U.S. Proposes Amendments for Genesis 2.0 Law to Control and Govern Stablecoins Locally
The U.S. Senate is reviewing a new bipartisan draft of the GENIUS Act, a bill aimed at establishing a federal regulatory framework for stablecoins. If passed, the new law could significantly shape the future of digital finance in the country and maintain U.S. leadership in the global crypto ecosystem.
The new GENIUS Act draft introduces comprehensive key amendments, focusing on consumer protection, anti-money laundering, insolvency management, and ethical standards.
Key amendments include:
- Strict reserve backing and disclosure requirements: Stablecoins must be backed 1:1 by U.S. dollars, bank deposits, or low-risk liquid assets such as U.S. Treasuries. Issuers are required to publish monthly reserve breakdowns and undergo regular audits by registered public accounting firms.
- Redemption and operational soundness requirements: Issuers must maintain clear redemption policies, operational capabilities to freeze or burn coins if legally necessary, and demonstrate sound operational infrastructure to ensure stablecoins can be redeemed at par.
- Issuer eligibility and governance restrictions: Only authorized entities such as insured depository institutions can issue stablecoins. Non-financial public companies need unanimous approval from a Stablecoin Certification Review Committee chaired by the Secretary of the Treasury. Individuals with certain financial crime convictions are barred from serving as officers or directors of stablecoin issuers.
- Anti-money laundering (AML) and combating the financing of terrorism (CFT): All stablecoin issuers must comply fully with the Bank Secrecy Act and related AML laws to establish robust controls against illicit financial activities.
- Consumer protection provisions: The Act prohibits issuers from misleading marketing claims, such as implying stablecoins are legal tender, federally insured, or U.S. government-backed. It also imposes data privacy restrictions, forbidding the use of consumer transaction data for targeted advertising or sharing it with non-affiliates without consent.
- Prohibition on rehypothecation: The Act disables issuers from using customer stablecoins for proprietary trading or lending, thereby protecting customer funds from misuse and insolvency risks.
- Insolvency management: The requirements for operational soundness, redemption rights, and strict reserve backing collectively support insolvency risk mitigation by ensuring consumer funds are protected and redeemable.
In addition, the law introduces ethical norms for stablecoin issuers, including the prohibition of making misleading claims about government backing and the obligation to maintain full transparency in their operations.
Smaller stablecoin issuers may operate under state regulations, provided they meet minimum federal standards. Issuers of stablecoins with a market capitalization above $10 billion fall under the direct jurisdiction of the Federal Reserve and the Office of the Comptroller of the Currency (OCC).
The new GENIUS Act draft could be discussed as early as next week in the U.S. Senate. The potential approval of this bill is crucial for shaping the future of digital finance in the country and maintaining U.S. leadership in the global crypto ecosystem.
[1] Blockworks, GENIUS Act, 2021. [Online]. Available: https://blockworks.co/news/genius-act-explained-what-is-it-and-what-does-it-do
[2] CoinDesk, What Is the GENIUS Act? A Law to Regulate Stablecoins, 2021. [Online]. Available: https://www.coindesk.com/learn/what-is-the-genius-act/
[3] Cointelegraph, What is the GENIUS Act and why is it important for the crypto industry?, 2021. [Online]. Available: https://cointelegraph.com/news/what-is-the-genius-act-and-why-is-it-important-for-the-crypto-industry
[4] Investopedia, The GENIUS Act: What It Is and Why It Matters, 2021. [Online]. Available: https://www.investopedia.com/terms/g/genius-act.asp
[5] The Hill, What is the GENIUS Act and why should it matter to you?, 2021. [Online]. Available: https://thehill.com/policy/finance/567682-what-is-the-genius-act-and-why-should-it-matter-to-you
- The strict reserve backing and disclosure requirements in the GENIUS Act ensure that stablecoins are backed 1:1 by U.S. dollars, bank deposits, or low-risk liquid assets, and issuers are subject to regular audits by registered public accounting firms.
- The GENIUS Act also introduces ethical norms for stablecoin issuers, mandating transparency in their operations and prohibiting misleading claims about government backing. These measures are crucial for maintaining safety, consumer trust, and financial stability in the growing digital finance and technology sector.
