The GENIUS Act: America’s First Blueprint for Stablecoin Regulation

The U.S. and the Missing Framework: From Regulation by Enforcement to the GENIUS Act

For much of the past decade, the U.S. stood out not for what it regulated, but for how it avoided regulating. While the EU advanced MiCAR, Washington relied on enforcement, guidance, and agency interpretation. Instead of proactive policymaking, the U.S. drifted into “regulation by enforcement” - where lawsuits and settlements, rather than clear statutes, defined the boundaries.

That approach came at a cost. Agencies stretched old laws to fit new technology, often with arbitrary outcomes. Companies were penalized for crossing lines that had never been set in legislation or communicated through a federal framework. What resulted was not clarity, but deterrence: firms that might have built and scaled in the U.S. - a country long synonymous with technological innovation, deep capital markets, and a culture of business investment - chose to look elsewhere.

And then the political winds shifted. With the new administration, and President Trump openly positioning himself as pro-crypto, the tone in Washington changed. In January, the White House released its Strengthening American Leadership in Digital Financial Technology agenda - a public commitment to finally deliver a comprehensive framework. After years of uncertainty, the U.S. signaled it was ready to move beyond piecemeal enforcement and take on the task of building rules fit for a digital financial system.

There were moments of hope along the way. Multiple bills were introduced, each promising a federal framework for crypto assets. But they stalled in Congress or never reached the floor. Only one has made it into law so far: the GENIUS Act, a dedicated stablecoin regime that also nudged forward the broader debate on market structure.

Why Stablecoins Came First: From Market Backbone to Policy Priority

Stablecoins were the obvious place to start. By 2024, stablecoins had become the beating heart of crypto markets. They served as the settlement layer for trading, the bridge into DeFi, and a growing tool for payments. Daily transaction volumes rivaled those of major card networks, and reserves reached into the hundreds of billions. What began as a niche product for crypto traders was evolving into a parallel dollar-based payment system.

That growth brought opportunity - and risk. On the one hand, stablecoins offered speed, efficiency, and global reach. On the other hand, they raised questions that went far beyond AML compliance. What happens if a large issuer stumbles, or reserves prove inadequate? How can users trust redemption promises without clear disclosure and audits? Could the U.S. risk ceding influence if overseas stablecoins became the de facto rails for dollar transfers?

These were no longer abstract questions. Policymakers had watched the collapse of algorithmic stablecoins, stress events around fiat-backed issuers, and the rapid internationalization of dollar tokens. 

That’s also why the trend toward regulating stablecoins is global. Standard setters and policymakers from the EU to Asia have recognized that stablecoins could be accepted as a mainstream means of payment - and, in time, become systemically important. MiCA in Europe, Hong Kong’s stablecoin regime, and the UK’s proposals all reflect the same conclusion: stablecoins are too central to be left unregulated.

For the U.S., the stakes run even deeper. Dollar-denominated stablecoins are spreading worldwide, fueling a wave of “crypto-dollarization.” Their design and credibility carry direct implications not only for financial stability and consumer protection, but also for U.S. monetary influence and financial diplomacy. Regulating stablecoins, in that sense, becomes as much about foreign policy as it is about financial policy.

The GENIUS Act brings the U.S. firmly into that global conversation. Stablecoins were put at the center of reform not just to plug gaps in AML or investor protection, but to ensure that if they are going to anchor the digital financial system - and circulate worldwide - they do so under rules that reinforce credibility, transparency, and ultimately, U.S. leadership in digital finance.

Defining the Core: What Counts as a Payment Stablecoin

One of the most important contributions of the GENIUS Act is clarity. For years, the U.S. lacked a legal definition of what exactly a “stablecoin” was in the eyes of federal law. That gap is now closed.

Under the Act, a payment stablecoin is a digital asset designed to be used as money - a means of payment or settlement - where the issuer promises redemption at a fixed value in national currency. In practice, that means tokens pegged to the U.S. dollar (or another sovereign currency) with a binding obligation that holders can redeem one-for-one.

Equally important is what does not qualify. Payment stablecoins are not deposits insured by the FDIC, they are not securities under the SEC’s jurisdiction, and they are not legal tender issued by the U.S. government. They occupy their own legal category: a dollar-denominated digital payment instrument, but one backed by private issuers under strict conditions

Who Can Issue: The Narrow Gate of “Permitted Stablecoin Issuers”

One of the most important features of the GENIUS Act is that it answers a question long left vague: who is actually allowed to issue a stablecoin in the United States? For years, anyone with the technical capability could launch one. The risks were obvious - “private money” could be created outside of any regulatory perimeter, backed by reserves of uncertain quality, and with no guarantee that redemption promises would hold in a crisis.

