Stablecoins and the GENIUS Act: An Overview
You’ve probably heard a lot of discussion lately around stablecoins and their potential impact on the banking sector. This article provides a quick update on the landscape of stablecoins as well as what bankers should understand about the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act.*
The GENIUS Act and Banking
The regulatory landscape for digital assets reached a significant milestone with the passage of the GENIUS Act in July 2025. This landmark legislation establishes a comprehensive framework for payment stablecoins in the United States, addressing a critical gap in financial regulation. Payment stablecoins—privately issued digital assets designed to maintain a 1:1 backing with reserves assets like the U.S. dollar—now have clear regulatory parameters, consumer protections and oversight mechanisms.
The GENIUS Act carefully distinguishes between payment stablecoins and other digital assets, requiring 100% reserves and implementing disclosure requirements similar to those in traditional banking. As financial institutions prepare for this new era of digital payment infrastructure, understanding the nuances between payment stablecoins and tokenized deposits becomes essential for compliance and strategic planning in the evolving financial ecosystem. Worth noting is institutions interested in establishing their own payment stablecoins must be federally or state chartered. The GENIUS Act differentiates charter options based on size and complexity of the issuer. Banks need to create a subsidiary that would serve as the payment stablecoin issuer, and it would be supervised by the bank’s primary federal regulator. Non-bank entities approved to issue payment stablecoins would be supervised through the Office of the Comptroller of the Currency (OCC) or its appropriate state regulatory agency based on certain conditions outlined in the law.
The GENIUS Act explicitly excludes payment stablecoins from securities or commodities designation and issuers of payment stablecoins cannot pay interest or yield to customers who hold them. Any issuer of payment stablecoins must hold high-quality, liquid reserve assets that are backed at least at a 1:1 basis (i.e. 100% reserve). The GENIUS Act also defines the disclosure requirements of any payment stablecoin issuer. These include its redemption policy, monthly attestations of the composition of the reserves and monthly CEO and CFO certifications of the reports.
Tokenized Deposits
You may also hear about another term called “tokenized deposits,” which are a digital representation of a customer’s bank deposits. The GENIUS Act preserves the ability of financial institutions to issue tokenized deposits that would be able to pay yield or interest. Tokenized deposits are not considered payment stablecoin and the GENIUS Act preserves existing banking authority of financial institutions to engage in activities permissible under applicable state and federal law. Deposit insurance is another critical difference between tokenized deposits and payment stablecoins. As digital representations of bank deposits, tokenized deposits inherit the deposit insurance while payment stablecoins do not. This will be an area that we at the Richmond Fed will continue to monitor going forward.
Regulatory Frameworks
Finally, the GENIUS Act requires any payment stablecoin issuer to adhere to a regulatory framework that financial institutions are quite familiar with. Federal and state regulators must impose capital, liquidity and risk management requirements that are tailored to the business model and risk profile of the payment stablecoin issuer. All payment stablecoin issuers also are treated as financial institutions under the Bank Secrecy Act and must comply with the associated requirements.
Innovation within the banking sector continues at a breakneck speed, and the GENIUS Act is one step towards establishing a formal framework to safely implement newer digital assets in the regulated financial system. While the GENIUS Act has received a significant amount of news coverage, the implementation will take time as federal and state regulators conduct rulemaking to implement the law. If you have specific questions regarding the supervision and regulatory impact of the GENIUS Act, we encourage you to reach out to your Richmond Fed supervision relationship team members.
Disclaimer: The opinions expressed by the authors are their own and not necessarily those shared by the Federal Reserve Bank of Richmond or the Board of Governors of the Federal Reserve System.
