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On July 17, 2025, the US House of Representatives passed a bill that introduces a new federal framework for the regulation of payment stablecoins, and the following day President Trump signed it into law.
The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act will impose nationwide rules on who can issue permitted stablecoins and under what conditions.
It will effectively prohibit unregulated US-based entities from issuing stablecoins, imposing tough penalties for unauthorised issuance.
However, for stablecoin issuers that are based outside of the US, a potentially lighter-touch regime may apply.
The bigger picture
The centrepiece of the GENIUS Act is the creation of a two-tier system of authorisation and supervision for permitted stablecoin issuers, similar to that of the US dual banking system.
Stablecoin issuers may be regulated either by state authorities or federal authorities, subject to their size and the discretion of the relevant regulator.
New York has already set the bar for state-level stablecoin regulation, including clear requirements on maintaining 1:1 reserves in specific asset classes and pre-approved redemption policies.
Under the GENIUS Act, issuers of stablecoins with a market cap of up to $10bn may be regulated by state authorities, providing that the state regime in question is “substantially similar” to that of the federal regime.
The Secretary of the Treasury will establish, through notice and comment rulemaking, “broad-based principles” for determining whether a state regime meets this description.
In most circumstances, when a stablecoin reaches $10bn in market cap, its issuer will be required to transition to federal regulation within 360 days, or to cease issuing new units of stablecoin.
However, this requirement may be waived if the issuer’s primary federal regulator is satisfied with the issuer’s capital conditions, its previous operations, examination history, and with the framework and regulation experience of the issuer’s preferred state.
It is important to note that these requirements will apply only to issuers that are legal persons incorporated in the US. For those incorporated overseas, separate rules will apply.
In the original version of the GENIUS Act, there was no mention of any rules for foreign-based issuers.
However, later versions of the bill added a requirement that foreign issuers whose stablecoin is to be offered to US customers must have the “technological capability” to comply with “lawful orders” from US authorities.
In the final version of the bill, a “lawful order” is defined as any order that requires an issuer to “seize”, “freeze”, “burn” or “prevent” the transfer of payment stablecoins.
This requirement is combined with an “exception” for foreign issuers that are incorporated in jurisdictions that have “comparable” regulatory regimes to that of the US, as determined by the Secretary of the Treasury.
To secure this exception, the foreign issuer must also register with the Office of the Comptroller of the Currency (OCC), hold reserves in a US financial institution, and not be located in a sanctioned jurisdiction.
Why should you care?
Although the requirements noted above are aimed primarily at issuers, it is essential that other digital asset service providers remain aware of the implications.
For any firm that plans to participate in the growing stablecoin market, the legality of its counterparties will be a crucial consideration.
As stated in the GENIUS Act, if a digital asset service provider “knowingly” offers or markets a non-compliant stablecoin to customers in the US, it too will be subject to regulatory penalties.
This means that trading platforms, wallet providers and payments processors will need to vet whether any stablecoin they list, integrate or receive is sourced from a “permitted issuer”.
Such firms must therefore:
- Build and maintain a list of “permitted payment stablecoin issuers”.
- Classify issuers as US-based or foreign-domiciled.
- Configure wallets and APIs to freeze, prevent or warn against transactions that involve unapproved or non-compliant stablecoins.
- Audit third-party vendors such as custodians, wallet providers, APIs and payment rails for their stablecoin exposure.
For intermediary firms, the good news is that they will not be prohibited from offering or selling stablecoins from non-permitted issuers until three years after the date of enactment of the GENIUS Act.
After this date, however, it will be unlawful for a digital asset service provider to offer or sell a non-permitted stablecoin to a person in the US.
For stablecoin issuers that are based overseas, their legality is likely to be less clear, as they will be subject to the discretion of the Treasury and the OCC.
The GENIUS Act includes, for example, provisions that allow the Secretary of the Treasury to designate foreign issuers as “non-compliant”.
Such designations will apply for 30 days, during which time the foreign issuer is expected to remedy the non-compliance.
If the non-compliance is not remedied within that period, the Secretary of the Treasury will publish a notification in the Federal Register, and all secondary trading of the stablecoin in question must cease within 30 days from the date of the notification.
This prohibition will only expire if and when the Secretary of the Treasury publishes an additional notification in the Federal Register, overturning the previous determination of non-compliance.
Any digital asset service provider that knowingly violates these prohibitions will be subject to a civil monetary penalty of up to $100,000 per violation per day.
Intermediary firms may benefit from implementing an effective system to monitor and respond to the Secretary of the Treasury’s notifications and thus avoid the risk of monetary penalties.
Using APIs, for example, may allow firms to seamlessly integrate these notifications into intermediary workflows without manual intervention, ensuring that updates are immediately acted upon.
This would also create an automatic log of all notifications and actions taken — a critical step for ensuring auditability and accountability.
This would allow intermediary firms to have a clear record of when compliance changes were communicated and the responses received.
