Could Stablecoin Legislation Be Finally Leaving the Stable?

Introduction

President Trump’s new administration has already given clear signals that it will support digital asset innovation and that it is committed to the United States being a leader in cryptocurrency and decentralized finance.¹Jesse Hamilton, Trump’s Crypto Czar Sacks Says ‘Golden Age’ Coming, COINDESK (Feb. 5, 2025), https://www.coindesk.com/policy/2025/02/04/trump-s-crypto-czar-sacks-says. And Members of Congress from both parties have responded with clear signals that they support this vision, with stablecoins ²Stablecoins are a cryptocurrency that have their value pegged to another currency, commodity, or financial instrument. Given their pegged value, stablecoins are generally less volatile than other cryptocurrencies and therefore seen as a more user-friendly medium of exchange. See Stablecoins: Definition, How They Work, and Types. Congress is likely focusing on stablecoins in the first instance given the size of the market (~$200 billion) and clear use case (i.e., relative stability in myriad transactions). being an asset class that many appear to agree should be supported with legislation sooner rather than later. On February 4, 2025, Senator Bill Hagerty (R-TN) introduced the Guiding and Establishing National Innovation for U.S. Stablecoins (“GENIUS”) Act, alongside Senate Banking Committee Chairman Tim Scott (R-SC) and Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY). ³See generally Guiding & Establishing National Innovation for U.S. Stablecoins (“GENIUS”) Act of 2025, S. ___, 119th Cong. (2025) (“GENIUS Act”). The draft bill represents a bipartisan effort to create a federal framework for the issuance, operation, and regulation of stablecoins in the United States. The legislation arises against the backdrop of enhanced federal interest in establishing a new regulatory framework for cryptocurrencies and represents a likely shift from an era of enforcement under the Biden administration that created barriers to digital asset adoption and use to a rules-based approach under the Trump administration that is far more supportive of digital assets.

Hagerty’s bill is among several similar proposals, including a draft bill from the House Financial Services Committee Republicans (the STABLE Act of 2025) ⁴See generally Stablecoin Transparency & Accountability for a Better Ledger Economy (“STABLE”) Act of 2025, H.R. __, 119th Cong. (2025) (“STABLE Act”)., introduced on February 6^th, and payment stablecoin legislation unveiled by the Committee’s Ranking Member Maxine Waters (D-CA) on February 10^th. ⁵See generally H.R. ___, 118th Cong. (2024) (“Waters Bill”).  The three bills are substantively similar, with Waters’s proposed legislation being the most comprehensively restrictive of issuer activities. While Waters’s proposed legislation more heavily regulates payment stablecoin issuers than the GENIUS or STABLE Acts, the bill is a significant pivot from Waters’s previous skepticism toward, and even criticism of, cryptocurrencies. This pivot bodes well for ultimate passage of a stablecoin bill in 2025.

The high-degree of overlap between the Senate’s bipartisan bill and the draft House bills—coupled with the White House’s laser focus on this area—may mean some regulatory clarity will come sooner rather than later.

This client alert provides a summary of the key provisions of the GENIUS Act and how they compare with the STABLE Act and Waters’s proposed legislation.

Payment Stablecoin Defined

The GENIUS Act clearly defines a payment stablecoin as a digital asset designed to be used as a means of payment or settlement and whose issuer is required to convert, redeem, or repurchase the asset for a fixed monetary value or represent that the asset will maintain a stable value relative to a fixed monetary value.⁶GENIUS Act § 2(14). This definition is substantially similar to those in the House drafts.

Authority to Regulate

The GENIUS Act’s legal framework for the issuance of payment stablecoins is modeled after the dual-banking system. This balancing of federal and state regulatory authority is common to all three bills. Federal banking regulators would regulate insured depository institution (“IDI”) stablecoin issuers, while non-bank issuers would either be licensed with the Federal Reserve Board (“Fed”), or the state with Fed oversight, similar to state-charted bank oversight. Federal regulators have authority to issue orders and regulations to implement the Act. The Fed, Federal Deposit Insurance Corporation (“FDIC”), Office of the Comptroller of the Currency (“OCC”), and National Credit Union Administration (“NCUA”) must jointly issue any rules for tailoring, reserves, or redemptions, and for establishing capital, liquidity, and risk management requirements for stablecoin issuers. ⁷See GENIUS Act §§ 4(a)(4)(A) and (d)(2); STABLE Act §§ 4(a)(4)(A) and (c)(2); see also U.S. House Comm. on Fin. Servs. Ranking Member Maxine Waters Stablecoin Legis. Section-by-Section, U.S. House of Representatives, https://democrats-financialservices.house.gov/uploadedfiles/02.10.2025_s_b_s_stablecoinb.pdf.