The Act closes that gap by defining a narrow gate. Only a “permitted payment stablecoin issuer” may legally issue a payment stablecoin. That category includes three groups:

• Bank subsidiaries.  A subsidiary of an FDIC-insured bank, specifically approved to issue stablecoins.
  
  
• Federal issuers.  A “federal qualified payment stablecoin issuer,” licensed and supervised directly by the Office of the Comptroller of the Currency.
  
  
• State issuers.  A “state qualified payment stablecoin issuer,” licensed under a state regime that meets federal standards, and subject to coordination between state and federal regulators.
  

Who Oversees Stablecoin Issuers: Mapping the Regulatory Perimeter

If the GENIUS Act narrows the field of who can issue a payment stablecoin, it also clarifies who keeps watch. Oversight is not left to chance or informal coordination; it is spelled out with precision. Each type of “permitted issuer” is paired with a primary federal payment stablecoin regulator.

• Bank subsidiaries. Overseen by the appropriate Federal banking agency of the parent bank - the OCC, the Federal Reserve, or the FDIC, depending on the charter.
  
  
• Credit unions. Supervised by the National Credit Union Administration, extending their traditional prudential oversight into the stablecoin space.
  
  
• State-chartered depository institutions. Subject to joint oversight, with federal responsibility allocated to the FDIC, OCC, or Federal Reserve, depending on the institution.
  
  
• Federal qualified stablecoin issuers. Regulated directly by the Office of the Comptroller of the Currency, which serves as their primary supervisor.
  
  
• State qualified stablecoin issuers. Supervised by their state regulator, but only if that regime is certified as meeting minimum federal standards. Crucially, this applies only while the issuer remains below a defined threshold (e.g., $10 billion in outstanding stablecoins). Once a state-qualified issuer crosses that line, it must transition into direct federal oversight, with the OCC as its regulator.
  

Foreign Issuers and Reciprocity: Opening the U.S. Market Carefully

The GENIUS Act recognizes a simple reality: stablecoins are global. A token issued in Singapore or Europe can circulate worldwide, including in U.S. markets. Rather than walling off the system, the Act creates a pathway for foreign issuers to operate in the United States - but only if their home regimes are up to par. 

Access is possible, but only on American terms. A foreign issuer can operate in the United States if its home country has a regulatory and supervisory framework comparable to the U.S. model. The Secretary of the Treasury makes this determination, but only after consulting other federal regulators through the Stablecoin Certification Review Committee. The decision must be published with justification in the Federal Register.

A foreign payment stablecoin issuer can enter the U.S. market only if:

• It is subject to comparable regulation and supervision in its home country, as determined by the U.S. Treasury.
  
  
• It registers with the Office of the Comptroller of the Currency.
  
  
• It holds reserves in a U.S. financial institution sufficient to cover U.S. customers - unless a reciprocal arrangement allows otherwise.
  
  
• It is domiciled in a jurisdiction that is not under U.S. sanctions and not designated as a primary money laundering concern.
  
  
• It must have the technological capability to comply with U.S. law -  meaning it can, and will, execute lawful orders from U.S. courts and regulators.
  
  

The Act also gives the Treasury the power to set up reciprocal arrangements with trusted foreign regulators. In practice, this means U.S. and overseas stablecoins can interoperate - but only if both sides enforce equivalent standards on reserves, compliance, and supervision.

This stands in contrast to the EU’s MiCA framework, which currently lacks any regulatory equivalence mechanism. Europe has delayed the question until at least 2027, leaving its market effectively closed to global issuers. Strict localization rules require operations inside the EU, discouraging international players and pushing some to rely on the risky and unpopular tool of “reverse solicitation” as a last resort to reach European customers.

By comparison, the U.S. model is more balanced. The result is a framework that is open, but conditional. The U.S. remains accessible to well-regulated overseas issuers, while ensuring that stablecoins circulating here still meet American standards and reinforce confidence in the dollar.

The Rules of the Road: Reserve Requirements for Issuing Stablecoins

The GENIUS Act starts with a simple principle: stablecoins should look and feel like money, not like investment schemes. That means being backed, redeemable, and transparent.

At the heart is the reserve rule. Every token in circulation must be backed one-to-one by the safest and most liquid assets - cash, central bank balances, insured deposits, overnight repos, government money market funds or short-term Treasuries. In other words, reserves that hold their value even under stress. What’s out are risky bets or long-dated investments. Stablecoins are for payments, not speculation.

But reserves alone don’t build trust. Holders also need the right to redeem at par, on demand. Issuers have to publish clear policies so people know they can cash out at any time, with no hidden fees or arbitrary delays. Only regulators, not issuers, can step in to pause redemptions in extraordinary cases.

Transparency is non-negotiable. Issuers must publish monthly reports on their reserves, verified by independent auditors, with senior executives personally certifying the numbers. That accountability ensures the disclosures are more than just fine print.

