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US lawmakers have taken a significant step towards a federal regulatory framework for stablecoins with the passage of a bipartisan bill by the Senate Banking Committee.
Last week, the Senate Banking Committee marked up the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, despite resistance from key Democrats on the committee.
The bill, which was reintroduced by Senator Bill Hagerty (R-TN) last week, will now head for a vote on the Senate floor.
Senator Tim Scott (R-SC), committee chair and co-sponsor of the bill, described the mark-up of the bill as “historic”, noting that it is the first to advance out of the committee stage under the current Congress.
“The digital asset community — and, more importantly, the American consumers — deserve clarity,” he said.
“For far too long, the absence of a regulatory framework has left consumers vulnerable and businesses in the dark. That changes today.”
Senator Cynthia Lummis (R-WY), another co-sponsor, said the key feature of the bill is that it offers US stablecoin issuers a choice between state- or federal-level supervision.
Under the GENIUS Act, issuers of smaller stablecoins (up to $10bn in market cap) will be regulated by state authorities, and issuers of larger stablecoins will be regulated by federal authorities.
An exception may be made for larger issuers that wish to continue under state supervision, providing that the state rules they are subject to are "substantially similar” to the equivalent federal rules.
The flexibility of the GENIUS Act will “secure our nation’s competitive edge in the rapidly evolving digital asset space”, said Lummis.
Senator Kirsten Gillibrand (D-NY), another co-sponsor, said she believes that “clear and sensible” stablecoin legislation is essential to maintaining US dollar dominance and US competitiveness in global financial services — both of which are achieved by the GENIUS Act.
Ranking member Warren opposes bill in current form
The strongest opposition to the bill came from Senator Elizabeth Warren (D-MA), ranking member of the committee.
Under the GENIUS Act, non-bank firms would be permitted to issue their own stablecoins, provided that they can demonstrate compliance with US law enforcement orders.
Warren believes that this opens the door to big tech and other “giant commercial companies” to issue their own money — a privilege usually reserved for only the US government and publicly chartered banks.
“Under this bill, Big Tech billionaires like Elon Musk, Mark Zuckerberg and Jeff Bezos could effectively issue their own currencies that compete with the US dollar,” she said.
“This bill gives Elon Musk the chance to issue his own X Money currency, monetise our most sensitive transaction data, punish people who speak out against him by choking off their access to his payments system, and destabilise our financial system when it all goes bust.”
Warren noted that, in 2019, when Facebook had planned to launch its own Libra stablecoin, the Senate Banking Committee was among the US authorities that had stepped in to prevent it.
She quoted Senator John Kennedy (R-LN), a member of the committee who said at the time: “Facebook wants to control the money supply — what could possibly go wrong?”
Warren also objected to the GENIUS Act’s provisions on reserve assets, noting that allowing stablecoin issuers to use demand deposits as reserves opens them up to the risk of bank runs.
“Circle, one of the largest stablecoin companies in the world, would have blown up in 2023 if regulators hadn’t bailed out its $3.3bn of deposits at Silicon Valley Bank,” she said.
“This bill begs for more bailouts.”
No closing of 'loophole' on foreign-issued stablecoins
Warren also objected to the GENIUS Act’s provisions on foreign-issued stablecoins.
As covered by Vixio, the GENIUS Act allows US dollar stablecoins issued by offshore entities to be used within the US — except for the purpose of wholesale banking transactions.
In effect, as highlighted by Warren, this would allow these issuers to “evade” the safeguards that US-based issuers are subject to, and would incentivise US-based companies to move offshore.
In response, supporters of the bill said that offshore stablecoins issuers would have to demonstrate compliance with US law enforcement orders in order for their stablecoins to be approved for use in the US.
Nonetheless, Warren submitted an amendment to close this perceived loophole, alongside separate amendments to prohibit non-bank participation in stablecoin issuance and the use of demand deposits as reserves.
All of Warren’s proposed amendments were rejected, including one that would have prohibited persons with a history of drug trafficking from participating in stablecoin issuance.
Next steps
With the GENIUS Act now headed to the Senate floor, it moves into pole position among the contenders for federal stablecoin legislation.
However, it still faces tough competition from the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act — a bill that is currently with the House Financial Services Committee.
The lead sponsor of the STABLE Act is Representative Bryan Steil (R-WI), chair of the Digital Assets Subcommittee, and it is co-sponsored by Representative French Hill (R-AR), chair of the House Financial Services Committee.
Unlike the GENIUS Act, the STABLE Act is not a bipartisan piece of legislation, and continues to be strongly opposed by Democrats on both of these committees.
However, the STABLE Act does have strong support from industry stakeholders, including from Tether CEO Paolo Ardoino, who has personally worked with Steil on crafting the bill.
Should the House Financial Services Committee mark up the STABLE Act, it would then head to the House floor for a vote.
In the event that the Senate passes the GENIUS Act and the House passes the STABLE Act, the two bills would need to be reconciled.
A conference committee may be formed, consisting of members of both chambers, to negotiate towards a final bill.
Alternatively, informal negotiations may produce amendments that bring the two Houses to an agreement on a single bill.
A third path would see such negotiations lead to one bill (the weaker one) being dropped, paving the way for the stronger bill to be passed by both Houses.
