Impact of Lawmaker Revisions to the GENIUS Act on the US Stablecoin Market | PYMNTS.com

Highlights

U.S. lawmakers are currently reviewing the GENIUS Act, which seeks to establish a regulatory framework for dollar-pegged stablecoins. However, it faces partisan disagreements and demands for enhanced consumer protections, financial controls, and oversight—especially given concerns over the involvement of tech companies and foreign threats.

The outcome of this bill has the potential to transform U.S. financial innovation, possibly bringing an end to the regulatory ambiguity surrounding the crypto sector. However, if not carefully constructed, it could also create regulatory loopholes.

Broader issues emphasize the volatility and security risks associated with crypto, including previous collapses of stablecoins, increasing fraud, and significant data breaches—highlighting the necessity for balanced regulation that fosters innovation while safeguarding consumers and national interests.

It seems like there’s a new stablecoin announcement from a traditional financial institution almost every week.

What do they all have in common? Most of these developments are not happening in the U.S.

However, as U.S. lawmakers circulate an updated draft of the GENIUS Act—short for Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 Act—these dynamics could soon change with the anticipated clarity regarding dollar-backed stablecoins.

Ongoing negotiations are underway to finalize the GENIUS Act for a floor vote. The bill, initially bipartisan, has recently sparked partisan debate and lost momentum due to backlash against President Donald Trump’s connection to digital asset initiatives.

Senate Democrats now warn that the bill, in its current form, may unintentionally open doors to corruption, foreign threats, and a new era of unregulated digital finance.

Democratic lawmakers are requesting amendments concerning consumer protection, bankruptcy, and ethics, as well as “robust financial controls” for private stablecoin issuers, including tech companies. For instance, Meta is reportedly considering adopting stablecoins for cross-border payments.

Ultimately, whether the GENIUS Act becomes law—and in what shape—could redefine the future of finance in America. The proposed regulatory framework presents both the promise of clarity and the danger of loopholes, along with the challenge of balancing innovation with oversight.

Republican lawmakers are optimistic about the revised GENIUS Act being approved by Memorial Day at the end of the month.

See also: Stablecoin Sandwiches? Here’s What CFOs Need to Know About Crypto Jargon.

The Paradox of ‘Stability’ in Crypto

Stablecoins are advertised as digital assets with stable value, typically linked to fiat currencies like the U.S. dollar. They aim to bridge the gap between the instability of traditional cryptocurrencies like Bitcoin and the dependability of government-backed money. Yet, the reality has proven to be quite different.

Many stablecoins have faced severe de-pegging incidents that shook the digital economy. Notably, TerraUSD (UST) collapsed in 2022, erasing over $40 billion in market value and triggering a domino effect that destabilized the wider crypto ecosystem. This incident revealed a concerning truth: not all stablecoins are equivalent, nor are they all backed by reliable reserves.

Still, there is a widespread acknowledgment in Washington that stablecoins are too significant to overlook. With more than $230 billion in circulation and increasing integration into global payment systems, these digital tokens are rapidly establishing themselves as a fundamental aspect of modern finance. Policymakers are faced with the dual challenge of encouraging innovation while ensuring consumer and national security.

After all, the crypto landscape retains a bit more of the “Wild West” ethos than traditional finance, as evidenced by a recent data breach and extortion attempt faced by Coinbase, a listed U.S. company. Hackers accessed users’ names, addresses, phone numbers, emails, and the last four digits of their Social Security numbers.

This news followed a report from the FBI revealing a surge in cryptocurrency fraud, with reported losses reaching at least $9.3 billion last year—a 66% increase compared to 2023. These losses stemmed from investment scams, extortion, sextortion, and fraudulent activities involving cryptocurrency ATMs and kiosks.

Read also: Why Central Banks Are Piloting Monetary Policy Tools for Blockchain.

Revisions Take Center Stage for GENIUS Act

Central to the Democratic amendments are provisions that enhance both federal and state consumer protection laws. The revised GENIUS Act explicitly guarantees that existing laws enforced by the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) will still apply to stablecoin issuers, ensuring that the new regulatory structure does not become a loophole for sidestepping securities laws.

Issuers will also face stringent prohibitions on promoting yield or interest-bearing characteristics—designed to mitigate risks similar to those that precipitated former collapses in the crypto lending sector. Additionally, naming restrictions will prevent companies from using terms like “United States” or “USG” in product branding to avert misleading consumers regarding government backing.

Entities based in countries under comprehensive U.S. sanctions—or considered risky for money laundering—will be barred from operating in the U.S. market, closing potential avenues for illicit finance.

Democrats have also achieved strict limitations on non-financial publicly traded firms—especially tech giants like Meta Platforms Inc. and Amazon.com Inc.—from issuing their own stablecoins unless they comply with stringent standards. This measure aims to maintain a separation between commerce and banking, a long-standing policy principle that critics argue could be undermined by digital assets.

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