And finally, reserves are off-limits for other uses. They can’t be pledged, lent out, or recycled into risky trades. Their only job is to back the stablecoins in circulation - with only narrow exceptions for routine liquidity management and standard custodial operations.

Compared to Europe’s MiCA framework, this is a more flexible model. MiCA largely confines issuers to bank deposits and central bank money, effectively forcing reserves into the EU banking system. The GENIUS Act takes a different path: by allowing short-term Treasuries and repos, it ties stablecoin reserves directly to U.S. sovereign markets. The result is both safer liquidity management for issuers and a stronger integration of stablecoins into the dollar financial system - while also channeling steady, structural demand into U.S. government debt.

Custody and Safekeeping: Protecting Reserves 

Stablecoin trust depends not just on what backs the tokens, but on who holds that backing. The GENIUS Act makes clear that reserves, collateral, and even the private keys used to issue stablecoins must be safeguarded like customer money - not left exposed to misuse or creditor claims.

Only regulated financial institutions can act as custodians. And they must follow strict rules designed to keep customer assets safe:

• Customer-first ownership. Reserves, collateral, and keys belong to the customer, not the custodian, and cannot be touched by the custodian’s creditors.
  
  
• Segregation of assets. Customer property must be kept separate from a custodian’s own balance sheet, with clear accounting and safekeeping.
  
  
• Narrow exceptions. For efficiency, assets can be pooled in omnibus accounts at banks or trust companies, or moved temporarily to settle transactions and cover lawful charges. Regulators can also approve limited commingling under defined conditions. Deposits at insured banks remain deposit liabilities under federal law.

No Interest, No Shadow Banking: Keeping Stablecoins as Money, Not Investments

The GENIUS Act draws a bright line around what stablecoins are - and what they are not. Under the law, no issuer may pay holders interest or yield simply for keeping a stablecoin in their wallet. That means no “savings accounts,” no tokenized interest payments, no passive yield baked into the coin itself.

The logic is straightforward. Stablecoins are meant to be payment instruments, not investment products. Allowing issuers to pay yield would blur the line between stablecoins and bank deposits, creating the risk of shadow banking without deposit insurance or prudential safeguards. 

This approach isn’t unique to the U.S. The EU’s MiCA regulation takes the same stance, prohibiting interest on stablecoins to keep them firmly in the realm of payments. The UK has floated similar rules in recent consultations, and Hong Kong has also drawn a hard line between payment tokens and investment products. Across jurisdictions, the trend is clear: stablecoins should serve as digital cash, not as vehicles for passive yield.

That doesn’t mean yield-generating products disappear. Instead, they may take the form of tokenized money market funds (MMFs) or similar instruments, where investors knowingly buy into an investment product regulated as such. But that’s a separate category, with its own disclosure, licensing, and risk rules.

Capital and Liquidity Management: Prudence Without Double-Counting

The GENIUS Act also requires issuers to operate with the same prudence expected of other financial institutions: adequate capital, sufficient liquidity, and strong risk controls.

The approach is fit-for-purpose. Requirements are tough enough to ensure resilience but not so heavy-handed that they strangle the very activity they are meant to safeguard.

Issuers must hold capital to cover their operations, with regulators free to require extra buffers if needed. 

Liquidity standards reinforce the reserve rule, ensuring tokens can be redeemed even in times of stress. Diversification prevents overexposure - for example, spreading deposits across banks and managing interest-rate risk.

Congress also drew a smart boundary. Stablecoin subsidiaries of banks aren’t automatically dragged under traditional bank capital rules, which would double-count requirements and discourage participation. Instead, the issuer itself must meet its tailored obligations, while the parent bank isn’t penalized with redundant buffers.

Here too, the U.S. approach echoes international practice. Under MiCAR, regulators are empowered to impose risk-based or stress-based adjustments, requiring higher prudential buffers when market conditions demand it. For so-called “significant” or systemic stablecoins, those requirements automatically rise to reflect the greater scale and potential impact. The GENIUS Act takes a similar philosophy: capital and liquidity rules should grow with the risk, ensuring stablecoins can scale safely without becoming fragile.

AML and Sanctions: Confirming Stablecoin Issuers as Gatekeepers

The GENIUS Act confirms what many already knew: stablecoin issuers are part of the gatekeeper system that protects the financial system from being misused for crime, money laundering, or sanctions evasion. Far from sitting outside the rules, issuers are brought squarely inside the perimeter, with the same obligations that apply to banks and other financial institutions.

That means issuers must:

• Maintain a robust AML program, with risk assessments and a designated compliance officer.
  
  
• Keep and retain the necessary records.
  
  
• Monitor and file suspicious activity reports when red flags appear.
  
  
• Build the technical capacity to block, freeze, and reject illicit transactions.
  
