Chuck Zhang, CFO of PolyFlow, Payment Infrastructure for Web3.0.
On May 20, the United States Senate made significant strides in stablecoin regulation by advancing the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act with a decisive 66-32 procedural vote. As the first comprehensive federal framework for stablecoins, the GENIUS Act aims to provide regulatory clarity, retain innovation within the U.S., protect consumers and reaffirm the dominance of the U.S. dollar in global finance.
This landmark move comes amid a surge in the use of stablecoins, which represent the majority of on-chain transaction volume. Though still awaiting final approval, the act has now entered the fast track toward the president’s desk.
For years, the U.S. Securities and Exchange Commission (SEC) spearheaded digital asset oversight, often through enforcement-driven measures that sowed uncertainty and discouraged innovation. The GENIUS Act marks a dramatic shift away from that ambiguity, replacing it with a clear, rules-based approach that legitimizes stablecoin usage and encourages responsible growth.
Payment Stablecoins Defined
At the heart of the GENIUS Act is its formal definition of a “payment stablecoin“—a fiat-pegged digital asset used for payments and settlements. These stablecoins must be redeemable at face value and are explicitly barred from offering interest, thereby avoiding classification as investment products.
Crucially, the Act stipulates that properly issued payment stablecoins are not securities under federal law and not commodities under the Commodity Exchange Act. This clear classification finally resolves long-standing jurisdictional turf wars and helps delineate stablecoins from other digital assets such as security tokens or native cryptocurrencies.
A New Regulatory Framework
The GENIUS Act introduces a dual-tiered regulatory system for stablecoin issuers. Those with issuance volumes under $10 billion may operate under state-level oversight, while larger issuers must comply with federal regulations enforced by the Federal Reserve, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC).
Under this model, only licensed U.S.-registered entities can legally issue payment stablecoins. These may include subsidiaries of insured depository institutions, nonbank entities approved by the OCC or state-qualified issuers. All are required to comply with U.S. laws on anti-money laundering (AML), economic sanctions and counter-terrorist financing (CTF).
This legal clarity is drawing traditional financial players and crypto firms into the regulated banking space. Circle, Paxos and Coinbase are all seeking banking charters. Payments giant Stripe recently joined the fray by applying for a special banking license, following Fiserv’s lead. Stablecoins are becoming the strategic lever for cost reduction and business model expansion in the payments industry.
Where Payment Stablecoins Are Used
According to ARK Invest, stablecoins are projected to reach $15.6 trillion in annualized transaction volume by the end of 2024, exceeding Visa and Mastercard combined. The global market cap for stablecoins has swelled to nearly $250 billion, a 22-fold increase over the past five years.
Initially confined to crypto exchanges, stablecoins like USDT and USDC now power payments in emerging markets, facilitate cross-border remittances and even support international trade. In many regions, they’ve become more widely used than traditional banking rails.
All of this has occurred in the absence of a mature regulatory structure. The GENIUS Act now unlocks additional use cases by allowing stablecoins to be treated as cash equivalents in traditional finance. This includes usage as collateral in derivatives trading and as a mechanism for interbank settlement.
Macroeconomic Implications
The impact of stablecoins is not limited to crypto or fintech. Their reserve structures are increasingly tied to the broader macroeconomy, particularly U.S. Treasurys. Today, stablecoin issuers already rank among the top 20 foreign holders of U.S. debt.
With the Act requiring 100% reserve backing in high-liquidity assets, most issuers rely on short-term Treasurys. According to ARK Invest, should the stablecoin market reach $3 trillion in the next three years and allocate even 50% tied to Treasurys, that would result in $1.5 trillion of demand, rivaling China’s and Japan’s holdings. Stablecoins could become the U.S. government’s largest invisible creditor.
Why The Finance Industry Should Consider Moving Toward On-Chain Finance
With the GENIUS Act in place, both fintech companies and financial institutions should consider embracing stablecoins to develop on-chain financial markets. Payment giants stand to be among the first to benefit, recognizing the potential advantages that stablecoins offer. Recent trends indicate that internet giants like Meta and Uber are exploring stablecoin applications, while various banks are actively preparing for stablecoin-related initiatives. The trend of merging traditional finance with on-chain finance is becoming increasingly apparent and is one that deserves the attention of those in the financial industry.
Final Thoughts
The GENIUS Act represents more than just regulatory reform—it signals a decisive shift in how the U.S. approaches digital finance. For too long, mass adoption discussions focused narrowly on tech and user experience, ignoring the legal fragility of key infrastructure.
With the GENIUS Act, stablecoins finally get their day in court—and have the potential to emerge as fully recognized instruments within the American financial system. They are programmable, compliant and dollar-backed. In short, they could in many ways be considered the long-missing bridge between crypto innovation and financial orthodoxy.
As this legislation moves closer to becoming law, the U.S. is positioning itself not just to regulate digital assets but to lead the future of global finance through them.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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