additional product as a condition of using or obtaining a payment stablecoin). While the act mandates the SCRC review, it remains to be seen how (and which of) these companies will pursue stablecoin issuance and how smoothly they will navigate certification hurdles. Indeed, to provide further guidance on this certification process, the act requires the SCRC to issue an interpretive rule within one year of the act’s enactment on how the specific provisions related to nonfinancial public companies should be applied in practice.
Conclusion
The GENIUS Act represents a comprehensive federal framework aimed at regulating payment stablecoins while balancing innovation, market integrity, and consumer protection. The act attempts to establish this balance in a few ways: placing responsibility on issuers for compliance and reporting, extending that responsibility to third-party service providers to only offer compliant payment stablecoins in the United States, giving both federal and state regulators a role to play in oversight — introducing a new Stablecoin Certification Review Committee as a gatekeeper — and instructing various federal authorities to engage in rulemaking to clarify ambiguities. Despite the significant uncertainties that remain, the act marks a step toward integrating stablecoins into the ever-evolving U.S. financial system.
Jason Gottlieb, Will Roth, and Vani Upadhyaya specialize in digital assets at Morrison Cohen LLP, where they are partner and chair, counsel, and associate, respectively.
