Source: Galaxy; Compiled by: Baishui, Golden Finance
This report was originally sent privately to Galaxy's clients and counterparties. Invest or trade with Galaxy to receive high-quality research reports directly after the report is released. ——Alex Thorn
Foreword
As of this writing, the total amount of stablecoins in circulation worldwide has exceeded $243 billion. Of this, $218 billion (90%) is fully collateralized and denominated in US dollars. By 2025, these stablecoins are expected to conduct more than 120 million transactions per month, with a value of more than $700 billion. Stablecoins are widely used for cross-border payments, and the cost per transaction is much lower than traditional remittances. But currently, they are mainly in a legal gray area in the United States, where existing companies lack sufficient supervision to truly grow and develop within the traditional system, and traditional players face too much regulatory uncertainty to use the cryptocurrency track.
The United States Stablecoin National Innovation Guidance and Establishment Act of 2025 (the "GENIUS Act") is the U.S. Senate's stablecoin authorization and regulation bill that seeks to bring clarity and certainty to this gray area. The bill was introduced by Senator Bill Hagerty, Republican of Tennessee, and co-sponsored by Senators Tim Scott, Republican of South Carolina, Kirsten Gillibrand, Democratic of New York, Cynthia Lummis, Republican of Wyoming, and Angela Alsobrooks, Democratic of Maryland.
The bill would establish a strong oversight and regulatory regime for stablecoins and their issuers in the United States, paving the way for innovation and enhancing the dollar's global issuance and reserve status. Stablecoins issued under this framework would be strictly regulated under federal standards, regardless of whether they are regulated by federal banking regulators, U.S. states, or foreign issuers. The Senate Banking Committee rejected the bill in March by a vote of 18-6, including five Democrats.
On Thursday, May 1, an updated draft was released with several substantive updates that enhanced language on national security, financial system security, and regulatory accountability. On Saturday, May 3, nine Democrats issued a statement saying they would oppose terminating debate in the chamber without further improvements in five areas.
This article provides an overview of the GENIUS Act, explains the regulatory framework it would create, and highlights the key differences between the latest version and the one passed by the Senate Banking Committee.
What the GENIUS Act Contains
The GENIUS Act establishes a comprehensive framework for regulating stablecoin issuers located in the United States or whose stablecoins are circulated or traded in the United States. Currently, stablecoin issuers are typically registered with the Treasury Department's Financial Crimes Enforcement Network (FinCEN) as a money services business (MSB) and/or hold licenses in certain states, but there is no nationwide comprehensive regulatory system to oversee collateral processing, AML/CFT compliance, creation and redemption mechanisms, supervision, consumer safety, bankruptcy isolation, etc., except for certain state regulatory systems. Essentially, there is currently almost no regulation of dollar-backed stablecoins in the United States.
The following table describes the framework established by the latest version of the GENIUS Act, which was released on Thursday, May 1.
GENIUS Act Provisions Explained
Only “payment stablecoin issuers permitted to issue stablecoins” may issue stablecoins in the United States:
Federal Qualified Issuers:
— A nonbank entity approved by the Office of the Comptroller of the Currency (OCC) under Section 5 [§2(11)(A)]
— An uninsured national bank chartered by the OCC [§2(11)(B)]
— A federal branch approved by the OCC [§2(11)(C)]
State Qualified Issuers:
— An entity lawfully organized under state law and approved by a state payments stablecoin regulator [§2(30), §3(a)]
A subsidiary of an insured depository institution approved under Section 5 [§2(23)(A)(i)]
For three years after the date of enactment of this bill, a digital asset service provider may not offer or sell a stablecoin that is not issued by a licensed issuer.
Federal regulators: Office of the Comptroller of the Currency (OCC), Federal Reserve, Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA)
State regulators: responsible for state-level supervision [§7(a)], with the option to enter into joint supervision or reciprocity arrangements [§4(c), §7(b), §18(d)]
Foreign issuers must:
— Be from a jurisdiction with a similar regime [§18(a)(1), §18(b)]
— Register with the Comptroller General [§18(c)]
— Comply with U.S. legal orders [§3(b)(2), §8(a)(1)]
Treasury may establish reciprocal arrangements [§18(d)]
Prohibition: An issuer may not provide a yield or interest payment on a stablecoin it issues.
Anti-Money Laundering (AML) and Compliance (Sections 4(a)(5), 5(i), 6, 8, 9)
Issuers must:
— Comply with the Bank Secrecy Act [§4(a)(5)(A)]
— Implement an AML/Sanctions program and customer verification [§4(a)(5)(A)]
— Certify compliance annually [§5(i)(1)]
— Submit reports and be audited [§6, §9(d)]
State and Federal Regulatory Framework (Sections 4(c), 4(d), 5(h), 7, 13)
≤ 100 $10 billion issuance: may remain subject to state regulation [§4(c)(1)]
State regulation must be certified [§4(c)(4)]
> $10 billion issuance: must move to federal regulation unless exempt [§4(d)]
Must maintain 1:1 reserves of:
— U.S. currency, insured deposits, Treasury bills, qualified repurchase agreements [§4(a)(1)]
Rehypothecation prohibited (exceptions apply) [§4(a)(2)]
Monthly reserve disclosure and audits required if reserves exceed $50 billion [§4(a)(10)]
— Stablecoin holders have priority in bankruptcy [§11(a)]
— Reserve assets are not included in the estate [§11(e)]
— Redemption rights are protected [§11(c)]
— Restrictions on misrepresenting stablecoins as legal tender or insured currency [§4(e)(2)]
— Violations may result in fines of up to $500,000 [§4(e)(3)(B)]
— Interoperability standards may be developed with NIST [§12]
— Treasury may establish a reciprocal international framework [§18(d)]
Broadly speaking, the Act establishes a strict regulatory framework for stablecoin issuance in the United States:
It protects consumers by requiring issuers to be regulated like banks, whether or not they are banks themselves.It has strict requirements for short-term collateral, making the stability of stablecoin reserves comparable to that of money market funds. Stablecoin holders have priority payment in the event of an issuer’s bankruptcy, and reserve assets are considered “bankruptcy remote” in any bankruptcy proceeding.
