Last month, the Senate Banking Committee advanced a bipartisan piece of legislation known as the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. The committee voted 18-6 in favor of progressing the bill. Senator Bill Hagerty (R-Tenn.) leads the initiative, with Chairman Tim Scott (R-S.C.), Senator Kirsten Gillibrand (D-N.Y.), Senator Cynthia Lummis (R-Wyo.), and Senator Angela Alsobrooks (D-Md.) co-sponsoring. Every Republican and five Democrats on the committee supported the bill.
The GENIUS Act focuses on providing a federal regulatory framework for payment stablecoins, a product currently available in the U.S. with limited oversight. The legislation ensures that stablecoins are backed by 100% reserve comprising U.S. dollars and short-term Treasuries or similarly liquid assets. It also requires the monthly disclosure of reserve composition and annual audits for issuers whose market capitalization exceeds $50 billion.
The Act introduces strict marketing standards, prohibiting claims that stablecoins have the backing or guarantee of the U.S. government or are covered by FDIC insurance. It is also unlawful for stablecoins to be marketed as legal tender or government-approved unless they comply with the GENIUS Act.
Additionally, the GENIUS Act aims to thwart destabilizing financial runs through a specified regulatory structure that includes diversification of reserve assets, interest rate risk management, and capital and liquidity requirements. It restricts riskier assets like corporate debt or equities from reserve portfolios.
Further, the legislation mandates that state regulators develop frameworks “substantially similar” to the federal model. Larger issuers regulated at the state level must seek federal oversight once they cross a $10 billion threshold or face restrictions.
In insolvency situations, the GENIUS Act prioritizes claims of stablecoin holders and demands quick court reviews and distribution of reserves to protect those holding stablecoins.
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