The GENIUS Act: A New Framework for Payment Stablecoins

What Are Stablecoins?

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Before exploring the GENIUS Act and its impact, it's important to define what stablecoins are and why they matter.

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Stablecoins are digital tokens designed to maintain a stable value, typically pegged to a sovereign currency like the U.S. dollar. Unlike volatile cryptocurrencies such as Bitcoin or Ethereum, stablecoins aim to provide price stability while preserving the speed, transparency, and programmability of blockchain networks.

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Two of the most widely used stablecoins today are Tether (USDT) and USD Coin (USDC). ‍

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Tether, issued by Tether Limited, is the oldest and largest stablecoin by market capitalization, serving as a key source of liquidity across global crypto exchanges.

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‍USD Coin, created by Circle in partnership with Coinbase, is known for its transparency and regulatory compliance—each token is backed 1:1 by U.S. dollars and short-term Treasuries held in audited reserves. Together, USDT and USDC dominate the stablecoin market, facilitating billions in daily on-chain transactions and forming the backbone of modern digital finance.

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Because they offer the convenience of digital currency and the familiarity of fiat, stablecoins are rapidly becoming the transactional backbone of Web3. They power cross-border payments, decentralized finance(DeFi), on-chain settlement, tokenized markets, and financial applications that operate without traditional intermediaries.

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Most stablecoins achieve stability through one of three models:

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1. Fiat-backed stablecoins:  are backed 1:1 by U.S. dollars or highly liquid assets such as short-term Treasuries held in regulated accounts.

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2. Crypto-collateralized stablecoins: backed by other digital assets with over-collateralization to absorb volatility.

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3. Algorithmic stablecoins: uses mechanical incentives and supply adjustments instead of reserves (a category now largely discouraged due to historic failures.

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In short:
Stablecoins combine the stability of traditional money with the efficiency and borderless nature of blockchain — making them a foundational element for the future of digital finance.

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With global demand rising, the U.S. government introduced the GENIUS Act to establish formal guardrails, protect consumers, and ensure the dollar remains competitive in a world of programmable digital value.

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The GENIUS Act: A New Framework for Payment Stablecoins

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In July 2025, the United States enacted the GENIUS Act — the first comprehensive federal law specifically targeting “payment stablecoins.” The bill represents a significant shift in how digital assets, specifically dollar-pegged tokens, will be regulated in the U.S. It sets clear rules on who can issue stablecoins, how they must be backed, and how state and federal regulators will work together.

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Why It Matters

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Stablecoins — digital tokens that are pegged to a fiat currency or other low-risk reserve assets — had until now existed in a regulatory grey zone. Failures such as the TerraUSD collapse, reserve opacity at major issuers, and the lack of uniform global frameworks raised concerns from regulators, consumers and financial institutions alike. The GENIUS Act addresses those gaps and gives the market clarity.

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By providing a legal pathway for issuers and defining “payment stablecoins”, the legislation aims to:

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1. Increase trust in stablecoins as part of mainstream financial infrastructure

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2. Link stablecoin issuance with high-quality liquid reserves (such as U.S. dollars and Treasuries)

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3. Ensure consumer protections, AML/KYC compliance, and disclosure standards

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4. Strengthen the U.S. dollar's role in the digital asset ecosystem

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Key Provisions & Requirements

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Here are some of the major regulatory requirements established under the GENIUS Act:

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Definition & Scope

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- A “payment stablecoin” is defined as a digital asset redeemable for a fixed amount of monetary value (e.g., the U.S. dollar) and designed primarily for payment or settlement.

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- The legislation applies to issuers who intend to offer such stablecoins in the U.S., including foreign-based issuers that serve U.S. persons.

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Reserve & Backing Requirements

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- Issuers must maintain 1:1 backing “permitted reserves” for every stablecoin issued. Those reserves may include U.S. dollars, deposits at insured banks or credit unions, short-dated U.S. Treasuries, certain repos and reverse repos, and central bank reserves.

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- Issuers must clearly disclose redemption rights and the reserve composition, and large issuers must provide annual audited financial statements.

