The U.S. Senate’s recent approval of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act has sent shockwaves through the crypto world, with social media buzzing about a $260 billion market now legitimised under a federal framework. Touted as the most pro-crypto move from the U.S. in over a decade, this legislation aims to end the regulatory grey zone, giving the green light to heavyweights like Tether, Circle and PayPal to operate at scale. As UK lawyers, we have a close eye on financial innovation and we’re cautiously impressed, but not without reservations. Is this a game-changer that restores U.S. competitiveness, or a half-baked compromise that leaves glaring flaws unresolved?
The Framework Unveiled: Strength or Stumbling Block?
The GENIUS Act sets a clear stage: only licensed banks, fintechs or state-qualified issuers can mint stablecoins, backed 1:1 by cash, Treasury instruments or Federal Reserve balances. Monthly audits and redemption rules are non-negotiable, while federal licensing trumps state money transmitter licenses with passporting across states. Custodians must be federally supervised trust banks and the Treasury gains sweeping oversight over foreign stablecoins. On paper, this is a robust framework - transparency is king, risks are minimised and the dollar’s global dominance gets a boost. But here’s where we start to question the narrative.
The Yield Ban Conundrum: Risk Without Reward
The elephant in the room? The ban on yield-bearing stablecoins. These assets are collateralised with interest-bearing U.S. Treasuries, yet issuers - and by extension, users - can’t pocket the yield. In other words, you bear the risk of collateral, but without the reward. With collateral publicly disclosed and audits mandatory, the risk is negligible. So why strip away the incentive? This feels like a punitive move that defies logic, especially when stablecoins handle over $1 trillion in monthly volume - 90%+ of which fuels hedge funds, proprietary trading firms and market makers for liquidity rebalancing, capital movement and collateral posting. Less than 10% trickles down to retail payments or remittances. This doesn’t seem like a consumer play; it’s a professional liquidity engine. Blocking yield seems less about consumer protection and more about shielding traditional financial players from disruption.
Global Race for Crypto Supremacy
Looking further into the details, the Act’s timing aligns with a global race to regulate. Europe’s MiCA, effective since June 2024, caps daily redemptions and mandates 60% reserves in fragile EU banks - a move some argue undermines stability rather than bolstering it. Meanwhile, the UAE has already given the green light to the regulation of AED stablecoins, positioning itself as a crypto frontrunner. The GENIUS Act, with its streamlined federal oversight, could indeed catapult the U.S. and UAE ahead, leaving MiCA-strapped Europe in the dust. But let’s not get ahead of ourselves - international reciprocity, as hinted in some proposals, remains untested. Will foreign issuers like Tether, now under pressure to comply or face U.S. market exclusion, adapt, or pivot to friendlier jurisdictions?
Opportunities and Pitfalls for Innovators
Controversy aside, this arguably represents a strategic win for professional liquidity flows, but a missed opportunity for retail innovation. The yield ban could stifle competition, favouring established players like Circle’s USDC over nimbler entrants. Critics suggest this entrenches a banking cartel, and it’s hard to disagree - why empower banks and fintechs without letting the market dictate terms? The Act’s focus on federal pre-emption also raises eyebrows. State-level flexibility, proven effective in places like Wyoming, gets sidelined, potentially choking smaller issuers under bureaucratic weight.
The Verdict
There’s no doubt the GENIUS Act is a bold step toward U.S. leadership in crypto, but it isn’t without its flaws. The yield prohibition strikes us as a strange move that needs revisiting - let the market reward risk, not just regulate it. For founders, investors and builders, the U.S. and UAE are indeed prime battlegrounds, but perhaps Europe will adapt MiCA. As is usually the case, this is a marathon, not a sprint. If you’re serious about stablecoins, weigh the trade-offs and build where innovation, not just regulation, thrives.
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