GENIUS Act Regulates Cryptocurrency and Shifts Stablecoin Infrastructure

President Trump signed The Guiding and Establishing National Innovation for U.S. Stablecoins Act (“GENIUS Act”) into law on July 18, 2025. The GENIUS Act is the federal government’s first major regulatory structure for cryptocurrency.

The GENIUS Act governs stablecoin. Stablecoin is a digital asset that is meant to maintain a “stable value.” Generally, the stability is achieved by pegging the stablecoin to a commodity or currency. The GENIUS Act governs stablecoin, in part, by regulating the stablecoin issuers.

Permitted Stablecoin Issuers

A stablecoin is rendered valueless if the issuer is not an entity formed in the United States and does not fall into one of three categories: (A) a subsidiary of an insured depository institution approved to issue stablecoins, (B) a federal qualified stablecoin issuer, or (C) a state qualified stablecoin issuer.

A federal qualified payment stablecoin issuer is an entity approved by the Comptroller to issue payment stablecoins. This approved entity may be (a) a nonbank entity, which is not a state qualified issuer, (b) an uninsured national bank, or (c) a federal branch. Lastly, a state qualified payment stablecoin issuer is an entity that (1) “is legally established” under a state’s laws, (2) “approved to issue payment stablecoins by a state payment stablecoin regulator,” and (3) “not an uninsured national bank chartered by the Comptroller.”

The GENIUS Act allows for some flexibility. A permitted issuer may choose a state regulatory regime if the issuer has less than $10,000,000,000 in outstanding issuance and the state-level regulatory regime is substantially similar to the federal regulatory framework.

Foreign stablecoin issuers are not permitted stablecoin issuers. An exception to the rule is if a foreign payment stablecoin issuer receives a favorable determination from the Secretary of the Treasury, which may be formally requested by the issuer.

The GENIUS Act broadly outlines the activities in which permitted issuers may engage. These activities include issuing or redeeming stablecoins, managing related reserves consistent with state and federal law, and providing custodial or safekeeping services consistent with the Act. Permitted issuers may also undertake activities that directly support these outlined interests. On the other hand, the Act explicitly bars payment of interest or yield “with the holding, use, or retention of such payment stablecoin.”

Potential Impact on Stablecoin Assets in Bankruptcy

The GENIUS Act also creates a curious ownership right that is likely to result in some unintended consequences in bankruptcy. Holders of a stablecoin will maintain an ownership interest in the stablecoin, which is backed by liquid assets equal to the value of the stablecoin (the financial mechanism that gives the stablecoin its “stability”). This means the stablecoins will not be considered property of the bankruptcy estate, and neither the stablecoin nor the liquid backing assets will be available to pay the creditors of the issuer.

These changes to stablecoin’s structure present new challenges for issuers to simultaneously ensure compliance with the GENIUS Act and a prompt, practical and final resolution to any claims to the stablecoin. Genova Burns is prepared to help you navigate the shifting regulatory frameworks within the stablecoin industry. For legal expertise and more information on the GENIUS Act, please contact Partner Don Clarke, Esq. at 973.387.7804, or via email here.