Hotcoin Research | Stablecoins Enter the Era of Regulation: A Deep Dive into How the GENIUS Act Reshapes U.S. Treasuries, Stablecoins, and RWA

I. Introduction

On May 19, the U.S. Senate overwhelmingly passed a procedural vote on the GENIUS Act, signaling the arrival of the country’s first unified federal regulatory framework for stablecoins. The bill aims to legally define and govern the operation of “digital dollars.” Beyond reshaping the power structure of the U.S. stablecoin market, it could trigger a profound global chain reaction across policy, economics, and monetary systems — redrawing the map of future finance.

The GENIUS Act redefines U.S. financial sovereignty by embedding stablecoins into the Treasury ecosystem and integrating on-chain assets into the dollar system. This transforms the “dollar peg” from a simple price anchor into a deeper liquidity and value anchor. Through legislation, global demand for stablecoins would be redirected into demand for U.S. Treasuries, strengthening the dollar’s role as a financial anchor in the evolving global architecture. Stablecoins would no longer be mere “digital shadows” of the dollar but sovereign monetary extensions connecting crypto and traditional finance. If implemented, this legislation could mark the beginning of a new U.S. dollar-led era, accelerating stablecoin adoption and supporting the rise of RWAs and tokenized treasuries.

This report analyzes the GENIUS Act’s legislative structure — focusing on its definitions, licensing framework, reserve requirements, and legal implications. It also explores the political debates, scope limitations, and enforcement challenges within the current version. Finally, it evaluates the Act’s direct and indirect impacts on U.S. Treasuries, stablecoins, and the RWA sector — revealing the hidden logic and systemic shifts behind this potentially “genius” piece of legislation.

II. Overview of the GENIUS Act

Stablecoins have existed for over a decade. Since the launch of Bitcoin, they have evolved from speculative tools into payment instruments, liquidity bridges, and stores of value — pegged to fiat currencies and redeemable at a fixed value. As of May 29, 2025, the total stablecoin market capitalization approached $250 billion. Yet regulatory clarity has long been lacking, leaving key issues — such as legal status, risk segregation, and reserve transparency — unresolved.

Source: https://defillama.com/stablecoins

The GENIUS Act establishes a comprehensive regulatory framework for payment stablecoins, setting clear definitions, licensing thresholds, operational boundaries, and reserve requirements. Introduced by Senator Bill Hagerty and other bipartisan lawmakers, the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) represents the Senate’s version of the legislation. A parallel bill in the House, the STABLE Act (Stablecoin Transparency and Accountability for a Better Ledger Economy Act of 2025), proposed by Representative Bryan Steil, shares similar goals.

1. Core Regulatory Provisions

All payment stablecoin issuers in the U.S. are required to obtain either a federal or state license; unauthorized issuance is prohibited. A “payment stablecoin” is defined as a digital asset pegged to a fiat currency (e.g., USD), redeemable at face value, and not covered by federal deposit insurance. Issuers must maintain 100% high-quality liquid assets to back each issued token on a one-to-one basis.

Permitted reserve assets include physical cash, bank and credit union deposits, short-term U.S. Treasuries (with maturities of 93 days or less), Treasury-backed repurchase and reverse repurchase agreements, government money market funds, central bank reserves, and other low-risk assets approved by regulators. Rehypothecation is strictly prohibited. Reserve assets may only be used in limited circumstances — such as redemptions or as collateral in repo transactions — ensuring the integrity of asset backing and minimizing the risk of misuse.

2. Disclosure and Audit

To enhance transparency, issuers must publish monthly reports disclosing the outstanding supply and composition of reserves. These reports must be signed by both the CEO and CFO and reviewed by independent auditors. Issuers with more than $50 billion in circulation are also required to file annual audited financial statements.

Additionally, issuers must implement clear redemption mechanisms to guarantee one-to-one cash-out rights. These high-frequency disclosures and audit requirements are designed to address concerns over reserve sufficiency and strengthen public confidence in stablecoin systems.

3. Licensing and Tiered Regulation

The Act establishes a dual-track licensing system at both the federal and state levels. Both bank and non-bank entities are eligible to apply for issuer status. State regulators may oversee stablecoin issuers if their regulatory frameworks are deemed substantially equivalent to federal standards.

