The GENIUS Act: Stablecoin Regulation and Its Impact on Tokenized Markets

Why Stablecoin Regulation Is Tokenization Infrastructure

The relationship between stablecoin regulation and the tokenized real-world asset market is not immediately obvious. Tokenized Treasuries, private credit funds, and real estate interests are securities — they carry equity or debt rights in underlying assets and are regulated as such. Stablecoins are something different: digital representations of fiat currency designed to maintain a stable value for payments and settlement purposes. Why does a law governing stablecoins matter to a BlackRock analyst structuring a tokenized fund or a Skadden partner advising on a digital asset securities offering?

The answer is settlement. Every tokenized securities transaction ultimately requires settlement — the exchange of asset tokens for payment. In traditional markets, this settlement occurs through a chain of correspondent banking relationships, central bank accounts, and DTCC infrastructure. In tokenized markets, settlement can occur on-chain in real time, but only if there is a regulated, reliable digital representation of fiat currency to exchange against the asset token. Stablecoins — specifically payment stablecoins issued by regulated entities against reserve assets — are the settlement layer for the tokenized economy. Without a workable stablecoin regulatory framework, the efficiency gains of tokenization (T+0 settlement, programmable cash flows, 24/7 operation) cannot be fully realized.

The Guiding and Establishing National Innovation for US Stablecoins Act — the GENIUS Act — passed the Senate Banking Committee on March 13, 2025 in a 13-11 bipartisan vote and advanced to the Senate floor for consideration. It represents the most significant stablecoin regulatory proposal in US history and, if enacted, would establish the foundational framework within which tokenized securities settlement operates.

What the GENIUS Act Does

The GENIUS Act’s core framework establishes a category of “payment stablecoin” and creates mandatory requirements for its issuance. A payment stablecoin under the Act is a digital asset that is designed to be used as a means of payment or settlement, that has a fixed nominal value in US dollars, and that is redeemable for dollars or dollar-denominated assets on a 1:1 basis. This definition intentionally excludes algorithmic stablecoins — assets that maintain their peg through algorithmic mechanisms rather than reserves — from the regulated category.

1:1 Reserve Requirement. Payment stablecoin issuers under the GENIUS Act must maintain reserves equal to 100% of outstanding stablecoins, composed exclusively of: US currency and coins, Treasury bills with maturities of 93 days or less, demand deposits at Federal Reserve Banks, repurchase agreements backed by Treasury securities, and shares of government money market funds. The reserve composition requirement is conservative by design — it explicitly prohibits holding corporate debt, equity, or long-duration Treasuries as reserves.

Monthly Attestation. Issuers must publish monthly attestation reports from registered public accounting firms confirming that reserves meet the 1:1 requirement. This is distinct from a full financial audit but creates a regular, public accountability mechanism. The attestation requirement would apply to all payment stablecoin issuers above $10 billion in outstanding coins; smaller issuers face less frequent reporting requirements.

Algorithmic Stablecoin Prohibition. The GENIUS Act prohibits the issuance of any stablecoin that relies on an algorithmic mechanism to maintain its peg rather than actual reserve assets. This provision directly responds to the May 2022 collapse of TerraUST, which destroyed $40 billion in market value over 72 hours and triggered a broader crypto market downturn. The prohibition is not time-limited; it is a permanent bar on issuance.

Federal vs. State Charter Options. The GENIUS Act creates a dual charter structure. Payment stablecoin issuers may obtain a federal charter from the OCC — creating a new category of “national payment stablecoin issuer” — or operate under a state charter if the state has enacted a stablecoin regulatory framework deemed equivalent to the federal standard. States with existing robust frameworks (New York, Wyoming) could potentially have their regimes approved as equivalent; states without specific stablecoin regulation would need to legislate to enable state-chartered issuers.

USDC vs. USDT: The Compliance Divide

The competitive implications of the GENIUS Act for the two dominant stablecoin issuers — Circle’s USDC and Tether’s USDT — are dramatic and asymmetric.

Circle has spent years positioning USDC for exactly this regulatory moment. Circle maintains 100% reserves in cash and short-duration Treasuries, publishes monthly attestation reports from Deloitte, and has applied for a federal banking charter. USDC is issued by Circle Internet Financial, a US-registered company subject to US financial regulation. The GENIUS Act’s requirements, while creating compliance costs, are requirements that USDC already substantially meets. Circle has publicly supported the GENIUS Act’s framework as appropriately calibrated and would benefit competitively from its passage.

Tether operates a fundamentally different model. USDT — the world’s largest stablecoin at approximately $140 billion in market cap — is issued by Tether Limited, a British Virgin Islands company with primary operations in Hong Kong. Tether’s reserve composition has historically included commercial paper, secured loans, and other assets that would not qualify under GENIUS Act requirements. Tether publishes quarterly attestation reports from BDO Italia, a smaller accounting firm, rather than a Big Four firm. And Tether’s corporate structure, jurisdiction, and opacity are directly at odds with the GENIUS Act’s transparency and US-jurisdictional requirements.

If the GENIUS Act passes, USDT faces a stark choice: restructure reserves and corporate governance to meet federal requirements, establish a GENIUS-compliant US affiliate, or lose access to the US market for its non-compliant tokens. For institutional investors in tokenized securities — who require counterparty certainty and regulatory compliance throughout the settlement chain — USDT’s compliance risk under GENIUS is a material consideration that is already affecting platform decisions about which stablecoins to accept for settlement.

