Last month, the Senate Banking Committee advanced the bipartisan Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act with a vote of 18-6. Senator Bill Hagerty (R-Tenn.) leads the legislation, co-sponsored by Chairman Tim Scott (R-S.C.), Senator Kirsten Gillibrand (D-N.Y.), Senator Cynthia Lummis (R-Wyo.), and Senator Angela Alsobrooks (D-Md.). The act earned support from every Republican on the committee and five Democrats.
“The GENIUS Act is a consumer protection bill,” states the intention behind the legislation. The act aims to address the lack of regulatory oversight for payment stablecoins already available in the U.S. market. It proposes a federal framework to regulate these stablecoins, including robust reserve requirements and transparency.
Key provisions of the act require stablecoins to be backed 100% by U.S. dollars and short-term treasuries or similarly liquid assets. Issuers with a market cap exceeding $50 billion must publicly disclose reserve compositions monthly and provide annual audited financial statements.
The act establishes strict marketing standards, prohibiting representations that suggest U.S. government backing or FDIC insurance. Marketing payment stablecoins as legal tender or issuing them without compliance with the provisions of the GENIUS Act is deemed illegal.
The legislation includes safeguards against destabilizing runs, imposing diversification requirements for reserve assets and standards for interest rate risk management. Prohibited reserve assets include corporate debt or equities. The act mandates that state regulators maintain frameworks “substantially similar” to the federal framework, with larger issuers either being overseen by a federal regulator, seeking a waiver, or stopping issuance past a $10 billion threshold.
In case of insolvency, the GENIUS Act prioritizes claims by stablecoin holders and mandates accelerated court reviews and reserve distribution.
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