For federally licensed issuers, regulatory oversight depends on the entity type: the Office of the Comptroller of the Currency (OCC) oversees non-bank issuers, while banks are supervised by the OCC, the Federal Reserve, or the FDIC, depending on their structure. State-licensed issuers may operate nationwide if their licenses are recognized through mutual agreements. Additionally, states may collaborate with federal regulators — such as the Federal Reserve — to jointly supervise stablecoin issuers.

4. Scale-Based Regulation

A $10 billion threshold triggers federal oversight under the Senate version of the bill. According to the GENIUS Act, state-regulated issuers whose market capitalization exceeds $10 billion must transition to federal supervision.

In contrast, the House version — the STABLE Act — permits continued state oversight regardless of an issuer’s size.

This divergence highlights a key tension between federal and state regulatory control, which will require reconciliation in the final version of the legislation.

5. Legal Status and Consumer Protection

The Act legally classifies compliant payment stablecoins as neither securities nor commodities, placing them outside the jurisdiction of the SEC and CFTC. They are also not considered bank deposits and therefore are not insured by the FDIC. U.S. bankruptcy law will be amended to grant stablecoin holders priority claim rights over reserve assets in the event of issuer insolvency.

To enhance consumer protection, individuals with a criminal financial history are prohibited from serving in executive roles. Issuers must fully comply with anti-money laundering (AML) and sanctions regulations. Designated as financial institutions under the Bank Secrecy Act, they are required to implement know-your-customer (KYC) procedures, report suspicious activities, and monitor transactions. FinCEN will issue specific AML guidelines for digital assets and mandate that issuers possess the technical capability to freeze, destroy, or block stablecoins in response to legal orders.

6. Other Key Provisions

• Custody and Tokenized Banking: Banks are permitted to offer custody and clearing services for stablecoins and their reserves, as well as issue tokenized bank deposits. This enables banks to legally convert customer deposits into blockchain-native assets — paving the way for innovation in real-world asset (RWA) tokenization.
• No Commingling of Funds: Only regulated institutions may provide custody of reserve assets. These funds must be held separately from a firm’s own assets and treated as customer property, thereby protecting them from creditor claims in the event of bankruptcy.
• Interest Prohibition: Both the GENIUS and STABLE Acts prohibit issuers from paying interest or yield to stablecoin holders. This provision aims to prevent competition with traditional bank deposits and to mitigate systemic risk.
• Transition Period: Existing stablecoin issuers (e.g., USDT, USDC) are granted an 18-month grace period to obtain appropriate licensing or restructure operations in compliance with the new regulations. After this period, non-compliant issuers will be prohibited from serving U.S. users, ensuring a smoother transition into the new regulatory framework.

III. Limitations and Progress of the GENIUS Act

Amid bipartisan negotiations, the bill has undergone multiple revisions. Key concerns include insufficient consumer protections, potential AML loopholes, inadequate oversight of foreign stablecoins such as USDT, and fears of potential gains for crypto-linked businesses associated with the Trump family. In response, lawmakers introduced several consumer protection measures — clarifying that federal licensing does not exempt issuers from compliance with state-level financial consumer laws. Ethical conduct provisions were also added to prevent government officials from participating in stablecoin issuance, addressing conflict-of-interest concerns.

1. Differences Between House and Senate Versions

While both the Senate’s GENIUS Act and the House’s STABLE Act share core objectives, key differences remain:

• Issuer Size and Regulatory Oversight: The Senate version requires state-regulated issuers with over $10 billion in circulation to transition to federal oversight. In contrast, the House version imposes no such threshold, allowing state oversight regardless of issuer size.
• Issuer Nationality Restrictions: The GENIUS Act permits only U.S.-based entities to be licensed issuers. After a three-year transition period, foreign stablecoins will be banned unless their jurisdictions enter into equivalency agreements with the U.S. This means offshore issuers like Tether must establish a U.S.-regulated entity or face non-compliance. Conversely, the STABLE Act allows foreign issuers from countries with “comparable” regulations to operate, provided they consent to U.S. audits and regulatory oversight.

