Hello readers,
The GENIUS Act has cleared the House and is now one signature away from becoming law.
Stablecoins — long understood by crypto natives as the backbone of onchain finance — are about to be legitimized in the eyes of U.S. regulators.
As Tom Lee put it, this is crypto’s “ChatGPT moment” — the first crypto product with mainstream utility and institutional clarity.
In this week’s edition of The DeFi Report, we unpack the implications of the U.S. stablecoin legislation.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.
The DeFi Report is powered by BIT Digital, the leading global platform for high-performance computing infrastructure and one of the largest ETH treasury companies. NASDAQ: BTBT
Let’s go.
Summary of the New Legislation
The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act may prove to be the most consequential piece of legislation in crypto’s history.
The bipartisan bill establishes the first federal framework for payment stablecoins, aiming to instill confidence, clarity, and institutional legitimacy to a $260+ billion stablecoin market.
Key Takeaways:
- Backing. Issuers will be required to fully back their stablecoins 1:1 with high-quality liquid assets. Permissible reserves are limited to U.S. Coins and currency, insured bank deposits, money-market funds, or short-term government bonds. USDT currently falls outside of this. More on that in a bit.
- Payments Only. Issuers are barred from paying interest to stablecoin holders. This ensures that stablecoins function purely as digital cash equivalents (while preventing quasi-bank products). We see this as a strategic “nod to the banks” — creating a window for them to get their house in order before stablecoins trigger a more profound disruption to the financial system (more on this in the US Bank section).
- Bankruptcy. In the event of an issuer’s bankruptcy, stablecoin holders have a priority claim on the reserve assets (ahead of the issuer itself).
- Transparency & Audits. Issuers will be required to have monthly disclosures of reserves and undergo regular audits.
- Anti-Money Laundering. Strict AML and KYC rules are built into the framework, meaning issuers must implement Bank Secrecy Act compliance programs, verify customers, and report suspicious activity.
- Oversight Structure. The bill empowers both Federal and State (< $10b) regulators to supervise issuers, with the U.S. Treasury Department serving as the primary regulator.
- Issuer Eligibility. Notably, the bill explicitly opens the door for banks, fintechs, and even large retailers (Walmart?) to issue their own stablecoins under clear rules. With that said, the bill blocks publicly traded companies that primarily operate in technology, social media, or e-commerce and are not “predominantly engaged in financial activities.” We think this blocks social media giants such as Meta, Twitter, and Instagram from launching stablecoins.
By marrying the reliability of the dollar with modern public blockchain networks, the law sets the stage for broad adoption of stablecoins in commerce and finance, under the watchful eye of U.S. regulators.
