GENIUS Act Enforces Strict Rules to Prevent Big Tech Dominating U.S. Stablecoin Market
2025-07-21
The recently passed GENIUS Act, officially known as the Guiding and Establishing National Innovation for U.S. Stablecoins Act, introduces new and clear rules around how stablecoins are issued and who can control them.
This legislation directly addresses concerns that major tech firms and large financial institutions could dominate the U.S. stablecoin market, potentially undermining both innovation and consumer choice.
Stablecoins have quickly become one of the most promising applications in the digital currency space, offering the benefits of blockchain technology with the stability of the U.S. dollar.
However, as more corporations, including tech giants like Amazon and Walmart, express interest in launching or using stablecoins, lawmakers have grown increasingly cautious about letting the market be shaped by a few powerful players.
The GENIUS Act is Washington’s attempt to put consumer protection, market fairness, and regulatory clarity at the center of stablecoin development.
What is the GENIUS Act?
The GENIUS Act lays out a legal framework for how stablecoins should be issued, managed, and regulated in the United States.
A key aim of the law is to stop any one company, especially large tech firms or Wall Street institutions, from taking full control over the issuance and distribution of stablecoins.
The act requires any non-bank entity looking to issue a dollar-backed stablecoin to set up a standalone company, fully separate from its parent organization.
This provision, sometimes referred to as the “Libra clause,” is named after Meta’s former attempt to create a global stablecoin.
The clause ensures that these companies undergo antitrust scrutiny and must also receive approval from a federal oversight body led by the Treasury Department.
Read also: The Differences of Stablecoin Regulation in the U.S. vs Hong Kong
Why Big Tech and Banks Are Facing More Scrutiny
Under the GENIUS Act, both tech companies and traditional banks must follow tight restrictions. While banks are allowed to issue stablecoins, they can only do so through subsidiaries that are legally distinct and ringfenced.
These subsidiaries are not allowed to engage in risky activities such as lending or leveraging, which helps separate stablecoin operations from traditional banking functions.
According to Dante Disparte, Chief Strategy Officer at Circle, these measures are “more conservative” than earlier proposals like JPMorgan’s deposit tokens.
He argues that the structure laid out by the GENIUS Act is ultimately good for U.S. consumers, stablecoin issuers, and even the strength of the U.S. dollar in global digital finance.
Key Provisions of the GENIUS Act
The GENIUS Act introduces several important requirements for stablecoin issuers:
Strict regulatory approval: Non-bank issuers must pass federal reviews.
Subsidiary-only issuance: Banks must create separate subsidiaries to issue stablecoins.
Prohibition of risky activities: No leverage, lending, or speculation is allowed within stablecoin subsidiaries.
Ban on interest-bearing stablecoins: Stablecoins that generate interest for holders are not permitted.
Asset transparency: Issuers must provide full details about the assets backing their stablecoins.
Penalties for unbacked tokens: Issuing unbacked or poorly backed stablecoins could lead to criminal charges.
These rules aim to prevent repeat failures like TerraUSD’s collapse, which shook the global crypto industry in 2022.
Read also: GENIUS Act Boosts Bitcoin: What the Stablecoin Bill Means for Crypto Market
Stablecoin Regulation and Smaller Firms
The act does leave space for smaller companies. Stablecoin issuers with less than $10 billion in assets may still operate under state-level money-transmitter licenses, giving startups a chance to compete without the same level of federal oversight.
However, any company wishing to scale on a national level must comply with the more rigorous federal standards.
What Critics Are Saying
Not everyone is happy with the new law. Some industry leaders argue that banning interest-bearing stablecoins will limit innovation. They worry that such restrictions could drive developers and users to overseas markets with fewer constraints.
Others point out that yield-bearing features have helped stablecoins compete with traditional banking products.
Still, advocates of the GENIUS Act believe these rules are necessary to build a secure and trusted base for the digital dollar economy.
Disparte suggests that yield generation should be left to decentralized finance (DeFi) platforms, where users knowingly engage in higher-risk activities.
Read also: Should I Wait for the USD1 Launch? Why It’s a Good Stablecoin
How the GENIUS Act Could Impact the Stablecoin Market
The GENIUS Act could mark a turning point for stablecoin adoption in the United States. Regulatory clarity is something the crypto industry has been asking for, and this law provides it.
By setting firm rules, the act could unlock broader adoption of stablecoins for payments, remittances, and commerce.
Recent developments show strong interest from both businesses and consumers. Stablecoin payment volumes have, at times, surpassed Visa’s processing levels.
Experts like Brad Garlinghouse, CEO of Ripple, predict the stablecoin market could grow from today’s $250 billion to as much as $2 trillion in the coming years.
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FAQ
What is the GENIUS Act?
The GENIUS Act is the first major U.S. federal law specifically designed to regulate the world of cryptocurrency, particularly stablecoins. Stablecoins are digital currencies whose value is tied to stable assets like the U.S. dollar. President Donald Trump officially signed it into law on Friday, July 18.
What does the passed GENIUS Act do?
The GENIUS Act aligns state and federal rules for stablecoins, ensuring fair and consistent regulation across the country. It also prioritizes stablecoin holders' claims over all other creditors if a stablecoin issuer goes bankrupt, offering strong consumer protection.
What is the Genius Act stablecoin bill?
The GENIUS Act sets up a clear regulatory framework for issuing "payment stablecoins." These are digital assets backed by low-risk reserves like cash or U.S. Treasuries, and they're designed to maintain a fixed value tied to a national currency, such as the U.S. dollar.
Who wrote the Genius Act?
The GENIUS Act was led by Senator Bill Hagerty (R-Tenn.) and co-sponsored by Senator Kirsten Gillibrand (D-N.Y.), Senator Cynthia Lummis (R-Wyo.), and Senator Angela Alsobrooks (D-Md.).
What does the Genius Act contain?
The GENIUS Act (which stands for Guiding and Establishing National Innovation for U.S. Stablecoins) sets limits and consumer protections for stablecoins. It also creates a clear legal category for stablecoins and defines which digital currencies can be called stablecoins.
Disclaimer: The content of this article does not constitute financial or investment advice.
