GENIUS Act Sets US Stablecoin Rules with 100% Reserves but Leaves Foreign Loophole
Congress passed the GENIUS Act, introducing the first comprehensive US stablecoin regulation. This stablecoin regulation aims to boost trust and mainstream adoption. The law mandates 100% reserve backing in cash or high-grade assets, stringent AML/KYC controls, monthly reserve disclosures, and annual PCAOB audits for major issuers. It establishes dual oversight: the Fed and OCC for issuers over $10 billion, state regulators for smaller players, and grants holder priority in bankruptcy. A ban on yield-bearing stablecoins protects consumers but may drive users to DeFi. However, a notable loophole exempts offshore issuers like Tether, subject only to undefined ‘comparable’ standards. Tether has pledged compliance and plans a domestic stablecoin. The Act opens stablecoin issuance to banks and retailers, from Bank of America to Amazon, and is likely to boost demand for US Treasuries. Traders should watch for market share shifts toward compliant alternatives and increased volatility during the transition.
Neutral
Short-term, the GENIUS Act may trigger volatility as traders rebalance toward compliant stablecoins like USDC and new corporate issuers. The undefined foreign issuer standards could sustain USDT’s market share, limiting immediate winners. Long-term, clearer stablecoin regulation and 100% reserves may bolster trust and support mainstream adoption, potentially benefiting regulated issuers and boosting demand for US Treasuries. However, the loophole for offshore issuers injects ongoing uncertainty, balancing bullish and bearish forces and resulting in a neutral market impact.