Moorari Shah
Partner
Sheppard Mullin
Moorari is a partner in the firm's Finance and Bankruptcy Practice Group.
The Guiding and
Establishing National Innovation for U.S. Stablecoins Act of 2025 (GENIUS Act)
marks a watershed moment in the regulation of digital assets. Enacted on July
18, 2025, the GENIUS Act creates a comprehensive federal framework for the
issuance and oversight of payment stablecoins, which are on-chain assets pegged
to the U.S. dollar and backed by reserves. Senate Bill 1582, 119th Cong.
(2025). Among other requirements, the Act mandates payment stablecoin issuers
maintain fully backed 1:1 reserves in permitted assets, submit to monthly
examinations and reporting requirements, and publish their redemption policy.
While the law offers long-sought regulatory clarity for the burgeoning
stablecoin industry, it also raises a host of legal and supervisory questions
for banks, nonbank issuers and regulators navigating the rapidly evolving
intersection of blockchain technology and traditional finance. The Act will
become effective by Jan. 18, 2027 -- 18 months after enactment -- or earlier if
regulators implement rules sooner. Additionally, digital asset service
providers such as exchanges, wallets, and custodians have a three-year
transition period. For example, by July 2028 they must cease dealing in any
stablecoins not issued under the GENIUS Act's framework.
A federal and
state dual oversight framework for stablecoins
At its core, the
GENIUS Act establishes a dual-licensing regime for stablecoin issuance. It
allows both (i) insured depository institutions (through a subsidiary) and (ii)
any nonbank entity, Federal branch or uninsured national bank chartered by the
Office of the Comptroller of the Currency (OCC) to issue stablecoins, provided
they comply with the Act's requirements. Federal issuers are supervised by the
OCC and several other federal banking agencies, while certain state issuers may
operate under certified state-level regimes, provided they remain under $10
billion in issuance.
Before July 18,
2026, state agencies wishing to oversee stablecoin activity in their state must
submit an initial certification to the Stablecoin Certification Review
Committee, which is composed of the Secretary of the Treasury, the Chair of the
Federal Reserve Board and the Chair of the Federal Deposit Insurance
Corporation, stating that the state's regulatory regime is "substantially
similar" to the federal framework under the Act. Notably, the Act includes a
federal preemption provision stipulating that a state may only apply its laws
to an out-of-state, qualified stablecoin issuer to the same extent that those
laws would apply to a federally chartered stablecoin issuer operating in the
state. In effect, this clause prevents host states from imposing stricter or
more burdensome requirements on state-chartered issuers than they do on their
federally chartered counterparts. Certain issuers are categorically ineligible
for the state licensing path, regardless of size; for example, insured banks,
OCC-chartered uninsured national banks and federal branches must operate under
federal stablecoin authority and cannot rely on state authority.
Prospective
stablecoin issuers now face a strategic choice. Large platforms may gravitate
toward the OCC charter, as it offers nationwide preemption, clear standards
under direct federal supervision, and clearer pathways to partnerships with
established banks that enjoy incumbency advantages. Smaller issuers and
fintechs may prefer a certified state regime to avoid OCC application cost and
consolidated supervision. Furthermore, because crossing the $10 billion
threshold forces migration to an OCC charter or bank-subsidiary model, firms
may decide to spin off multiple sub-$10 billion entities. Expect federal
scrutiny of such tactics. Finally, despite the Act's substantial similarity
requirement for state regimes, states' capital requirements, examination
cadence, disclosure requirements and enforcement posture may diverge slightly
in practice. Accordingly, wallet providers and other off-chain processors may
prefer dealing only with OCC issuers to avoid a complex patchwork of
state-level requirements.
Federal reserve
master accounts: Access unchanged under GENIUS
The GENIUS Act
leaves Federal Reserve master account access unchanged: it expressly neither
expands nor contracts legal eligibility for Federal Reserve Bank services or
deposits. Thus, access continues to be determined under the Fed's existing
Guidelines for Evaluating Account and Services Requests, not the Act. Master
account decisions therefore remain case-by-case under the Fed's risk-based
review, with no new presumptions of approval added by GENIUS. For nonbank
OCC-supervised issuers, that means no new doorway to a master account and
continued reliance on bank partners to access Fed rails. As such, incumbent
insured depositories retain this structural edge over fintechs.
Bank
participation in stablecoin issuance
For traditional
banks, the GENIUS Act presents both opportunity and additional compliance
considerations. The Act formally authorizes banks to issue payment stablecoins,
although insured depositories must do so through a legally separate subsidiary,
as required by the Act. The Act's passage follows moves by prudential
regulators earlier this year to rescind previous guidance imposing compliance
hurdles for banks seeking to engage with digital assets. Namely, in Financial
Institutions Letter 7-2025 and Interpretive Letter 1183, the FDIC eliminated
its prior approval and notification requirement, and the OCC withdrew its
supervisory non-objection process, clarifying that banks may engage in
permissible crypto-asset activities provided they meet applicable safety-and-soundness
requirements. This means federally insured depository institutions and
OCC-chartered banks are free to issue stablecoins in compliance with the Act's
requirements.
Issuers
prohibited from offering yield-bearing stablecoins
The GENIUS Act bars
stablecoin issuers from paying depositors "any form of interest or yield
...solely in connection with the holding, use, or retention" of the depositor's
stablecoins. This forecloses (i) pass-through yield models that generate yield
from stablecoin reserve assets (e.g., sharing T-bill income) and traditional
interest-bearing account models. The phrase "solely in connection with" is
notable; this presumptively prohibits yield triggered by factors such as
balance size or time held. While benefit accrual tied to a separate service
arguably falls outside the ban, regulators are likely to scrutinize work-arounds and clever packaging. In practice, competition
between stablecoin issuers will emphasize lower fees, faster settlement and
cleaner, more intuitive UX, as opposed to attractive APRs. Expect stablecoin
issuers to minimize GENIUS Act risk by walling off any third-party stablecoin
yield products contractually and via branding. This could take the form of
prohibiting partners from promoting yield products or stripping "earn" features
from UX and APIs.
What comes next?
The Act directs
federal payment stablecoin regulators to issue implementing regulations by July
18, 2026. These rules will determine what the GENIUS Act requires in practice
with respect to: (i) capital and liquidity requirements; (ii) standards for
licensing, examinations, disclosures and vendor management; (iii) principles
for determining whether state regimes are "substantially similar;" and (iv)
anti-money laundering compliance and sanctions screening obligations, among
additional rules and regulations the Act mandates for promulgation. Meanwhile,
state stablecoin regulators must prepare to submit their initial certifications
and create their oversight regimes by the same date.
Final thoughts
The GENIUS Act
represents an actionable plan to bring blockchain-based payment stablecoins
within the regulatory perimeter. It gives legal shape to a financial instrument
that has until now existed in a gray area. However, many consequential details
are left to implementation by regulators. As federal and state agencies move
toward the July 18, 2026 rulemaking and certification
deadlines, banks and nonbank issuers should pressure-test whether the OCC or
certified state path best fits their objectives and scale, solidify compliance
controls, purge yield-adjacent features, and ready vendor-management playbooks
for wallets and processors. In short, the Act offers clarity without finality;
stakeholders that engage with rulemakings early and align programs now will be
best positioned when the details land. Congress set the table for stablecoin
regulation; soon the regulators will decide the menu.