Protect the safety and soundness of the financial system by placing the Office of the Comptroller of the Currency (OCC) in the lead regulatory seat for stablecoin issuers. Stablecoin issuers, whether banks or non-banks, must register with the OCC or a state whose own regulatory level is considered comparable to federal minimum standards. The liquidity of collateral reserves and their full reserve backing ensure that stablecoins are comparable to money market funds.
Enable innovation to flourish. Given the transparency, speed, and efficiency of public blockchains, stablecoins have enormous utility and represent the vanguard of using such blockchains to settle financial transactions. They are widely used around the world by individuals, businesses, and nation states, significantly enhancing the existing financial rails for the flow of US dollars. The bill gives US "digital asset service providers" (essentially US trading firms and exchanges) a 3-year grace period to allow them to trade existing but unregistered stablecoins, allowing the industry and market to smoothly transition to the new system.
Consolidate and expand the dominance of the US dollar. While the dollar’s influence faces headwinds due to international trade and geopolitical developments, it is unrivaled in cyberspace. More than 99% of stablecoins in circulation are denominated in U.S. dollars. Bringing stablecoins under the regulatory umbrella of the world’s most advanced and trusted capital markets regulatory system will expand their use and help export the dollar around the world.
Supporting U.S. debt issuance. By requiring full reserves composed almost entirely of U.S. Treasuries, the growth of stablecoins means growth in the U.S. government’s borrowing capacity.
Democratic Criticism
Nine Democrats said they would vote against closing debate on the GENIUS Act, including six members of the Senate Banking Committee, five of whom had previously voted to send the bill to committee consideration.
“However, the bill currently leaves many unresolved issues, including the addition of stronger provisions such as anti-money laundering, foreign issuers, national security, maintaining the safety and soundness of the financial system, and holding accountable those institutions that do not meet the requirements of the bill,” the nine Democrats wrote in a statement Saturday evening. “While we are eager to continue working with our colleagues to address these issues, we will not be able to vote to end debate if the current version of the bill ultimately makes it to the floor.”
Politico reported the announcement under the headline “Democrats change tack, oppose Senate cryptocurrency bill,” but Senator Gallego denied the change, saying “this was not an unprovoked change by Democrats” and that “the bill that was sent to the floor rolls back on much of the progress we have made and does not include the other improvements we seek.”
Update on Revised Bill
The following article analyzes the differences between the latest draft of the bill (as revised) and the version passed by the Senate Banking Committee. We analyzed these changes in the context of five areas where Gallego and Democrats have expressed continued concern: 1) anti-money laundering; 2) foreign issuers; 3) national security; 4) maintaining the safety and soundness of our Nation’s financial system; and 5) accountability for noncompliance with the Act.
National Security
Requires stablecoin issuers to demonstrate that they have the technical ability to comply with a lawful U.S. order (e.g., to freeze, destroy, block tokens).
Foreign Issuers
Foreign issuers may not offer stablecoins to U.S. persons unless they meet new requirements (e.g., similar foreign regulation, U.S. reserves, registration).
Must be registered with a U.S. regulator.
Must comply with U.S. laws and regulations.
Must hold reserves in U.S. custody for U.S. users.
Anti-Money Laundering (AML)
Enforce AML/CIS/Sanctions compliance,
Monitor and report suspicious activity,
Keep records and conduct enhanced due diligence.
Financial system soundness and safety
Accountability and Enforcement
Unauthorized issuance, up to $100,000 per day.
Knowing violation, up to $200,000 per day.
Post-employment accountability, up to six years.
Authorizes revocations, removals of officials, issuance of cease and desist orders, and other regulatory tools for federal regulators.
Each of these changes was made in the weeks after the bill was voted through by an overwhelming majority in committee (18-6, with five Democrats joining Republicans), and many of them reflect specific requests from members of the Senate Banking Committee who either voted against the bill in committee or requested such changes before the bill went to the floor. Our analysis shows that nearly all of the changes make the bill more stringent on stablecoin issuers than the version voted through by the Senate Banking Committee.
Conclusion
Overall, the latest version of the GENIUS Act represents a strong victory for the cryptocurrency industry and traditional financial sectors in promoting innovation and protecting consumers. It creates a reasonable registration path while implementing strict supervision and regulatory provisions and imposing severe penalties for violations. The passage of the GENIUS Act will enhance the influence of the US dollar at home and abroad, making it easier for individuals and businesses to conduct daily transactions domestically, across borders, or in international trade. All parties involved have achieved important gains: the cryptocurrency industry has both a viable development path and is regulated; it protects the financial system and helps the United States succeed in geopolitical and rapidly changing global economy.
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