  
• Run a clear customer identification program, verifying account holders, monitoring high-value transfers, and applying enhanced due diligence where appropriate.
  
  
• Operate a dedicated sanctions compliance program, screening against federal lists and ensuring adherence to economic sanctions law.
  
  
• Have the technical capability to comply with lawful U.S. court and regulatory orders.

In practice, the Act doesn’t reinvent the wheel - it confirms the expectation that if you issue digital cash, you are bound by the same crime-prevention standards as anyone else moving money in the U.S. financial system. The Treasury will tailor requirements to the size and complexity of issuers, but the principle is universal: stablecoins are not beyond the reach of law.

The takeaway is clear. Stablecoins may be programmable, global, and fast-moving - but the rules of integrity still apply. The GENIUS Act doesn’t create a new category of obligations; it reaffirms that issuers are financial gatekeepers charged with protecting the system they help power.

From Rules to Reality: Building AML Integrity Across the Ecosystem

By confirming that stablecoin issuers are financial gatekeepers, the GENIUS Act also sets the expectation that they safeguard not just their own system, but the integrity of the whole ecosystem around them. That means more than running a compliance program in isolation: it means understanding how their tokens move, who their counterparties are, and where risks may surface downstream. 

Every redemption, every transfer, every wallet interaction can carry risk. Issuers are responsible not just for direct customer due diligence, but for ensuring that their token ecosystem is not a blind spot. In practice, that requires monitoring counterparties, enforcing sanctions and AML standards across networks, and making sure safeguards extend all the way to end-users.

This is where orchestration matters. ComPilot’s orchestration layer allows issuers and service providers to build AML integrity into the transaction flow itself — not as an afterthought, but as a gate.

At Compilot, we help issuers and service providers connect the dots across their ecosystem. Sometimes that means embedding proxy contracts — compliance checkpoints that sit in front of the token itself, stopping a transfer unless counterparties pass AML and sanctions checks. Other times it means service-gated access — ensuring wallets, APIs, or redemption channels won’t process transactions until compliance conditions are met.

Stablecoins are programmable money - but integrity isn’t programmable by default. It takes connected systems, continuous monitoring, and a clear framework to enforce. The GENIUS Act lays out the rules. Compilot helps firms live up to them - by turning fragmented safeguards into an end-to-end view of AML integrity across the token ecosystem.

Programmable Money, Enforceable Integrity: On-Chain Policy Enforcement

The GENIUS Act confirms what many already understood: stablecoin issuers are not outside the rules - they are gatekeepers, responsible for ensuring their tokens aren’t misused for money laundering, sanctions evasion, or crime. But fulfilling that responsibility goes beyond onboarding files and monthly reports. It means safeguarding the entire token ecosystem: every wallet, every transfer, every counterparty.

That’s where Compilot comes in. Our orchestration layer allows issuers and service providers to build AML integrity into the transaction flow itself - not as an afterthought, but as a gate. Before a user transaction executes, Compilot checks compliance rules off-chain. If the user is approved, we issue a cryptographic signature. That signature travels with the transaction and is verified on-chain. No signature, no transaction. It’s seamless for users, but ironclad for issuers.

This approach solves three persistent problems at once:

• End-to-end AML integrity. Compliance rules aren’t siloed in onboarding; they extend to every interaction, every redemption, every transfer.
  
  
• Counterparty assurance. Issuers can ensure their tokens only move where rules allow - whether that’s verified wallets, permitted jurisdictions, or approved applications.
  
  
• Future-proof flexibility. Because Compilot rules are no-code and modular, issuers can adjust quickly to regulatory changes without re-deploying contracts or rewriting infrastructure.

And it delivers something the GENIUS Act now requires: the technical capability to comply with AML rules and lawful orders in the U.S. Blocklists and static allow-lists can’t keep up - they’re clunky, privacy-invasive, and easy to work around. Cryptographic enforcement at the access or transaction layer is a more powerful answer: real-time, adaptive, and regulator-ready.

Just as importantly, this model can be built to be privacy-preserving. Instead of exposing sensitive wallet data on public lists, compliance decisions happen off-chain and are validated with signatures - giving issuers certainty while protecting user information. That balance matters: safeguarding the financial system against crime while upholding the privacy rights of American citizens, a priority now echoed at the highest levels of U.S. digital policy.

Stablecoins may be programmable money, but integrity isn’t automatic. It requires the ability to orchestrate across the ecosystem and to enforce rules at the point of use.  The GENIUS Act lays down the principle: issuers are gatekeepers. 

Compilot delivers the mechanism: cryptographic enforcement of AML at the transaction layer.

👉Compliance that’s more than smart - it’s GENIUS. If your stablecoin project needs to meet GENIUS Act standards, Compilot is your partner.

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