On June 17, the US Senate approved the Stablecoins Act, part of a broader effort to create a national innovation framework, with a bipartisan vote of 68-30. This bill aims to implement the first comprehensive federal regulations for stablecoins in the United States, pending approval from the House and the President’s signature.
The proposed legislation imposes strict requirements on who can issue stablecoins, their reserve obligations, and the regulatory oversight they must adhere to. Additionally, it extends new responsibilities to foreign issuers and cryptocurrency service providers.
Here’s a simplified breakdown of the bill and its implications for the future of stablecoins in the US.
Simply Put
- Only authorized financial entities can issue stablecoins.
- Stablecoins must have full backing and undergo regular audits.
- Unregulated stablecoins are prohibited from being traded on US platforms.
What is a “Payment Stablecoin”?
Under the Stablecoins Act, payment stablecoins are defined as digital assets that:
- Are designed for payments or settlements
- Can be redeemed for a specified amount of fiat currency (not other cryptocurrencies)
- Aim to maintain a stable value relative to government-issued money
This definition excludes conventional bank deposits, securities, and central bank currencies.
Who Can Issue Stablecoins?
The Act limits stablecoin issuance primarily to certain companies, disallowing large tech firms and foreign entities unless they meet specific criteria. Authorized issuers may include:
- Subsidiaries of insured depositary institutions (like banks or credit unions)
- A federally qualified issuer approved by the Office of the Comptroller of the Currency (OCC)
- A designated national issuer
Excluded are public companies not primarily involved in financial services as well as foreign firms lacking similar regulations.
What is Required of Issuers?
For those designated as authorized issuers, the Genius Act lays out numerous requirements:
- They must hold reserves at a 1:1 ratio in highly secure assets like US cash and Treasury bills with short maturities.
- Monthly reports and certifications are needed, along with third-party audits.
- Details about the supply and composition of the stablecoins must be disclosed.
- Interest payments on stablecoins are prohibited.
- Reusing reserve assets is not allowed.
Regulators will also impose capital and liquidity requirements, and compliance with anti-money laundering (AML) regulations will be mandatory.
What Does This Mean for Existing Stablecoins?
If a stablecoin isn’t issued under these new rules, even those from foreign issuers won’t be allowed on US crypto exchanges. However, individuals can still engage in person-to-person transactions or use unregulated stablecoins in private wallets. These unregulated forms won’t be recognized as “cash equivalents,” nor can they be used as collateral in financial markets.
When Will This Start?
The regulations will kick in:
- 18 months after the law is signed.
- Or, 120 days after regulators finalize the necessary rules, whichever comes first.
Digital asset service providers will have to comply for three years before facing restrictions on non-compliant stablecoins.
Why is This Important?
In many ways, this act represents a significant shift in the regulation of stablecoins in the United States. It illustrates a move toward more stringent oversight, reflecting a growing push for clarity in the cryptocurrency space. While it may pave the way for greater institutional adoption, it also raises barriers to entry, potentially sidelining many of the current players unless they adapt to these new standards.
