GENIUS Stablecoin Bill Analysis: Issuance Eligibility, Regulatory Boundaries, and Core Use Cases Fully Explained

Original Author: Liu Feng, Partner at BODL Ventures

「Key Points on the Highly Anticipated, 'Landmark' GENIUS Act」
*What does this thing do:
It establishes a comprehensive framework and clear "federal regulatory framework" for stablecoin issuers operating within the United States and their products, or where their stablecoins are circulating or transacting within the United States.

One of the "Payment Stablecoins"
- This act defines a "payment stablecoin" and explicitly excludes such stablecoins from being classified as securities or commodities (now issuers can rest assured, remember the past experiences where stablecoin issuers were scrutinized for "issuing securities," and exchanges listing stablecoins were seen as providing "securities trading"?)

Who Can Issue? Part One
Highlight: Future compliant stablecoin issuance is licensure-based
- Only entities registered in the United States and licensed can legally issue payment stablecoins.
- These entities may be subsidiaries of insured depository institutions (IDIs), OCC-approved and supervised federally chartered non-bank payment stablecoin issuers, or state-chartered and state-approved payment stablecoin issuers under state law

Who Can Issue? Part Two
- Requires bank-like regulation for issuers, regardless of whether they are banks themselves
- Therefore, if not an approved depository institution, everyone else needs to be "approved."
- Of course, the act also provides a 3-year grace period for U.S. digital asset service providers (such as exchanges, trading firms); after this grace period, it is prohibited to offer or sell stablecoins issued by unlicensed issuers.

Bottom Line: No Free Lunch!
Highlight: Mandatory 1:1 Reserve Asset Requirement  
- Additionally, there are reserve asset requirements: eligible reserve assets include U.S. dollars, insured deposits, short-term U.S. Treasuries, eligible repurchase agreements, and potential central bank reserves. The inclusion of repurchase agreements as reserve assets has raised some questions.

Mandatory 1:1 Reserve Asset Requirement, Part Two
- Prohibition on rehypothecation of reserves.
- Reserves must be segregated from operational funds (you can't take reserves and freely invest them in all sorts of high-yield opportunities! Many stablecoins in the market, are you listening?)

Prohibition of Interest-bearing Stablecoins:
Key Point: Prohibits the issuer from providing yield or interest on the stablecoin they issue.
- Important: Prohibits issuer from providing yield! Third-party platforms can provide it.
- Is it allowed for the issuer's affiliated companies to provide yield (unclear)?
- This rule is mainly to prevent stablecoins from directly competing with bank deposits for yield, and also aligns with the idea that stablecoins are primarily meant for payments rather than investment.

What Happens if the Issuer Goes Bankrupt?
- In the event of issuer bankruptcy, stablecoin holders have priority claim to reserve assets.
- Mandatory timely redemption and public disclosure of redemption policy.

One of the "Transparency Mandatory Requirements"
- Monthly public disclosure of reserve composition, certified by the CEO/CFO.
- Registered accounting firms must examine the publicly disclosed reserves monthly (common terminology used is "examined," not the more stringent "audited").

Second of the "Transparency Mandatory Requirements"
- Issuers of stablecoins with a total circulation exceeding $500 billion and not SEC reporting companies must undergo an annual financial statement audit.
(Democratic lawmakers have a minor quibble on this point: This will result in the vast majority of issuers not needing to undergo independent financial audits due to circulation being less than $500 billion.)

Anti-Money Laundering
- Issuers must implement an AML/CIP/sanctions compliance program.
- Issuers must demonstrate the technical ability to comply with lawful orders in the U.S. to freeze, seize, or stop tokens.
- U.S. intelligence and law enforcement actions are not subject to key restrictions. The Treasury Department may exempt secondary market trading restrictions for national security reasons.
- Despite the bill's requirement for expanded AML plans, opposition has continuously challenged this bill on insufficient anti-money laundering measures.

Handling of "Foreign Issuers" Part One
- The bill aims to regulate stablecoins issued by foreign entities.
- Foreign issuers must be from jurisdictions with comparable regimes, registered with the Office of the Comptroller of the Currency (OCC).

Handling of "Foreign Issuers" Part Two
- Must comply with U.S. lawful orders and hold enough reserves with U.S. financial institutions to meet the liquidity needs of U.S. customers.
- This is also the most controversial aspect. Opponents argue that these provisions are not strict enough in practice, placing U.S. issuers at a disadvantage and encouraging offshore registrations.
- Primarily targeted at Tether. Wonder how U.S. Deputy Secretary Luttig views this?

\"Payment Stablecoin\" Part Two
- A payment stablecoin is defined as a digital asset used for payments or settlements, its value pegged to the value of a fiat currency, and fully backed by U.S. dollars, short-term Treasury bills, or similar high-quality liquid assets on a 1:1 basis. (USDT may not meet this definition as it has a significant amount of its backing assets in BTC; algorithmic stablecoin? Please don't join in on the fun.)

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