On June 17, 2025, the U.S. Senate passed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act with a bi partisan 68-30 vote, marking the strongest federal push yet towards regulating dollar-backed stablecoins. With rare bipartisan support, the bill offers what crypto policy has long lacked: pragmatic guardrails that protect users while giving innovators the legal certainty to build the future of payments.
The GENIUS Act isn’t a sweeping reinvention of the financial system. It’s a targeted effort to mature it, clarifying who can issue stablecoins, how reserves must be managed, and what compliance looks like in practice. The era of stablecoin ambiguity is closing. What replaces it isn’t overreach or deregulation, but a tiered system of accountability.
For banks and traditional financial institutions, the framework creates a clearer entry lane—and a potential first-mover advantage. Their capital depth, existing regulatory relationships, and risk infrastructure give them a leg up, though onboarding to crypto-native systems will still demand new technical capacity. For established issuers, the GENIUS Act doesn't introduce accountability—it crystallizes it. Many have already anticipated deeper regulatory involvement and now that preparedness becomes an institutional expectation. For the broader market, the bill marks a shift in priorities: from speed to structure, from experimentation to trust.
But while the bill’s passage signals overdue progress, it also raises a host of new questions:
What counts as a qualified issuer? How will the "substantially similar" standard for state regulation be interpreted and enforced?
The real task begins now: translating regulatory clarity into solutions that are both trustworthy and built for scale. This blog unpacks how the GENIUS Act reshapes stablecoin oversight and what it means for issuers, banks, and compliance teams.
Today, most stablecoin issuers are registered with FinCEN as Money Services Businesses (MSBs), triggering baseline AML/CFT obligations: KYC, SARs, and recordkeeping. At the state level, they secure money transmitter licenses (MTLs), which vary widely in capital, audit, and reserve requirements. For example, New York’s BitLicense regime mandates strict capital requirements, cybersecurity protocols, and full reserve backing, whereas others impose minimal oversight.
This regime has allowed stablecoins to scale without consistent expectations for redemption, asset backing, or financial crime controls, leading to regulatory arbitrage, limiting prudential oversight, and leaving systemic risk unmonitored. For instance, some issuers offer relatively seamless 1:1 redemptions within one business day as part of specific account tiers or pre-approved redemption plan, others may impose high minimum thresholds, tiered fees, or restrict direct redemption to institutional clients. This fragmented approach creates uneven user experiences and undermines consistent liquidity expectations across stablecoin products.
The GENIUS Act ends this discretion. Rather than allowing issuers to define their own compliance thresholds, the GENIUS Act introduces federal guardrails that align operational standards with financial system expectations.
The GENIUS Act doesn’t just fill regulatory gaps but it also redefines what stablecoin compliance should look like in the U.S. The GENIUS Act sets a federal foundation for stablecoin oversight – defining who can issue, what backs the tokens, and how compliance is enforced.
The GENIUS Act narrows the field of permitted stablecoin issuers to three categories: bank subsidiaries, federally qualified nonbank issuers, and state-approved entities operating under “substantially similar” regimes. This classification streamlines entry and establishes a legal perimeter around dollar-backed stablecoins, aligning them more closely with entities already trusted to handle systemic financial functions
Non-financial public companies cannot issue stablecoins without unanimous approval from the three-member Stablecoin Certification Review Committee (SCRC), chaired by the Treasury Secretary. This prevents large tech companies from issuing stablecoins without rigorous vetting. In doing so, the GENIUS Act reinforces a core message: systemic scale doesn’t equal systemic credibility.
The GENIUS Act introduces an issuance-based oversight model: stablecoin issuers with over $10 billion in consolidated total outstanding issuance must transition to federal supervision within 360 days or halt new issuance. Smaller issuers can operate under state regimes—but only if frameworks are deemed 'substantially similar' to federal standards, as determined annually by the Treasury. If a state issuer crosses the $10 billion threshold, it must transition to federal supervision unless granted a waiver.
While framed as a proportional oversight mechanism, the structure leaves key gaps: the Act provides no clear definition of “substantially similar,"instead tasking state regulators with certifying their frameworks to SCRC. The Treasury Secretary retains final authority on whether those state regimes meet the federal threshold, potentially enabling forum shopping as issuers pursue the most lenient oversight. It also assumes that smaller issuers pose minimal risk, overlooking how network effects and liquidity dependencies can trigger contagion even from sub–$10 billion players.
The GENIUS Act reclassifies stablecoin issuers as financial institutions under the Bank Secrecy Act—an essential but overdue shift. This new designation standardizes AML/CFT obligations across the ecosystem and aligns stablecoin compliance with the rigor expected of banks and broker-dealers.
This classification enforces core AML pillars: customer due diligence, transaction monitoring, recordkeeping, sanctions compliance program, and suspicious activity reporting. But the requirements go further than those imposed on MSBs today. Issuers must appoint compliance officers, conduct risk assessments, verify identities for high-value transactions, and implement sanctions list screening. These obligations are tailored to stablecoin-specific risk profiles, shifting compliance from box-ticking to risk-informed execution.
Beyond these baseline controls, the Act introduces a new technical mandate:issuers must prove they can freeze or burn tokens in response to lawful orders, closing the gap between traceability-to-action pipeline. Therefore, by embedding enforcement into infrastructure, the GENIUS Act enables court-ordered asset seizures, supports sanctions compliance, and establishes a higher bar for operational readiness in stablecoin markets.
