Stablecoin bill advances to US Senate, could pass next week

The US stablecoin legislation, the GENIUS Act, advanced to the Senate with bipartisan support on May 20. It could be voted upon and passed next week.

Among several key provisions, the bill proposes one-to-one backed reserve requirements at the federal level, similar to those imposed by the New York State Department of Financial Services (NYDFS) in 2022.

The GENIUS Act is the first digital assets bill to advance through the upper house, following the 17 drafts of crypto legislation introduced since the beginning of President Joe Bidenʼs administration.

The bill specifically addresses digital tokens pegged to fiat currencies (such as the US dollar) defined as “payment stablecoin”, and is looking to impose a federal framework on both domestic and foreign issuers operating in the US.

“A huge win for crypto and the future of on-chain innovation in America,” was how Coinbase CEO Brian Armstrong described it on X. The GENIUS Act is labelled as “very pro-crypto” on advocacy group Stand with Crypto Allianceʼs ranking list.

The bill was first introduced by Republican senator Bill Hagerty on February 4, two weeks after President Donald Trump’s second inauguration. It passed with 66–32 votes; 16 came from Democrat senators while two Republican senators voted against it.

A new amended draft was produced over the weekend, as a result of reportedly continuous negotiations from both Republicans and Democrats, according to CNN.

Vocal critics

Not everyone is happy with the bill. Speaking to the Congress, Democratic senator Elizabeth Warren said: “The bill text now contains a so-called ‘decentralised finance loopholeʼ that allows Tether and other non-compliance stablecoin to access the US market without any constraints” — a loophole specifically governing stablecoin reserves, the NYDFS has already imposed the reserve requirements through the 2022 Virtual Currency Guidance, and other states have similar regimes, such as the Money Transmission Act in California.

“The GENIUS Act folds stablecoin directly into the traditional financial system, while applying weaker safeguards than banks or investment companies must adhere to,” said Warren.

In New York State, the guidance outlined that stablecoins must be fully backed by a reserve of assets, held in institutions insured and approved by the FDIC or the NYDFS.

The GENUIS Act and NYFDS rules only permit highly liquid, low-risk instruments as reserve assets, such as US Treasury bills, listed money market funds or cash deposited with the FRB. Both regimes also prohibit the use of reserves, unless in very limited circumstances, to minimise collateral prudential risks.

The difference between the two regimes is that the NYDFS requires stablecoin issuers to submit monthly and annual asset reports to the state regulator. Meanwhile, the GENIUS Act requires issuers with more than $50 billion in stablecoins outstanding to file annually audited financial statements. Other issuers are only required to submit asset reports to federal regulators.

If it becomes law, the GENIUS Act will require both federal and state regulators to issue “tailored capital, liquidity and risk management” rules on stablecoin issuers, said the Congress Research Service in a statement.