The GENIUS Act: The First Federal Regulatory Framework for Stablecoins in the United States and Its Global Implications

The GENIUS Act: The First Federal Regulatory Framework for Stablecoins in the United States

Analysis of the law that defines who can issue payment stablecoins, how they must be backed, what happens with foreign issuers, and what it all means for Latin America.

On July 18, 2025, President Donald Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), making it the first federal legislation in the United States to establish a comprehensive regulatory framework for payment stablecoins. The bill was originally introduced in the Senate on February 4, 2025, by Republican Senator Bill Hagerty, alongside Senators Tim Scott, Cynthia Lummis, and Kirsten Gillibrand. The Senate approved it on June 17 by a vote of 68 to 30, and the House of Representatives followed on July 17 by 308 to 122, with significant bipartisan support.

The Act takes effect on the earlier of January 18, 2027 (18 months from enactment) or 120 days after federal regulators issue implementation regulations.

What Qualifies as a Payment Stablecoin

The GENIUS Act defines a payment stablecoin as a digital asset designed to be used as a means of payment or settlement, whose issuer is required to convert, redeem, or repurchase the asset at a fixed monetary value (typically one dollar) and represents that it will maintain a stable value relative to that reference. The definition requires the asset to be recorded on a cryptographically secured distributed ledger.

Three explicit exclusions apply: national currencies (including a potential CBDC), bank deposits (even tokenized ones), and securities under federal securities law.

The Act requires one-to-one backing with high-quality liquid assets. Algorithmic stablecoins are excluded from the regulatory framework as they cannot meet the 1:1 reserve requirement with specified assets. This is a direct response to the 2022 TerraUSD collapse, which erased approximately USD 40 billion from the market.

Who Can Issue Stablecoins

The GENIUS Act prohibits the issuance of payment stablecoins without authorization. Permitted issuers fall into three categories:

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  First category: subsidiaries of insured depository institutionsBanks and credit unions with deposit insurance, supervised by the OCC, FDIC, or NCUA as applicable.

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  Second category: federally licensed nonbank issuersThey must obtain a license from the OCC, which evaluates financial condition, compliance capacity, directors' backgrounds, and business plan viability. Applications without a response within 120 days are deemed approved.

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  Third category: state-licensed issuersAvailable for issuers whose total outstanding stablecoins do not exceed USD 10 billion. The state regulatory regime must be certified as "substantially similar" to the federal framework by the Stablecoin Certification Review Committee (SCRC). Upon exceeding USD 10 billion, issuers have 360 days to migrate to the federal regime.

Public companies whose primary business is not financial face an additional restriction: they need unanimous SCRC approval to issue stablecoins.

Prudential Requirements: Reserves and Backing

Every dollar of outstanding stablecoins must be backed by at least one dollar in eligible reserve assets. The Act lists six permitted asset categories:

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  U.S. physical banknotes and coins
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  Demand deposits at insured depository institutions
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  Treasury bills with a residual maturity of 93 days or less
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  Repurchase agreements backed by those Treasury bills
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  Money market funds invested exclusively in those underlying assets
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  Federal Reserve deposits

Reserves must be kept segregated from operating funds. The prohibition on rehypothecation is explicit: reserve assets cannot be pledged, loaned, or reused, except for narrow regulator-approved exceptions.

Redemption, Yield Prohibition, and Transparency

Issuers must publish their redemption policy, providing for timely redemption at par for fiat currency (two business day standard per OCC proposals). Issuers are prohibited from paying interest or yield to stablecoin holders, conceptually separating stablecoins from bank deposits.

Regarding transparency, issuers must publish monthly reserve composition reports examined by a registered public accounting firm. For issuers with more than USD 50 billion outstanding, annual audited financial statements are required. False reserve certification may result in criminal penalties.

Regulatory Classification: Neither Security Nor Commodity

A payment stablecoin issued by an authorized issuer is neither a security nor a commodity. It falls outside the jurisdiction of both the SEC and the CFTC. Issuers do not need to register stablecoins as securities, and trading platforms do not need to register as securities exchanges.

