With a new administration and Congress each expressing interest in pursuing a new regulatory framework for crypto, the prospects for federal stablecoin legislation are growing. On February 4, Sen. Bill Hagerty (R-TN) introduced the Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 Act – the GENIUS Act – cosponsored by Senate Banking Chair Tim Scott (R-SC) and Sens. Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY), which would establish a U.S. regulatory framework for payment stablecoins.

The GENIUS Act is based closely on several earlier proposals:

Like these earlier efforts, the GENIUS Act contemplates a regulatory framework where payment stablecoin issuers may be either a subsidiary of an insured bank, an uninsured depository institution or trust bank, or a nonbank, and primarily regulated at either the federal or state level. It is also generally consistent with the core substantive components of these earlier bills, such as the definition of “payment stablecoin,” stablecoin reserve requirements and bank-like regulation for both bank and nonbank issuers.

The McHenry bill was the subject of over a year of negotiation with HFSC Ranking Member Maxine Waters, but did not ultimately materialize in a broadly bipartisan bill. At the forefront of the debate in the last Congress were competing views on how to allocate authority between federal and state regulators over payment stablecoin issuers. We summarized the McHenry bill in an earlier client update.

The GENIUS Act is the first major crypto legislation introduced in the 119th Congress, but certainly will not be the last. Just two days later the new HFSC Chair French Hill and Rep. Bryan Steil released a discussion draft of their own stablecoin legislation, and yesterday Rep. Waters released a new discussion draft of her stablecoin legislation. At a recent press conference with White House Crypto and AI Czar David Sacks, Sen. Scott said he hoped to pass the GENIUS Act within President Trump’s first 100 days in office.

Blacklines comparing the various bills against each other are linked at the bottom of this update.

. The GENIUS Act would direct the Federal Reserve and Department of Treasury to create and implement reciprocal arrangements with other jurisdictions with substantially similar regulatory regimes (e.g., presumably the European Union and its Markets in Crypto-Assets Regulation (MiCA)) to facilitate international transactions and interoperability.

The following requirements in the federal regulatory framework of the GENIUS Act would directly apply to all payment stablecoin issuers except those that opt into the small issuer state regime, which would be subject to a state-level regulatory regime that must be “substantially similar” to the below requirements.

  • . All permitted payment stablecoin issuers would be treated as financial institutions under the Bank Secrecy Act.
  • . The Gramm-Leach-Bliley privacy requirements would apply to all permitted payment stablecoin issuers otherthan federal qualified nonbank payment stablecoin issuers.
  • . Permitted payment stablecoin issuers would have to limit their activities to issuing and redeeming payment stablecoins, managing related reserves, providing custodial and safekeeping functions and other limited functions that directly support issuing and redeeming payment stablecoins. The GENIUS Act also includes a rule of construction that states that the above-mentioned activity limits would not prevent a permitted payment stablecoin issuer from engaging in non-stablecoin activities that are explicitly allowed by the relevant regulator.
  • . The primary federal regulators and state payment stablecoin regulators would be required to issue rules to implement these substantive rules within 180 days of enactment.

      • Persons who engage in the business of providing custodial or safekeeping services for payment stablecoins would be required to comply with customer protection requirements related to asset segregation and a prohibition on commingling customer property. They would also be required to take appropriate steps to protect customer property from creditor claims.
      • The restriction on commingling would be subject to an exception whereby payment stablecoins, cash and other property of multiple customers—but not of the payment stablecoin issuer—can be commingled and deposited in an omnibus account at an IDI or trust company.
      • The GENIUS Act explicitly would not apply to a person or business engaged in the business of providing hardware or software to facilitate a customer’s self-custody of payment stablecoins.
      • The federal payment stablecoin regulators, in consultation with the National Institute for Standards and Technology, would be provided authority to prescribe standards to promote compatibility and interoperability for payment stablecoin issuers.
      • Would direct the U.S. Treasury, in consultation with other agencies, to produce a report to Congress on “endogenously collateralized” (i.e., so-called “algorithmic”) stablecoins and other nonpayment stablecoins within one year of enactment. This is in contrast to the McHenry bill and Hagerty discussion draft, which had imposed a two-year moratorium on the issuance, creation or origination of algorithmic stablecoins.
      • Would direct the Federal Reserve and Department of Treasury to create and implement reciprocal arrangements with other jurisdictions with substantially similar regulatory regimes to facilitate international transactions and interoperability.

    This post comes to us from Davis, Polk & Wardwell LLP. It is based on the firm’s memorandum, “A stablecoin bill is first out of the gate as crypto legislation gains momentum,” dated February 11, 2024, and available here.