2. Structural Limitations of the GENIUS Act

Despite its significance, the Act presents several limitations:

• Scope Limitation: The bill focuses exclusively on fiat-pegged payment stablecoins, excluding other crypto assets. Algorithmic stablecoins fall outside its definition and remain in a regulatory gray zone. Decentralized options like DAI, which lack a central issuer, may be unable to meet licensing or AML requirements. Thus, while promoting centralized compliance, the Act indirectly suppresses decentralized innovation.
• Enforcement Gaps: The Act requires foreign stablecoins to obtain regulatory equivalence within three years. However, enforcement remains unclear — especially if such stablecoins reach U.S. users via decentralized exchanges or peer-to-peer wallets. Many platforms operate beyond U.S. jurisdiction, complicating monitoring and compliance.
• Political Risk: The bill has strong backing from the Trump administration, framing stablecoins as tools to reinforce dollar dominance. Although ethical safeguards were introduced, a change in administration could shift the policy landscape. Should Democrats regain power in 2028, they may revisit or reverse aspects of the legislation. Long-term stability will depend on stablecoins proving their value and securing institutional support over the coming years.
• International Coordination: Stablecoins naturally cross borders, and U.S. law alone cannot govern their global use. The EU has already passed MiCA to regulate stablecoins and reserve practices, while China outright bans domestic issuance and trading. Although the GENIUS Act may serve as a global benchmark, regulatory fragmentation and conflicts are likely in the short term.

3. Legislative Progress

On May 19, several previously undecided, crypto-friendly Democratic senators pledged their support after key safeguards were added to the revised bill. That evening, the Senate voted 66–32 to advance the bill to full chamber debate.

A final Senate vote is expected in early June. If passed by a simple majority, the bill will proceed to the House. The STABLE Act has already cleared the House Financial Services Committee with bipartisan backing and awaits a full vote. Lawmakers aim to reconcile and finalize both versions before the summer recess and present the unified bill to President Trump for signature. Trump has repeatedly endorsed stablecoin legislation, stating that “crypto will strengthen the global dominance of the U.S. dollar.”

If successful, the GENIUS Act is expected to become law by August 2025 — marking the first comprehensive stablecoin statute in U.S. history.

IV. Impact of the GENIUS Act on the U.S. Treasury Market

As of May 2025, the total U.S. federal debt exceeds $36 trillion, representing about 123% of GDP — a historic high. Persistent fiscal deficits and soaring interest costs have created dual challenges for the Treasury market: ongoing debt expansion alongside tightening capital sources. The GENIUS Act mandates that stablecoin reserves be primarily allocated to highly liquid assets such as short-term U.S. Treasuries. This channels global demand for digital dollars directly into demand for U.S. Treasuries, potentially easing refinancing pressure while reinforcing the dollar’s dominance within the crypto financial ecosystem.

Source: https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/

• Boosting Treasury Demand: Major USD stablecoins like USDT and USDC already hold significant amounts of U.S. Treasuries in their reserves. If enacted, the Act would direct massive crypto liquidity pools toward government debt. For example, Tether held $120 billion in U.S. Treasuries as of Q1 2025, making it the 19th largest holder globally. The stablecoin boom could provide a new, steady funding source for the U.S. Treasury, effectively converting digital dollar demand into real Treasury purchasing power.
• Impact on Banking Liquidity: Large-scale stablecoin adoption may divert capital away from traditional bank deposits and money markets. When users move funds into stablecoins, issuers channel those funds into Treasuries or deposit them with large banks. This could cause deposit outflows from small and mid-sized banks, raising liquidity risks. To mitigate this, the GENIUS Act prohibits interest payments on stablecoins, reducing direct competition with savings accounts. Regulators like the Fed and OCC are also granted emergency powers to intervene during irregularities, including halting new stablecoin issuance.
• Systemic Risk: Although stablecoins currently represent only a small fraction of total U.S. debt, a major stablecoin collapse could trigger fire sales of short-term Treasuries, disrupting market liquidity. The Act addresses this by requiring 100% high-quality reserves and prioritizing redemptions in bankruptcy, aiming to minimize contagion. Overall, the Act positions stablecoins as transparent, regulated, cash-like instruments that support Treasury demand and align global digital dollar use with U.S. policy interests.

V. Impact on the Stablecoin Market

As of now, fiat-backed stablecoins dominate the total supply with $115 billion (90.5%), followed by crypto-collateralized stablecoins at $11.3 billion (8.9%), and algorithmic stablecoins at just $0.8 billion (0.6%). USDT and USDC continue to lead the market. The GENIUS Act is poised to reshape the stablecoin landscape by altering issuer dynamics, restoring market confidence, and accelerating compliance among existing players.

