New GENIUS Act Stablecoin Rules Are Coming By November. Here's What It Could Mean for the Crypto Market.
Key Points
The regulators will begin enforcing the GENIUS Act in January.
The act’s final rules could be tweaked before their publication in November.
Those approvals could generate tailwinds for Circle, Coinbase, and Mastercard.
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Last July, the GENIUS (Guiding and Establishing National Innovation for U.S. Stablecoins) Act was signed into law as the first comprehensive regulatory framework for payment stablecoins. Let's see what that act accomplished, when those rules will take effect, and how they'll affect the companies that rely on stablecoins.
What are stablecoins?
Stablecoins are cryptocurrencies pegged to stable fiat currency, such as the U.S. dollar or euro. They can be held without bank accounts, and their payments are settled 24/7, 365 days a year. They can be used for faster, cheaper money transfers than conventional bank transfers. They can be deposited into third-party lending platforms, automated market makers, and liquidity pools to earn higher yields than bank savings accounts.
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What did the GENIUS Act change?
The GENIUS Act required stablecoins to be backed by U.S. dollars, short-term Treasuries, or central bank deposits at a 1:1 reserve ratio, rather than riskier, opaquely collateralized assets. Stablecoin issuers were also required to submit monthly attestations for those reserves.
The act required large issuers, with more than $10 billion in stablecoins in circulation, to be overseen by federal regulators. Smaller issuers with less than $10 billion could opt to be regulated at the state level, provided their state regulators met federal standards. All of those issuers were barred from paying passive yields to stablecoin holders.
Stablecoin holders gained clearer consumer protections, including a legal right to redeem their tokens for U.S. dollars on demand. If an issuer became insolvent, its stablecoin holders would be paid before its general creditors. Lastly, the act placed stablecoins outside the jurisdiction of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) by classifying them as neither securities nor commodities.
What will happen in November?
The GENIUS Act was signed into law more than a year ago, but its full legal enforcement won't start until Jan. 18, 2027. Before that happens, the U.S. Comptroller of the Currency (OCC) will publish the final rules in November.
Before that publication, which sets the rules in stone, several key parts of the act could still be modified based on the recent feedback from banks, stablecoin issuers, and consumer advocacy groups. That public comment period will remain open through Oct. 19.
The parts that could be tweaked include redemption extensions, which determine whether stablecoin issuers receive emergency extensions to liquidate their assets during market downturns; yield restrictions on edge cases (such as loyalty points or gas-fee discounts); and refinements to its framework for state-level certifications.
What does that mean for stablecoin-driven companies?
The publication of the GENIUS Act's final rules in November could drive more investors toward Circle (NYSE: CRCL), Coinbase (NASDAQ: COIN), and Mastercard (NYSE: MA).
Circle issues USD Coin (CRYPTO: USDC), the leading stablecoin in the U.S. market. Circle backs the USD Coin with its own cash and Treasury reserves, and the interest (reserve income) it collects on those holdings accounts for most of its top line. As Circle mints more stablecoins, its reserves will grow, boosting its profits. Coinbase, which co-developed USD Coin with Circle, collects all the reserve income from those stablecoins hosted on its platform.
Mastercard, which started working with Circle five years ago, is using stablecoins to accelerate its cross-border disbursements, treasury operations, and merchant payouts. It integrated its money transfer tools into stablecoin wallets in over 130 countries, and it expects stablecoins to gradually replace slower, older methods of transferring money.
The passage of the GENIUS Act is a clear vote of confidence for those faster financial rails. While stablecoins might seem like dull investments -- since they're pinned to stable fiat currencies -- their acceptance as a fully regulated cryptocurrency could generate strong tailwinds for the companies that are minting them and adopting them.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.
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