Tension Emerges As the US Senate Banking Committee Advances the GENIUS Act to Govern Stablecoins

For the future of crypto regulation, the US Senate Banking Committee recently advanced the Guiding and Establishing National Innovation for US Stablecoins Act

The Senate Banking Committee has advanced the bipartisan legislation, "Guiding and Establishing National Innovation for US Stablecoins Act" (GENIUS Act), sponsored by Senator Bill Hagerty (R-Tenn.) with a vote of 18-6.

The bill, which stands for "Guiding and Establishing National Innovation for US Stablecoins," aims to regulate stablecoins, a type of cryptocurrency pegged to the value of a fiat currency like the dollar, which can facilitate cheaper and faster transactions globally, accessible to anyone with a smartphone.

However, the bill has sparked heated debate, particularly from Senator Elizabeth Warren (D-Mass.), a vocal critic of crypto.

Hagerty highlighted the urgency of regulatory clarity as the world modernizes its payment systems, adding that the U.S. cannot afford to be left behind. He pointed out the potential benefits of a clear regulatory framework in the country, including improved transaction efficiency and increased demand for U.S. Treasury securities.

"We have a unique opportunity to ensure that the United States remains at the forefront of the global financial system," said Hagerty.

"The bill creates a federal framework for stablecoins, ensuring that they are backed by safe and liquid assets, are subject to robust anti-money laundering and know-your-customer regulations, and are overseen by experienced financial regulators."

On the other hand, Warren expressed concerns that the bill does not adequately protect consumers, taxpayers, or the broader economy in the event of a stablecoin failure.

"This bill begs for more bailouts," said Warren, highlighting her belief that it could inadvertently lead to taxpayer-funded rescues of failing stablecoin issuers.

The Massachusetts senator also criticized the legislation for empowering tech billionaires like Elon Musk and Mark Zuckerberg to launch their own dollar-based tokens, concentrating financial power in the hands of a few individuals.

Despite Warren's objections, Hagerty maintains that the GENIUS Act includes sufficient protections and regulatory measures to deter criminal activity.

The bill's supporters, such as the administration officials and the majority of the Senate Banking Committee, highlight that it mandates stablecoins to be backed by one-to-one reserve assets, which will be monitored by regulators.

The bill also establishes licensing and oversight requirements, with issuers having a market capitalization of less than $10 billion to be regulated at the state level and larger issuers falling under the purview of the Federal Reserve and the Office of the Comptroller of Currency (OCC).

In terms of transparency, the bill mandates that issuers provide monthly liquidity reports and maintain full transparency regarding their reserve compositions, ensuring that stablecoins are backed by reserves held in U.S. dollars or highly liquid assets on a 1:1 basis.

Moreover, the legislation requires that issuers promptly meet redemption requests, granting the Federal Reserve and OCC the authority to suspend licenses or impose penalties for non-compliance. It also emphasizes anti-money laundering (AML) and know-your-customer (KYC) standards to prevent misuse for illicit activities.

The bill has garnered support from various stakeholders, including New York Democrat Kirsten Gillibrand and freshman Maryland Democrat Angela Alsobrooks, who are not on the committee but voiced their backing for the legislation.

Treasury Secretary Scott Bessent and Trump are also said to view stablecoins favorably, with Bessent suggesting that they could enhance the dollar's global dominance by increasing demand for U.S. currency.

While the passage of the GENIUS Act in the Senate Banking Committee marks a pivotal moment in U.S. crypto policy, the bill faces challenges ahead. It will require at least 60 votes to advance in the Senate, necessitating continued bipartisan cooperation.