The GENIUS Act provides issuers with an “option” for state-level regulation, notwithstanding the federal regulatory framework, for issuers with total market capitalization of less than $10 billion, provided that the state-level regime is “substantially similar” to the federal regulatory framework.⁸GENIUS Act § 4(b)(1). Similarly, the STABLE Act provides issuers that “wish to become a State qualified payment stablecoin issuer” with the option to be regulated by a state-level regime if the state-level regime complies with the Act’s standards for the issuance of payment stablecoins.⁹STABLE Act § 4(b). In contrast, Waters’s proposed legislation does not provide issuers with the choice to opt into a state-level regulatory regime.

Importantly, the GENIUS and STABLE Acts prevent federal banking agencies, the NCUA, and the U.S. Securities and Exchange Commission (“SEC”) from requiring issuers to include payment stablecoins held in custody as liabilities on their balance sheets.¹⁰See GENIUS Act § 13(b)(1); STABLE Act § 12(b)(1). Even more notably, the GENIUS and STABLE Acts incorporate specific amendments to “clarify that payment stablecoins are not securities or commodities,”¹¹GENIUS Act § 14; STABLE Act § 13.thus solidifying that payment stablecoins are to be treated as payment instruments, not investment products.¹²See Seven Things to Know About the Federal Stablecoin Bill, the GENIUS Act, Covington (Feb. 7, 2025), https://www.cov.com/en/news-and-insights/insights/2025/02/seven-things-to-know-about-the-federal-stablecoin-bill-the-genius-act.

Key Requirements for Stablecoin Issuers

Under the GENIUS Act, federal regulators will consider each applicant’s ability to comply with the Act, based on their financial condition and resources, when evaluating applications to issue payment stablecoins for both non-bank and IDI entities.¹³See GENIUS Act § 5(b)–(c). While the STABLE Act does not indicate specific factors for consideration, Waters’s proposed legislation articulates additional factors for federal regulators to consider, including:

• The entity’s ability to maintain reserves backing its stablecoins,
• Financial resources,
• Managerial expertise,
• Governance,
• Benefits to the public, and
• Financial stability.¹⁴Waters Bill § 3(b)(4).

Waters’s proposed bill also uniquely provides for an opportunity for public notice and comment on an entity’s application once received. ¹⁵See Waters Bill § 3(b)(5).

Like other financial institutions, issuers would be subject to the data privacy requirements of Gramm-Leach-Bliley Act (“GLBA”) under all three proposed bills.¹⁶See GENIUS Act §§ 6(a)(1)(B), 7(f); STABLE Act §§ 6(a)(1)(B), 6(a)(1)(E), 7(f); Waters Bill §§ 3(c)(2)(A)(ii), 3(c)(2)(B)(ii), and 3(c)(2)(C)(v).  Additionally, issuers would be required to establish one-to-one reserves ¹⁷See GENIUS Act § 4(a)(1)(A); STABLE Act § 4(a)(1)(A); Waters Bill § 3(c)(4)(A). and would be prohibited from rehypothecating reserves, meaning that they could not use a client’s reserves as collateral for their own borrowing or trading. ¹⁸See GENIUS Act § 4(a)(2); STABLE Act § 4(a)(2); Waters Bill § 3(c)(4)(B).

All three bills stipulate that stablecoin issuers are considered financial institutions under the Bank Secrecy Act. ¹⁹GENIUS Act § 4(a)(5); STABLE Act § 4(a)(5); Waters Bill § 3(d)(1).  Similarly, all three pieces of legislation are consumer protection forward and contain segregation requirements preventing commingling of payment stablecoins, private keys, cash, and other customer property with the issuer’s funds.²⁰See GENIUS Act § 8(b)–(c); STABLE Act § 8(b)–(c), Waters Bill § 3(c)(9)(E)(ii)–(iii).  The GENIUS Act and Waters’s proposed bill explicitly prioritize recovery for customers holding an issuer’s payment stablecoins in any insolvency proceeding against the issuer.²¹See GENIUS Act § 9(a); Waters Bill § 3(c)(10).  The STABLE Act does not address this issue.

Both the STABLE and GENIUS Acts would require issuers to establish procedures for “timely” redemption of outstanding payment stablecoins, although neither defines what constitutes a “timely” redemption.²²See GENIUS Act § 4(a)(1)(C); STABLE Act § 4(a)(1)(C). The Waters bill takes it a step further and would require issuers to ensure that redemptions are made within a reasonable timeframe, not to exceed one day from when a redemption request is made. ²³See Waters Bill § 3(c)(5).

All three bills limit issuer activities to those that directly support the issuance and redemption of payment stablecoins and prevent issuers from performing other depository functions, such as lending.²⁴See GENIUS Act § 4(a)(6); STABLE Act § 4(a)(6); Waters Bill § 3(c)(6). However, Waters’s bill is more restrictive of issuers’ M&A activities and prevents stablecoin issuers from being acquired without approval from the appropriate regulators. ²⁵See Waters Bill § 3(c)(7).Neither the STABLE nor the GENIUS drafts contain provisions requiring regulatory approval for acquisitions of stablecoin issuers.

