Acting Like a GENIUS: Stablecoins and Navigating the Future of Payments

The digital asset space is moving fast, and the recent passage of the GENIUS Act is just one more example of the changing landscape of banking. Financial institutions are starting to think about how to prepare for the future of stablecoins and electronic banking.

What is a Stablecoin?

The volume of stablecoin transactions is already staggering: In 2024, stablecoins transferred more money globally than Visa payments, and volume was nearly double Visa’s in Q1 2025. Overall, stablecoins have processed $33 trillion in transaction volume over the last 12 months. It is likely that stablecoins will become mainstream in coming years following the implementation of the GENIUS Act.

The growth of stablecoins has the government’s attention. Earlier this year the current administration determined that one of its’ key policy goals was to defend the U.S. dollar’s strength by encouraging legal, trustworthy stablecoins backed by the U.S. dollar for global use. This focus set the stage for the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act).

The GENIUS Act: A Unified Framework 

• Reserve Requirements: Issuers must maintain 1:1 backing with liquid assets, such as U.S. dollars or U.S. Treasury bills. They are required to publish monthly reports detailing the total outstanding stablecoins and the composition of their reserves, with reports examined by an independent public accounting firm in the subsequent month.
• Compliance: Issuers are classified as "financial institutions" under the Bank Secrecy Act and must maintain rigorous Anti-Money Laundering (AML) and Know-Your-Customer (KYC) programs.
• Consumer Protection: If an issuer fails, stablecoin holders receive first priority claims on the reserves over secured creditors.

 The Act defines who can legally issue PSCs, including bank subsidiaries, Federal Qualified Issuers (nonbank entities or uninsured national banks approved by the OCC), and State Qualified Issuers.

The GENIUS Act is expected to take effect on January 18, 2027, or 120 days after final regulations are issued. Federal agencies, including the Treasury, are actively developing these regulations and seeking input from those in the banking industry. 

Opportunities and Risks for Financial Institutions 

• Issuance: Financial institutions can issue their own PSCs. 
• Reserve Banking: Financial institutions can hold and manage the reserve assets that back PSCs.
• Custody and Transaction Services: Financial institutions can safeguard PSCs for clients, or act as a transaction bank facilitating the fiat related to minting and redemption. 

Participation, however, requires careful preparation. Financial institutions must establish robust risk management frameworks to address risks like regulatory noncompliance, market volatility, operational risks, and new “blockchain-specific risks”. These blockchain risks include vulnerabilities in smart contracts, network congestion, and the risk of “depegging” (the stablecoin diverging from its 1:1 value). 

Next Steps for Preparedness 

The steps needed to participate in this new payment channel are similar to those required for any existing channel: robust risk management, assessment, audit, policy review and implementation. Financial institutions should begin focusing on these key areas:

• Monitor GENIUS Act developments and proposed regulations.
• Assess staffing expertise and current infrastructure.
• Explore potential partnerships with fintech companies.
• Develop robust risk frameworks and governance arrangements.
• Evaluate customer demand and viability of issuing stablecoins.

The GENIUS Act seeks to provide the kind of regulatory certainty financial institutions can rely on as they navigate this shift in the banking landscape. By acting now, institutions can position themselves to benefit from this evolution in global payments. Regulators are seeking your input. Recently, the Treasury has issued an Advance Notice of Proposed Rulemaking requesting public comment on potential regulations designed to implement the GENIUS Act. Commenters can provide input, data, voice concern and identify other issues that the Treasury should consider. Written comments may be submitted via electronic submission through the Federal Government eRulemaking portal, or by mail, and the window for comments is open until November 4, 2025.