Source: https://dune.com/KARTOD/stablecoins-overview

• Issuer Landscape: The new law ushers in a licensing era for stablecoin issuance, opening the market beyond banks to non-bank institutions. Financial firms and tech giants may aggressively enter the space. USDT and USDC could face fresh competition from Wall Street-backed players offering better rates and services, leading to more options and cost efficiency for users.
• Compliance Pressure on Existing Leaders: Tether, the issuer of USDT, has historically operated largely outside U.S. regulatory oversight. The GENIUS Act requires foreign stablecoins to establish licensed U.S. entities within an 18-month grace period or face exclusion. Non-compliant tokens will be banned from U.S. platforms. Tether’s opaque reserves and offshore structure may become liabilities under increased scrutiny. In contrast, Circle’s USDC, already U.S.-based, audited, and compliant with KYC/AML rules, stands to benefit. Circle is expected to pursue a federal license, positioning USDC as a regulatory front-runner.
• Market Confidence and Usage: Legal clarity will boost public and institutional trust in stablecoins. Reserve and audit requirements will encourage wider adoption for payments and settlements. Consumers could soon use digital dollars at everyday merchants, while businesses gain efficiency and cost savings. Improved compliance also facilitates fiat on-ramps and fuels financial innovation.
• Ban on Interest Payments: The Act prohibits stablecoin issuers from paying interest, positioning stablecoins primarily as payment instruments and short-term value stores rather than yield products. Yield-seeking capital will likely gravitate toward banks or money market funds. Issuers may offer indirect incentives such as fee discounts or token rewards to attract users instead.

VI. Impact on the RWA Market

With the passage of the GENIUS Act, the U.S. financial system is quietly opening its doors to Real World Asset (RWA) tokenization. Beyond regulating stablecoins, the Act signals that regulated financial institutions can now legally engage in blockchain activities, including on-chain asset issuance.

• Tokenized Deposits and Bank Innovation: The Act permits regulated banks to issue tokenized deposits via distributed ledger technology (DLT). This enables banks to tokenize customer deposits, facilitate on-chain settlements, and offer innovative products such as tokenized loans and REITs. These developments enhance liquidity and transparency, accelerating the growth of RWA tokenization.
• Stablecoin Integration Benefits RWA: Stablecoins act as vital bridges between crypto and real-world assets. RWA tokens — like tokenized bonds — can be traded and settled using stablecoins, enabling 24/7 trading and instant settlement. For example, U.S. Treasuries tokenized on Ethereum could be purchased with USDC, bypassing traditional banking hours and friction.
• Growth and Opportunities: RWA tokenization has gained significant momentum recently. BlackRock launched its BUIDL fund on Avalanche in March 2024, reaching $2.9 billion by May. MakerDAO plans to allocate $1 billion toward tokenized Treasuries. Major financial institutions — including Goldman Sachs, JPMorgan (Onyx), and SWIFT — are actively exploring RWA use cases. Institutional interest signals explosive growth potential ahead.

Source: https://defillama.com/stablecoin/blackrock-usd

• Risks and Challenges: Compliance costs may hinder small innovators. Auditing and reporting requirements are expensive. Also, legal ownership and cross-chain governance present unresolved challenges. Rigid rules may limit flexibility. Regulatory sandboxes may emerge to pilot RWA products, with future legislation likely targeting security tokens and DeFi protocols.

VII. Conclusion: The Digital Expansion of Dollar Sovereignty

The GENIUS Act represents more than just a regulatory milestone — it marks a rare convergence of national strategy and market innovation. By formally integrating stablecoins into the U.S. financial infrastructure, it builds critical institutional bridges between the crypto ecosystem and traditional finance. From reinforcing demand for U.S. Treasuries to reshaping stablecoin competition and enabling Real World Asset (RWA) tokenization, the message is unmistakable: the U.S. aims to dominate not only the real-world payment system but also the on-chain flow of value.

Stablecoins emerge as powerful instruments for dollar expansion, with their reserve allocations serving as strategic financial levers. While the Act faces challenges — particularly concerning decentralization, cross-border oversight, and political neutrality — it lays a vital foundation. Its ultimate success will hinge on effective execution, market response, and international collaboration.

In the long run, the GENIUS Act legitimizes stablecoins and acts as a catalyst for broader digital asset legislation. The goal transcends merely regulating stablecoins; it seeks to establish stable, clear regulation for the entire crypto economy — potentially redefining the global financial order in the digital age.

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