The trade-off: payment stablecoins are not bank deposits either, have no FDIC insurance, and have no direct access to the Federal Reserve system. They occupy a new, purpose-built regulatory space.

Anti-Money Laundering Obligations and Sanctions

Issuers are subject to the Bank Secrecy Act (BSA), becoming "financial institutions" for federal anti-money laundering purposes. They must implement AML/CFT programs, OFAC screening, KYC, and transaction monitoring.

A key technical requirement: every issuer must have the capability to freeze, seize, or burn payment stablecoins when required by legal order, which by definition excludes truly decentralized stablecoins.

Protection in Case of Issuer Insolvency

The GENIUS Act amends the U.S. Bankruptcy Code to protect stablecoin holders. Reserve assets do not form part of the bankruptcy estate, and holders have absolute priority of payment over all other creditors of the issuer.

Regime for Foreign Issuers

To operate in the U.S. market, a foreign issuer must meet four conditions:

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  Be regulated by a supervisor whose regime is "comparable" to the GENIUS Act
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  Register with the OCC
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  Maintain reserves at a U.S. financial institution
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  Not be domiciled in a country subject to comprehensive U.S. sanctions

The regime is extraterritorial: an issuer from another jurisdiction needs U.S. approval and U.S.-based reserves to access the market.

Market Impact

Since enactment, global crypto-asset capitalization briefly surpassed USD 4 trillion. Institutions such as Bank of America, JPMorgan, and Goldman Sachs began exploring their own stablecoin issuance. The GENIUS Act structure generates induced demand for Treasury bills, reinforcing the dollar's global dominance as a reserve currency.

Implications for Latin America

The consequences for the region span several dimensions:

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  Domestic use of stablecoins in weak-currency economiesIn countries like Argentina, Venezuela, Mexico, and Brazil, dollar-denominated stablecoins serve as savings, payment, and international transfer mechanisms. According to Bitso, 39% of crypto-asset purchases in the region in 2024 were stablecoins. The rules governing those stablecoins are now set in Washington.

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  Cross-border remittancesStablecoins offer fast, low-cost transfers, competing with traditional channels. A regulated framework may reduce costs and settlement times for migrant workers.

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  Latin American issuers and platformsAn Argentine, Brazilian, or Mexican company seeking to issue a dollar stablecoin for U.S. use would need comparable domestic regulation, OCC registration, and reserves at U.S. institutions. This serves as a stimulus for regional regulators to develop their own frameworks.

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  Monetary sovereigntyDollar stablecoins contribute to de facto dollarization. Several central banks in the region are promoting local-currency stablecoins as a counterbalance. The tension between financial inclusion and monetary sovereignty will be a central regulatory issue.

Criticism and Open Questions

Consumer Reports argued the Act does not provide sufficient consumer protection. The New York Attorney General criticized the absence of provisions requiring issuers to return stolen funds to fraud victims. Outstanding issues include the tax treatment of stablecoins, the interaction with state money transmission regimes, and the interpretation of the yield payment prohibition.

Takeaways for Latin American Operators

For fintech companies, exchanges, and platforms in the region that operate with stablecoins, the GENIUS Act requires reviewing: which stablecoins are offered to U.S. users, cross-border AML compliance, and the commercial opportunities opened by a credible regulatory framework for cross-border payments, corporate treasury in digital dollars, and trade finance.

Summary

The GENIUS Act transforms stablecoins from experimental instruments into regulated financial products. It creates a regulatory standard with global ambition whose compliance determines access to the world's largest market. For the Latin American fintech ecosystem, the window to define its own rules, before the U.S. standard is imposed by default, is limited.

At JFC, we continuously monitor the evolution of digital asset regulatory regimes in the United States, the European Union, and Argentina.

This note is for informational purposes only and does not constitute legal advice. For a specific analysis, contact our team at contact@jfcattorneys.com.