Stablecoin executives are counting on the GENIUS Act

American Banker

Political shifts have cryptocurrency companies confident in the digital asset being a mainstream payment option in just a few years.

That bullish outlook is partly due to the Guiding and Establishing a National Innovation for U.S. Stablecoins, or the GENIUS Act, a bipartisan bill that would create a regulatory framework for payment stablecoins. The bill, combined with the Trump administration's support for the broader cryptocurrency industry, has created a halo effect for all things crypto.

The GENIUS Act is part of a broader legislative effort to forge a U.S. legal framework for stablecoins — following a similar trend toward regulatory support in the European Union. 

"There's no shortage of opportunities if this [GENIUS Act] gets passed," said Gordon Liao, chief economist and head of research for USDC issuer Circle, at American Banker's Payments Forum last week.

Stablecoins, which are intended to be backed by traditional currency such as U.S. dollars as a hedge against volatility, are considered the most likely form of cryptocurrency to execute retail payments. Stablecoins have drawn attention from the card networks as a payment option, and PayPal has issued its own stablecoin.

But a lack of regulatory clarity has hindered adoption due to concerns about the makeup of the reserves that back stablecoins and the protection for consumers in the event of a bankruptcy at a stablecoin issuer. "Large banks have been experimenting with blockchain for years. It's not a new tech for them," Liao said. "But supporting crypto for payments has been viewed as risky."

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The GENIUS Act would define a payment stablecoin as a digital asset used for payment or settlement that is pegged to a fixed monetary value; it would establish clear procedures for institutions seeking licenses to issue stablecoins; and it would implement reserve requirements and "light-touch, tailored regulatory standards" for stablecoin issuers, according to the bill's sponsors. 

For issuers of more than $10 billion of stablecoins, the GENIUS Act would apply the Federal Reserve's regulatory framework to depository institutions and the Office of the Comptroller of the Currency's framework for nonbank issuers; would allow for state regulation of issuers under $10 billion in market capitalization; and would provide a waiver process for issuers exceeding the threshold to remain state regulated.

The act would additionally establish supervisory, examination and enforcement regimes with clear limitations. More regulatory clarity will create an opportunity for banks and fintechs to list their own stablecoins, according to Sara Sisenwein, senior director of treasury operations at Binance.US, who spoke at Payments Forum. "That will be a major driver for cross-border transactions," Sisenwein said of the ability of distributed ledgers to remove processing steps for international payments, thus cutting expenses. 

In a snap poll at Payments Forum, panelists on a stablecoin panel said stablecoins would be universally available for payments within the next three years. S&P in a recent study said stablecoin regulations are necessary for the banking industry to support stablecoin payments. 

"We'll see a stampede of banks toward stablecoins," said Paul Brody, global blockchain leader at EY of the GENIUS Act. "With regulatory clarity coming, tokenized assets will diversify."

The GENIUS Act has also drawn criticism for not being stronger. Writing for American Banker, Arthur E. Wilmarth Jr., professor emeritus of law at George Washington University Law School, said the bill would "allow stablecoins, which are volatile deposit-like instruments, to be offered to the public without the essential protections provided by federal deposit insurance and other regulatory safeguards governing banks that are insured by the Federal Deposit Insurance Corp."

The overall stablecoin market is expanding, passing $200 billion in market capitalization in late 2024. But it's still a small part of the overall payments market. Stablecoin use cases are emerging, including cross-border payments and financial inclusion. In sub-Saharan Africa, for example, stablecoins are responsible for around 43% of cryptocurrency transactions, outlining a trend toward more alternative payment options beyond local currency, according to the D24 fintech group.

Payment firms such as Stripe and Ripple have recently boosted their investments in stablecoin technology in anticipation of a payments market that uses distributed ledgers to quickly convert stablecoins to traditional currency at the point of sale.  

In a recent speech, Federal Reserve Governor Christopher Waller said there is an increased interest in a "stablecoin sandwich" model of cross-border payments, in which fiat currency in one country is converted first into a U.S. dollar stablecoin, then that stablecoin is transferred to another individual, and then finally the stablecoin is converted back into the local fiat currency at its destination. This has the potential to reduce the complexity of a series of correspondent banking networks, improving transparency, cost and timeliness, Waller said. 

"Stablecoins are not just a way to hedge inflation for emerging markets," said Mark Troianovski, head of product partnerships at Coinbase, at Payments Forum. "It's a new payment rail." 

At least one airline, Breeze, is considering ways to accept cryptocurrency payments. Breeze, which launched in 2021 and specializes in flights to underserved markets, uses a largely digital strategy including a co-branded credit card and loyalty program with Barclays US.

"Using a blockchain has helped us understand how consumers are responding to rewards," said Trent Porter, CFO of Breeze Airways, at the Payments Forum.