Waters’s legislation is again more restrictive by preventing any person convicted of insider trading, embezzlement, cybercrime, money laundering, terrorism financing, or felony financial fraud from serving as an executive officer or controlling greater than 5% of a stablecoin issuer’s shares. ²⁶See Waters Bill § 3(c)(8)(A). However, there would be a process to apply for a waiver from this prohibition. ²⁷See Waters Bill § 3(c)(8)(B)(i).Neither the STABLE Act nor the GENIUS Act incorporates such a prohibition. Waters’s proposed bill is also the only bill to exclude payment stablecoins from federal deposit insurance and to require issuers and wallets to disclose this information to consumers. ²⁸See Waters Bill § 3(f).

Enforcement

All three bills include similar enforcement provisions. The GENIUS Act, STABLE Act, and Waters’s bill all permit the Federal regulator to revoke or suspend an issuer’s registration based on a determination that the issuer violated the Act or violated a condition of a written agreement with the regulator. While the GENIUS and STABLE Acts contain similar language, the Waters bill omits the “materially” requirement from these sections²⁹Compare Waters Bill § 5(a)(1)(A)–(B), with GENIUS Act § 6(b)(1)(A)–(B) and STABLE Act § 6(b)(1)(A)–(B). and also includes an additional avenue for suspension or revocation if the issuer is engaging in unsafe or unsound practices.³⁰Waters Bill § 5(a)(1)(C).  All three bills permit the Federal regulator to issue a cease-and-desist order or to take affirmative action to correct violations, with Waters’s bill also allowing the regulator to take other actions they determine to be appropriate.³¹Waters Bill § 5(a)(2); GENIUS Act § 6(b)(2); STABLE Act § 6(b)(2). The bills also allow the regulator to remove a party from their position at the issuer or prohibit participation for direct or indirect violations of the Act or regulations under the Act.³²Waters Bill § 5(a)(3); GENIUS Act § 6(b)(3); STABLE Act § 6(b)(3). Waters’s bill again highlights the prohibition on individuals convicted of certain crimes from participating.³³Waters Bill § 5(a)(3)(C).

All three bills contain substantially similar civil monetary penalty provisions. Penalties up to $100,000 per day are allowed for failure to register or obtain approval or for other violations of the Acts. Additional second-tier penalties of up to $100,000 per day can be imposed for knowingly violating the Act. The penalties are assessed and collected by the Federal regulator and have a six-year statute of limitations. ³⁴Waters Bill § 5(b)(1)–(4); GENIUS Act § 6(a)(5)(A)–(D); STABLE Act § 6(a)(5)(A)–(D).

Endogenously Collateralized Stablecoins

An endogenously collateralized stablecoin is a digital asset that will be redeemed for a fixed monetary value and relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.³⁵U.S. House Comm. on Fin. Servs. Ranking Member Maxine Waters Stablecoin Legis. Section-by-Section, U.S. House of Representatives, https://democrats-financialservices.house.gov/uploadedfiles/02.10.2025_s_b_s_stablecoinb.pdf; see also Waters Bill § 7(c); STABLE Act § 10(c); GENIUS Act § 11(b). All three bills call for the Treasury to conduct a study and issue a report on endogenously collateralized stablecoins within one year of enactment. The GENIUS Act stands alone in stopping at this point, while both House bills additionally call for a two-year moratorium on the issuance, creation, or organization of an endogenously collateralized stablecoin not in existence on the date of enactment. ³⁶Waters Bill § 7(a); STABLE Act § 10(a).

Extraterritoriality

Neither the GENIUS Act nor the STABLE Act addresses extraterritoriality. The Waters bill does and would make it unlawful for any person to offer or sell a payment stablecoin in the U.S., or to a person living in the U.S., unless it is issued by an issuer. The bill imposes a criminal penalty, a fine of no more than $1,000,000, and imprisonment for not more than five years, for knowingly participating in a violation of this section. The section also contains a safe harbor for foreign-based issuers whose home country requirements are determined by the Fed to be comparable with the requirements under this Act.³⁷Waters Bill § 10.

Looking Forward

In light of what many see as the prior Administration’s regulation by enforcement, participants in the stablecoin market will likely be encouraged by these recent attempts to craft a regulatory framework. While there is still work to be done to secure passage and details in the bills remain under negotiation prior to enactment, the common ground shared between the GENIUS Act, STABLE Act, and Waters’s bill (e.g., shared definition of payment stablecoins, consumer protections, dual-banking system framework, enforcement scope, etc.) suggests things may progress quickly. That may be especially true given the Trump Administration has given clear directive to push for more regulatory clarity in this space.