In crypto policy, extremes have defined the narrative. One side demands full institutionalization; the other cries overregulation. The result? Years of noise, and very little signal.
That changed on March 13, 2025, when the Senate Banking Committee passed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act with a bipartisan vote of 18-6. It marks the first comprehensive federal framework for regulating stablecoins in the U.S.—and the most pragmatic attempt we’ve seen yet.
The GENIUS Act cuts through the debate with something rare: a workable middle path. Not overreach. Not political posturing. Just structure, clarity, and a message: if you're issuing something that moves like money, it’s time to operate like you’re part of the financial system.
After years of policy inertia, the U.S. finally has a viable regulatory path for stablecoins. The GENIUS Act introduces structure without stifling innovation. It sets the floor, not the ceiling. And it forces the market to self-select: adapt or exit.
What the GENIUS Act Gets Right: A Risk-Based Framework Rooted in Reality
GENIUS doesn’t treat every issuer the same—and that’s a strength, not a weakness.
The bill introduces a clear split: stablecoin issuers with more than $10 billion in circulation fall under federal oversight. Smaller players remain under state regulation, but only if those states adopt “substantially similar” compliance standards.
Some will call this regulatory arbitrage. It’s not. It’s calibrated flexibility that aligns regulatory scrutiny with systematic risk.
A global stablecoin network demands robust oversight. A startup testing product-market fit does not. The GENIUS Act avoids a one-size-fits-all regime by offering proportional standards and a pathway to grow into compliance. This is a measured, scalable approach that both regulators and innovators can align on.
GENIUS sidesteps the trap of overengineering by setting a regulatory floor—not a ceiling. It doesn’t dilute standards; it aligns them with risk. It sets a consistent regulatory baseline while allowing for operational breathing room. For smaller issuers, this means a chance to grow without being priced out on. For regulators, it enforces accountability without defaulting to one-size-fits-all enforcement. For the market, it offers what’s been missing for years: clear, scalable guardrails.
For example, a dollar-backed stablecoin startup in Wyoming can remain under state regulation if it meets core AML requirements. That is not a loophole. That is a mature framework balancing innovation and accountability.
This isn’t just a governance shift—it’s also a structural one. GENIUS moves beyond intent and into enforceable design.
That regulatory clarity extends beyond oversight and into the mechanics of how stablecoins must be backed, disclosed, and defined. The bill mandates 1:1 reserve backing, requiring issuers to hold reserves exclusively in cash, insured deposits, or short-term U.S. Treasuries with maturities under 90 days. This eliminates ambiguity around collateral quality and explicitly prohibits riskier instruments or rehypothecation, setting a high bar for asset transparency and liquidity.
Third-party audits and public reserve disclosures further strengthen accountability. In a space historically plagued by opacity and off-balance-sheet exposure, this level of transparency is long overdue.
Just as critically, the Act ends a long-standing jurisdictional standoff: stablecoins regulated under GENIUS are neither securities nor commodities. By settling the SEC–CFTC turf war, the Act finally gives both regulators and innovators a clear lane to operate in.
Together, these provisions do more than tighten oversight—they finally give stablecoins the institutional scaffolding they've long lacked.
But reserve integrity is only half the equation—GENIUS also tackles the other systemic gap: financial crime compliance.
For years, stablecoin issuers operated in a gray zone—offering financial products that behaved like money, without financial institution-level obligations. The GENIUS Act ends that ambiguity. By classifying issuers as financial institutions under the Bank Secrecy Act (BSA), the bill mandates full AML compliance: transaction monitoring, customer due diligence, suspicious activity reporting. These are not guidelines—they’re enforceable expectations.
This clarity is essential. But meeting these expectations—especially for mid-sized issuers—requires scalable infrastructure. Traditional compliance systems are often priced and designed for institutions handling billions in volume, leaving smaller players with tools that are either too rigid or too expensive.
To truly support AML implementation at all tiers, compliance tooling must evolve. That means modular, usage-based compliance infrastructure—systems that can scale with volume, adapt to risk level, and evolve with the regulatory landscape.
Importantly, the bill also empowers the Treasury to flag foreign stablecoin issuers as noncompliant, effectively restricting their access to U.S. markets. This extraterritorial reach creates powerful incentives for global alignment, using market access as a lever to elevate AML standards worldwide.
Rather than chasing hypothetical edge cases, GENIUS targets the real-world applications of stablecoins that actually move money at scale today while applying guardrails that the market has long needed.
Where the Genius Act Falls Short
The GENIUS Act gets the core right—but it leaves critical areas untouched.
It deliberately excludes algorithmic and interest-bearing stablecoins, which is intelligent given repeated failures at scale. However, its silence on secondary markets, DeFi protocols, and unhosted wallets is harder to overlook. These are precisely the spaces where stablecoins are most actively used, reused, abstracted, and—too often—laundered.
In these spaces, on-chain activity becomes the AML frontier. Stablecoins pass through mixers, hop chains, and land in liquidity pools without touching centralized checkpoints. Monitoring risk in these flows requires deeper visibility, robust behavioral analytics, and tools that can keep up with how value actually moves.
That said, the restraint may be strategic. A broader bill might have collapsed under its own weight. The GENIUS Act went narrow so it could go deep—and get passed. GENIUS secures the perimeter around payment stablecoins first. The next wave of regulation will need to follow the flows—on-chain and cross-chain.
Final Take: The Beginning of Accountability
The GENIUS Act doesn’t attempt to regulate everything—and that is precisely why it works. It draws a line around what is systemically important and demands that those who operate within that perimeter rise to institutional standards.
For regulators, it’s a credible start. For the industry, it’s a new baseline. If you want to issue a token that behaves like money and moves at scale, you need to operate like a financial institution. That’s not overreaching. That’s foundational. Smart regulation doesn’t choke innovation—it channels it. By filtering for readiness, GENIUS gives stablecoin issuers a chance to prove they belong in the financial system.
The tools now exist to make that compliance real-time, scalable, and proportionate to risk. At Merkle Science, we’ve seen firsthand how AML expectations have outpaced the tools available to many crypto businesses. GENIUS rebalances that dynamic—setting enforceable standards that the industry can build toward, and opening the door for a new generation of stablecoin infrastructure.
This bill won’t be the last word on stablecoins. But it’s the first credible one—and likely the one that sticks. With President Trump’s public endorsement and rare bipartisan alignment, the GENIUS Act is poised to pass. The work isn’t over. But for the first time, the U.S. has drawn a clear, enforceable blueprint. Now it’s on us to meet the moment.
