The GENIUS Act is a landmark piece of legislation because it represents the first legislative attempt to implement comprehensive regulation for an aspect of the cryptocurrency market. The regulatory framework contemplated by the legislation focuses specifically on payment stablecoins, which are digital assets the value of which is always equal to one dollar. Stablecoins can be used to facilitate payments that consumers use credit cards and payment apps to accomplish today.

As this Gibson Dunn alert notes:

The Act is described as a consumer protection bill that establishes Federal safeguards to protect stablecoin holders and enhance consumer confidence in the payment stablecoin market. To achieve these ends, the Act establishes a clear Federal regulatory framework for the issuance of “payment stablecoins,” while preserving a pathway for certain State-regulated entities to issue payment stablecoins. The Act also provides restrictions on “digital asset services providers” (e.g., cryptocurrency exchanges) with respect to the offer and sale of certain payment stablecoins. Given its broad scope, both within the United States and extraterritorially, the GENIUS Act is expected to have significant impacts on the global cryptocurrency markets, market participants, and the broader financial system.

For purposes of this legislation, a “payment stablecoin” is defined as any digital asset that: (i) is, or is designed to be, used as a means of payment or settlement, and (ii) the issuer of which: (A) is obligated to convert, redeem, or repurchase for a fixed amount of monetary value, not including a digital asset denominated in a fixed amount of monetary value; and (B) represents that such issuer will maintain, or create the reasonable expectation that it will maintain, a stable value tied to a fixed amount of monetary value. This definition of “payment stablecoin” does not include a digital asset that is (i) a national currency; (ii) a deposit; or (iii) a security. Notably, the GENIUS Act clarifies that payment stablecoins are not commodities regulated by the CFTC or securities regulated by the SEC, and payment stablecoin issuers are prohibited from paying any interest on payment stablecoins.

While the GENIUS Act does not regulate non-payment stablecoins, it directs the Secretary of the Treasury to conduct a study of non-payment stablecoins and submit the report to the Senate Banking Committee and the House Financial Services Committee within one year of enactment.

The GENIUS Act contemplates a regulatory framework that involves the U.S. Treasury, primary Federal payment stablecoin regulators, and State payment stablecoin regulators. A considerable amount of the regulatory authority and responsibility with respect to payment stablecoins is vested in the Secretary of the Treasury.

With respect to the implementation timetable, Gibson Dunn’s alert notes:

Nonetheless, the industry should anticipate a lengthy rulemaking process before final regulations are fully phased in (and some rulemakings, like capital and liquidity requirements, may include transition periods before full effectiveness). It is critical for all market participants to consider the implications of the Act and potential rulemakings on their business models because there will be meaningful opportunities for market participants to participate in advocacy efforts and the rulemaking process with both Federal and State regulators and other Federal and State policymakers in shaping the substance of the final rules designed to implement the dual Federal-State stablecoin issuance framework in the United States.

Given all of this, despite the initial excitement arising from the enactment of the legislation, it may ultimately be a few years before we see a full regulated payment stablecoin infrastructure up and running.

– Dave Lynn