JPM Coin and the Bank-Issued Model

JPMorgan’s JPM Coin represents a third model for stablecoin issuance that the GENIUS Act explicitly accommodates: bank-issued payment instruments. JPM Coin is a digital payment instrument issued by JPMorgan Chase Bank N.A. for wholesale interbank settlement. It is not a publicly traded stablecoin; it operates on a permissioned ledger between JPMorgan’s institutional clients. Its reserves are the full faith and credit of JPMorgan Chase — one of the world’s largest bank holding companies with $3.9 trillion in assets.

Under the GENIUS Act, bank-issued payment stablecoins issued by federally insured depository institutions are treated as within the bank’s existing regulatory framework rather than subject to the new stablecoin regime. This creates a clear regulatory path for JPMorgan’s Kinexys platform and similar bank-issued digital payment systems to operate without separate stablecoin licensing — a significant competitive advantage for bank issuers over non-bank stablecoin providers.

The bank-issued model matters for tokenized securities settlement because it offers the highest degree of counterparty certainty. Settlement in JPM Coin is effectively settlement with JPMorgan Chase — a systemically important financial institution subject to Fed supervision, FDIC insurance (to applicable limits), and the full panoply of bank regulatory oversight. For institutional investors accustomed to settling through correspondent banking relationships with major dealers, JPM Coin-settled tokenized securities transactions offer familiar counterparty risk profiles in a new operational format.

The Federal Reserve’s Role

The GENIUS Act assigns the Federal Reserve a significant oversight role in the payment stablecoin ecosystem. Non-bank payment stablecoin issuers above $10 billion in outstanding coins would be subject to Federal Reserve examination and supervision — a provision that extends the Fed’s reach significantly into the non-bank financial sector.

The Fed’s role is particularly significant given its historical ambivalence toward crypto firms seeking Fed master accounts. The Fed denied Custodia Bank’s application for a master account in 2023, and the Tenth Circuit Court of Appeals upheld that denial in 2024. Fed master account access — which provides direct access to the central bank’s payment system — is the gold standard for payment system participants, and the Fed’s gatekeeping authority over master accounts gives it significant practical influence over which stablecoin issuers can achieve the deepest integration with US dollar payment infrastructure.

The GENIUS Act does not resolve the master account question directly, but it creates a framework within which Fed supervision of payment stablecoin issuers could eventually lead to negotiated master account access for compliant non-bank issuers. This would be a significant development for stablecoins used in tokenized securities settlement, as direct Fed access would provide settlement finality and counterparty certainty comparable to commercial bank clearing relationships.

Implications for Tokenized Securities Settlement

The practical significance of the GENIUS Act for tokenized securities market participants operates at three levels.

Atomic settlement. The most significant efficiency gain of tokenized securities is the potential for atomic settlement — the simultaneous, instantaneous exchange of asset token and payment without settlement risk. Currently, tokenized Treasury products typically settle in USDC or institutional stablecoins with T+1 or T+0 finality, but the regulatory status of the stablecoin introduces uncertainty about whether that settlement is legally final. A GENIUS Act-regulated payment stablecoin, issued by a federally chartered institution and backed by compliant reserves, would provide settlement finality comparable to Fedwire transfer — the gold standard for US dollar payment finality.

Collateral management. Tokenized stablecoins used as collateral in repo markets, securities lending, and derivatives margining require regulatory certainty about their legal treatment in insolvency. The GENIUS Act’s reserve requirements — 100% backing by Treasuries and Fed deposits — make payment stablecoins structurally equivalent to Treasury money market funds for collateral purposes, potentially qualifying them for preferential treatment under CFTC and Fed margin rules.

Cross-border settlement. The GENIUS Act’s US-centric framework creates regulatory clarity for dollar-denominated tokenized securities settlement in cross-border transactions. For international investors in US tokenized Treasuries and fund products — a rapidly growing segment — the availability of GENIUS-compliant stablecoins for settlement removes a significant barrier to participation.

Exhibit: GENIUS Act Compliance Comparison for Major Stablecoins

Senate Path and Market Timing

The GENIUS Act’s bipartisan Senate Banking Committee support is encouraging, but floor passage requires addressing concerns from Democratic members about consumer protection provisions and the scope of the algorithmic stablecoin prohibition. Senate Majority Leader Schumer’s team has indicated stablecoin legislation is a priority for 2025, but technical drafting disputes between the Banking and Finance committees have slowed progress.

For tokenized RWA market participants, the strategic planning question is not whether to wait for the GENIUS Act but how to position platforms and products to benefit from its passage when it occurs. Issuers building tokenized fund products should design settlement infrastructure that accommodates GENIUS-compliant stablecoins as the primary settlement mechanism. Platforms that are currently settling in non-compliant stablecoins should develop transition plans. And institutional investors assessing tokenized securities should include stablecoin counterparty risk — the risk that the settlement asset depreciates or becomes unavailable — in their due diligence frameworks alongside the more familiar asset-level risks.

The GENIUS Act framework represents the beginning, not the end, of US stablecoin regulation. The Fed, OCC, and state banking regulators will spend years developing implementing regulations, examination procedures, and supervisory frameworks under the statutory umbrella. Market participants who engage with those implementing regulations — through comment letters, supervisory meetings, and pilot programs — will have disproportionate influence over the final shape of the regulatory framework.