The latest draft of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act

The draft want to split stablecoin regulation between state and federal authorities, while also introducing new enforcement and transparency requirements for issuers.

A latest draft of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, was unveiled ahead of a hearing Tuesday, proposes a significant shift in the approach to stablecoin oversight with a split between state and federal bodies, along with new enforcement and transparency measures for issuers.

The draft measures were written by the bill's sponsors: Senators Bill Hagerty (R-TN), Tim Scott (R-SC), Chairman of the Senate Banking Committee, Kirsten Gillibrand (D-NY), Cynthia Lummis (R-WY), and Angela Alsobrooks (D-MD). The bill was originally introduced by Hagerty in February.

The updated bill, seen by Blockworks, includes a modified threshold for state regulatory authority over stablecoins.

Currently, state regulatory authority would cease at a total outstanding market cap of $5 billion in a rolling 12-month period. However, the latest draft of the GENIUS Act proposes an increased threshold of $10 billion.

At this threshold, federal regulatory authority would become primary, though state regulatory authority would continue in collaboration with federal agencies until a rolling 12-month period includes a total outstanding market cap of $15 billion in stablecoins.

At this point, federal regulatory authority would become exclusive.

The newest draft of the bill also includes a waiver process, allowing larger issuers to remain solely under state supervision if they meet specific criteria.

To get a waiver and remain under state supervision, stablecoin issuers must demonstrate strong capital, a good track record and be supervised by what the bills calls an experienced state regulator.

If an issuer does not meet these requirements, they would come under federal supervision and be subject to the same capital and liquidity requirements that federal banks face.

The updated bill also introduces new transparency and disclosure requirements for issuers. Issuers would be required to publish monthly liquidity reports detailing the composition of their reserves, including the total number of outstanding stablecoins.

According to the latest version of the bill, reserves are required to be U.S. currency, demand deposits, Treasuries or other “approved assets.”

Issuers would also be required to create mechanisms that would allow them to comply with orders to freeze transactions, and grants the Secretary of the Treasury the authority to block and prohibit transactions involving stablecoins issued by foreign persons or entities.

While earlier versions of the bill did have provisions related to enhanced know your customer (KYC) and anti money laundering (AML) requirements, the updated version of the bill explicitly designates stablecoin issuers as financial institutions for AML purposes requiring them to establish compliance programs and conduct due diligence on high-value transactions.

The bill now awaits amendments by the Senate Banking Committee before a referral to the full Senate for debate and a final vote.