• The latest draft of the GENIUS Act proposes splitting stablecoin oversight between state and federal authorities while introducing stricter transparency and AML requirements.
  • The bill, backed by bipartisan senators, raises the threshold for state regulatory authority to issuers with a market cap of up to $10 billion and introduces a waiver system for larger issuers.

A new draft of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, introduced ahead of a Senate hearing, outlines a revised framework for stablecoin regulation, splitting oversight responsibilities between state and federal authorities while introducing new enforcement and transparency measures.

The bill, sponsored by Senators Bill Hagerty (R-TN), Tim Scott (R-SC), Kirsten Gillibrand (D-NY), Cynthia Lummis (R-WY), and Angela Alsobrooks (D-MD), marks a significant shift in how stablecoin issuers would be regulated in the U.S. Originally introduced by Hagerty in February, the latest draft proposes increasing the threshold for state regulatory authority, allowing states to oversee stablecoin issuers with a market cap of up to $10 billion, provided they coordinate with federal regulators.

A key addition to the bill is a waiver process, enabling larger stablecoin issuers to remain solely under state supervision if they meet specific criteria. To qualify, issuers must demonstrate strong capital reserves, a history of compliance, and oversight by an experienced state regulator.

The draft also expands transparency requirements, mandating that issuers publish monthly liquidity reports disclosing the composition of their reserves, including the total number of outstanding stablecoins.

"By increasing transparency and ensuring that stablecoin issuers meet strict financial and compliance standards, this bill seeks to bring greater stability to the digital asset market," said Senator Bill Hagerty.

The bill specifies that reserves must be held in U.S. currency, demand deposits, Treasuries, or other approved assets. Additionally, issuers would be required to implement mechanisms to freeze transactions when necessary and comply with orders from the U.S. Treasury. The legislation also grants the Secretary of the Treasury authority to block transactions involving stablecoins issued by foreign entities.

Another major change involves explicit AML (Anti-Money Laundering) and KYC (Know Your Customer) designations. While earlier versions of the bill included provisions for enhanced compliance, the updated draft formally classifies stablecoin issuers as financial institutions for AML purposes, requiring them to establish compliance programs and conduct due diligence on high-value transactions.

Senator Cynthia Lummis emphasized the need for a well-defined regulatory framework, stating,

"A stablecoin bill that clearly defines oversight and ensures proper safeguards is essential for maintaining trust and stability in the digital economy."

The GENIUS Act is now under review by the Senate Banking Committee, where it may undergo further amendments before being referred to the full Senate for debate and a final vote.

Edited by Harshajit Sarmah