To complement its enforcement provisions, the GENIUS Act also encourages pre-emptive coordination, requiring the Treasury Secretary to engage with issuers “where feasible” before blocking transactions involving foreign entities. This provision embeds collaborative enforcement as a regulatory norm, particularly in cross-border cases such as sanction evasion or terrorist financing.
Beyond AML compliance, the GENIUS Act establishes comprehensive prudential standards that treat stablecoin issuers as systemically important financial entities. Issuers must meet capital and liquidity thresholds calibrated to their risk profile, alongside operational safeguards designed to preserve systemic stability. These include interest rate risk management, operational resilience frameworks, and governance standards tailored to digital asset issuance.
A key provision mandates 1:1 reserve backing, meaning issuers must hold one dollar in high-quality liquid assets—such as U.S. dollars, short-term Treasuries, or insured deposits—for every stablecoin issued. These reserves must be held in segregated accounts to ensure full redemption at par, allowing holders to always exchange their stablecoins for an equivalent amount in fiat without loss in value. These reserves must be disclosed monthly and verified by independent public accounting firms, with CEO and CFO certifications carrying personal criminal liability. For issuers with $50 billion or more in outstanding stablecoin issuance, annual audited financial statements are required.
Together, these provisions inject real accountability into a market that has long operated without prudential guardrails. By aligning stablecoin oversight with time-tested principles from banking regulation, the GENIUS Act elevates operational standards without freezing innovation.
Complying with the GENIUS Act will require most stablecoin issuers to undergo a sweeping transformation—operationally, technically, and culturally. At the heart of implementation lies a gap analysis: many current compliance programs may not yet align with the GENIUS Act’s operational expectations. For many stablecoin issuers, this means upgrading internal controls, overhauling documentation, and building infrastructure from the ground up. Even banks with their strong financial controls will need to deepen their fluency in crypto-native infrastructure.
A successful transition begins with cross-functional coordination. Compliance, legal, engineering, and treasury teams must interpret mandates and translate them into enforceable policies. Engineering teams, for instance, must develop the technical capacity to freeze or burn tokens upon lawful order. Simultaneously, finance and treasury operations must implement real-time reserve tracking systems to meet monthly disclosure and redemption readiness mandates.
This complexity makes third-party infrastructure partners indispensable. Rather than reassessing vendor risk post-implementation, issuers should proactively adopt a multi-vendor architecture that balances operational resilience with regulatory accountability. From blockchain analytics and risk screening to secure reserve attestation and smart contract execution, selecting the right mix of specialized vendors is key to ensuring controls are both robust and auditable.
To manage scale, automation will be critical. Programmatic CDD, automated suspicious activity alerts, SAR filing, and reserve reporting tools can ease the operational burden, paired with analyst oversight to avoid a blind spot. Meeting this bar will also require new talent. Analysts must now be equipped to maintain data integrity, assess AML alerts and assign risk exposure, verify counterparties against OFAC and UN sanctions lists, and compile regulatory filings such as Suspicious Activity Reports (SARs). Issuers will need hybrid professionals fluent in legal, technical, and financial domains, while also investing in internal training programs to embed GENIUS Act compliance across teams.
Finally, the GENIUS Act demands a mindset shift. Regulatory engagement will become a routine function, not just during audits, but as part of ongoing implementation. Issuers may need to proactively clarify compliance expectations, respond to supervisory inquiries, or navigate ambiguous requirements like regime equivalence. The GENIUS Act doesn’t just raise the bar—it redefines what operational excellence looks like in stablecoin markets.
As stablecoin regulation shifts from point-in-time reporting to continuous, full-lifecycle oversight, Merkle Science’s Onchain Pulse empowers issuers, custodians, and financial infrastructure providers to meet the moment with real-time compliance intelligence. Powered by Compass, Merkle Science’s real-time transaction monitoring solution, it flags illicit activity the moment it interacts with a stablecoin ecosystem—whether through sanctioned entities, phishing-linked contracts, or suspicious fund flows. Alerts are triggered instantly, giving compliance teams the ability to intervene before risk spreads across chains or counterparties.
These alerts are enriched with attribution data, behavioral signals, and transaction history, making them actionable, not just real-time. Customizable rules reduce false positives by up to 50%, while built-in investigation tools help teams trace flows, uncover intermediaries, and support escalation or freezing decisions. Further, based on customer needs, specific rule sets can also be created to reflect unique risk thresholds or operational priorities.
These insights power Onchain Pulse’s macro view, connecting granular alerts to broader circulation risks. Onchain Pulse extends this visibility across the entire stablecoin lifecycle: who holds the token, how it moves across chains, and where risk concentrates. From new token mints on high-risk chains to structural vulnerabilities in smart contract code, teams can trace risk as it evolves—from wallet to protocol to market.
Onchain Pulse enables issuers to identify where systemic risk is growing across the ecosystem by analyzing how stablecoins are distributed across chains, categories, and jurisdictions
Onchain Pulse also surfaces long-term structural risks including:
By mapping real-time threats and slow-burn structural risks, Onchain Pulse helps teams move beyond compliance checkboxes toward predictive, trust-driven risk governance.
With Senate passage secured, the GENIUS Act now moves to the House, where bipartisan momentum could accelerate its path to law. Industry stakeholders should prepare for implementation scenarios now—before mandates harden into enforcement. Merkle Science stands ready to support stablecoin issuers through this regulatory shift. Click here to learn more about Onchain Pulse and to schedule a demo.
