For years, stablecoin issuers have operated in a regulatory vacuum that has limited both innovation and institutional participation. But that periods is likely coming to an end. With the Senate Banking Committee advancing the Guiding and Establishing National Innovation for US Stablecoins Act of 2025 (GENIUS) and the House pushing forward the STABLE Act in parallel, the US is finally putting stablecoins on firm regulatory footing.
Is compliance now a competitive edge?
Following the formal introduction of the GENIUS Act in the Senate on February 4 and the STABLE Act in the House two days later, the market has already begun shifting towards issuers that meet the expected regulatory thresholds:
- The GENIUS Act establishes a dual state-federal charter and demands 1:1 backing in cash, Fed deposits, insured bank deposits, short-term T-bills, repos and qualifying money market funds, as well as monthly CPA-attested reserve reports.
- The STABLE Act is even narrower, restricting reserves to cash, Fed balances, ultra-short T-bills, and overnight repos, and bans interest payments while imposing a two-year freeze on new algorithmic stablecoins.
Issuers like Circle gain an immediate advantage, given that its USDC stablecoin is already regulated under New York’s Department of Financial Services (NYDFS) stringent reserve and disclosure standards that closely align with the new stablecoin rules.
In contrast, issuers with more opaque models, such as Tether, are now facing serious structural adjustments. Even though the GENIUS Act technically allows foreign stablecoin issuers to offer services to US customers under certain conditions (most notably, to freeze or seize assets by court order), the overall trend is shifting towards onshore and highly regulated entities.
Impact on stablecoin issuers
Circle’s impressive growth since early last year, and even more so in Q1 this year, clearly demonstrates that regulatory readiness is now a primary catalyst for stablecoin growth. PayPal’s PYUSD is another NYDFS-regulated stablecoin showing similar growth, however, its market capitalisation is still substantially smaller compared to both Tether and USDC.
USDC vs Tether growth comparison
Source: The Block
Tether’s delisting in Europe after MiCA came into effect also shows how quickly crypto platforms will cut off access to stablecoins that fail to adhere to new regulatory standards.
And even though Tether continues to dominate in less regulated jurisdictions, its US footprint is likely to shrink if it fails to clear up its compliance issues. Issuers relying solely on state money transmission licenses will also need to upgrade to federal or “substantially similar” state frameworks.
Meanwhile, the legislative response to algorithmic stablecoins draws a hard line in the sand. The STABLE Act imposes a two-year ban on algorithmic models and the GENIUS Act orders a Treasury-led study but without a clear timeline or approval process. The result in the same – stablecoins are now excluded from the US market.
Opportunities and barriers for new entrants.
The trend of institutional-led stablecoins will likely accelerate as the proposed frameworks finally give new entrants a clear regulatory on-ramp to launch their own, but only if they can meet the stringent reserve, custody and disclosure standards required under federal or equivalent state oversight.
The GENIUS Act explicitly authorises subsidiaries of depository institutions and regulated neobanks to issue stablecoins directly, while restricting custody to services that are already supervised under banking, securities or derivatives law. Custodians have to comply with segregation rules, but they are not subject to additional capital requirements – this could encourage bring banks, trust companies and other qualified custodians to come off the sidelines and enter the stablecoin sector.
This doesn’t mean that other tech firms and retail companies are excluded from launching their own stablecoins, but not many will have the balance sheet or compliance infrastructure to do it. The high cost of licensing, reserve management and ongoing compliance will certainly limit participation to most well-capitalised players.
For smaller startups and crypto innovators, this means higher barriers, limited runway, and growing pressure to merge or exit entirely.
Reinforcing policy interests
These stringent rules are also designed to scale stablecoins for payment and settlement systems, fitting right into US policy efforts to reinforce the dollar’s dominance in digital finance by making stablecoins a central part of the nations’ core financial system.
The strong political support for dollar-backed stablecoins was quite clear when Treasury Secretary Scott Bessent stated at the White House Digital Asset Summit last month that “we are going to keep the US dollar the dominant reserve currency in the world, and we will use stablecoins to do that”.
At the same time, issuers are prohibited from paying interest on stablecoin balances, which means regulators are positioning them as payment instruments rather than say, saving products or substitutes for banking deposits. The GENIUS Act was also recently amended to exclude interest/yield-bearing stablecoins from its definition of “payment stablecoins,” and it’s likely that they will be considered as securities.
It is an important move to catchup with the EU’s established MiCA framework, as the visible shift in stablecoin flows towards MiCA-ready issuers shows how quickly the market is reacting to the improved regulatory conditions.
A market that now rewards compliance
The anticipated passage of the GENIUS ad STABLE Acts is expected to accelerate stablecoin adoption this year, and we are likely to see the market consolidate around fully compliant issuers as exchanges and custodians move to delist those that are not. Over time, this should deepen liquidity and lead to more institutionally viable markets.
Many market players are already making moves. ING is preparing a euro-backed stablecoin under the EU’s MiCA framework. Fidelity Investments, Vantage Bank and the Trump-backed World Liberty Financial have announced their own stablecoin initiatives. Visa is planning to launch USDC payment cards and Mastercard is preparing to allow 150 million merchants across its network to receive payments in stablecoins. This has also extended to other regions, including Brazil’s Itaú Unibanco and UAE’s First Abu Dhabi Bank. Meanwhile, Wyoming’s launch of the first state-backed stablecoin has now created a regulatory onramp that other US states may soon follow.
The stablecoin race is on.
Update May 5 2025:
The GENIUS Act (which initially moved forward with bipartisan support) is now facing a pushback from several Democrat Senators calling for stricter AML and national security provisions. Adding onto the concerns is the Trump-backed USD1 stablecoin through World Liberty Financial, raising questions around potential conflicts of interest and foreign influence.
These developments have added uncertainty around the timing and outcome of the Senate vote.
ENDS
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