Original author: Liu Feng, Partner at BODL Ventures
"A few clarifications regarding the industry-wide attention on the 'historic moment' GENIUS Act"
What is this thing for:
It is to create an overall framework and a clear "federal regulatory framework" for stablecoin issuers operating within the United States and their products, or for the circulation or trading of their stablecoins within the United States.
"Payment Stablecoins"
- This act defines "payment stablecoins" and explicitly excludes such stablecoins from being classified as securities or commodities (now issuers can rest assured, remember the past experiences where stablecoin issuers were troubled by "issuing securities" and stablecoins being viewed as providing "securities trading" on exchanges…).
Who can issue? Part 1
Key point: Future compliant stablecoin issuance is a licensing system
- Only entities that are registered in the United States and have obtained a license can legally issue payment stablecoins.
- These entities can be subsidiaries of insured depository institutions (IDI), federally qualified non-bank payment stablecoin issuers approved and regulated by the OCC, or state-qualified issuers established under state law and approved by state payment stablecoin regulatory agencies.
Who can issue? Part 2
- Requires similar bank-like regulation of issuers, regardless of whether they are banks themselves.
- Therefore, if they are not approved depository institutions, everything else must be "approved."
- Of course, the act also gives U.S. digital asset service providers (such as exchanges and trading firms) a 3-year grace period; after this grace period, it will be prohibited to provide or sell stablecoins issued by unlicensed issuers.
Bottom line: No free lunch!
Key point: Mandatory reserve asset requirement of 1:1
- Additionally, there are requirements for reserve assets: qualified reserve assets include U.S. dollars, insured deposits, short-term U.S. Treasury bills, qualified repurchase agreements, and possibly central bank reserves. Among these, including repurchase agreements as reserve assets has raised some questions.
Mandatory reserve asset requirement of 1:1, Part 2
- Prohibition on re-pledging reserves.
- Reserves must be isolated from operating funds (you cannot casually invest reserve funds or seek out random high-yield opportunities! Many stablecoins on the market, are you listening?).
Prohibition on interest-bearing stablecoins:
Key point: Prohibits licensed issuers from providing returns or interest on the stablecoins they issue.
- Be clear: issuers are prohibited from providing returns! Third-party platforms can provide them.
- Can affiliated companies of the issuer provide returns (unclear)?
- This clause mainly aims to prevent stablecoins from directly competing with bank deposits for returns, aligning with the idea that stablecoins are primarily used for payments rather than investments.
What happens if the issuer goes bankrupt?
- In the event of the issuer's bankruptcy, stablecoin holders have priority claims on the reserve assets.
- Mandatory requirement for timely redemption and public disclosure of redemption policies.
"Transparency Requirements" Part 1
- Monthly public disclosure of reserve composition, certified by the CEO/CFO.
- Certified public accounting firms must review the publicly disclosed reserves monthly (the term used is "examined," not the stricter "audited").
"Transparency Requirements" Part 2
- Issuers of stablecoins with a total issuance exceeding $50 billion and not registered with the SEC must undergo annual financial statement audits.
(Democratic lawmakers have expressed concerns about this point: this will result in the vast majority of issuers not being subject to independent financial audits due to issuing less than $50 billion).
Anti-Money Laundering
- Issuers must implement AML/CIP/sanctions compliance programs.
- Issuers must demonstrate the technical capability to comply with U.S. legal orders to freeze, destroy, or block tokens.
- U.S. intelligence and law enforcement actions are not bound by key restrictions. The Treasury may waive secondary market trading restrictions for national security reasons.
- Although the act requires an expanded AML program, opponents have consistently challenged this act on the grounds of insufficient anti-money laundering measures.
"How to handle foreign issuers" Part 1
- The act aims to bring foreign-issued stablecoins under regulatory oversight.
- Foreign issuers must come from jurisdictions with comparable systems and be registered with the OCC.
"How to handle foreign issuers" Part 2
- Must comply with U.S. legal orders and hold sufficient reserves in U.S. financial institutions to meet the liquidity needs of U.S. customers.
- This aspect is also the most controversial. Opponents argue that these regulations are not strict enough, putting U.S. issuers at a disadvantage and encouraging offshore registration.
- This is mainly aimed at Tether. I wonder what U.S. Deputy Secretary of State Luthnick thinks?
"Payment Stablecoins" Part 2
- Payment stablecoins are defined as digital assets used for payments or settlements, whose value is pegged to the value of fiat currency and is fully backed 1:1 by U.S. dollars, short-term Treasury bills, or similar high-quality liquid assets. (USDT likely does not meet this definition due to having a significant amount of supporting assets in BTC; algorithmic stablecoins? Don't come to join the fun).
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