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- The legislation prohibits issuers from paying interest or yield on the stablecoin itself — reinforcing its role as a payment medium rather than a deposit substitute.

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Issuer Categories & Regulatory Oversight

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The Act establishes a three-type regime for permitted stablecoin issuers:

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Subsidiaries of insured depository institutions (IDIs) — banks/credit unions that already hold federal charters.

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Nonbank entities regulated at the federal level — e.g., chartered by the Office of the Comptroller of the Currency (OCC) under certain conditions.

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State-qualified issuers —entities authorized under a state regulatory framework that mirrors federal standards. These may issue stablecoins under state oversight until they cross certain thresholds.

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State vs. Federal Transition & Thresholds

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- The Act creates a dual-track: a state may oversee an issuer so long as the regulatory framework is “substantially similar” to federal minimums.

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- If a state-qualified issuer reaches a preset issuance threshold (for example, outstanding stablecoins above $10 billion, depending on final regs), it must migrate to federal supervision.

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- Foreign issuers that serve U.S. customers may come under U.S. oversight and must comply with disclosures, AML, and reserve requirements.

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State-Qualified Issuers: Why They Matter

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The state-issuer track offers a pivotal opportunity for states, territories, and their financial regulators to compete as hubs of innovation. Rather than being purely regulatory laggards, jurisdictions that adopt a robust regime can attract digital-asset issuance, custody services, treasury operations and token infrastructure.

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- Lower regulatory barrier compared to federal charter initially, enabling quicker entry into issuance under state framework

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- The ability to shape local economic development through financial innovation

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- Attracting fintech companies, treasury functions, and blockchain ecosystems

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- Capturing issuance-related business, custody operations, and platform services

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Case Study: The U.S. Virgin Islands — A First-Mover Opportunity

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The U.S. Virgin Islands (USVI) stands at a unique crossroads in the evolution of digital finance. As a U.S. territory with its own regulatory flexibility, it has the potential to position itself as one of the first jurisdictions to adopt the state-qualified issuer model under the GENIUS Act. This opportunity isn’t just administrative—it’s economic, strategic, and transformative.

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By crafting a state (or territorial) framework that mirrors federal standards, the USVI could open the door for blockchain companies, payment networks, and digital treasury managers seeking a home within U.S. jurisdiction but outside the high-barrier environment of mainland regulation. The territory could become a launchpad for regulated stablecoin issuance, digital asset custody, and fintech infrastructure, all underpinned by clear rules and dollar-backed transparency.

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Beyond its regulatory edge, the Virgin Islands could leverage its proximity to Caribbean markets and its alignment with U.S. financial law to attract global fintech investment. Local institutions could benefit from early access to blockchain payment infrastructure, while government agencies could explore issuing territorial payment tokens for payroll, remittances, and tourism—anchoring innovation in the real economy.

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Strategic Advantages for the U.S. Virgin Islands:

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- Regulatory alignment with the U.S. federal framework while maintaining local flexibility

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- Ability to attract early stablecoin issuers and custody providers under a clear legal regime

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- Potential to establish regional leadership in digital finance within the Caribbean basin

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- Opportunities for economic diversification through fintech employment and investment inflows

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- Strengthened financial reputation by adopting transparency and consumer protection standards early

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In essence, the Virgin Islands could become what Delaware is to corporate law—a specialized jurisdiction that fosters innovation and compliance in tandem. By acting early, the USVI would not only attract capital and talent but also shape how the next era of U.S. digital money is issued, regulated, and trusted.

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Strategic Partnerships: Lessons from Circle and Coinbase

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A successful framework for collaboration already exists in the stablecoin ecosystem — the partnership between Coinbase and Circle, the creator of USD Coin (USDC). In this model, Circle issues and manages USDC, ensuring every token is backed 1:1 by U.S. dollar reserves and short-term Treasury bills.

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These reserves generate yield primarily from interest payments on U.S. Treasuries, which currently yield between 4% and 5% annually. With roughly $75.85 billion in circulation as of October 30, 2025, this translates to an estimated $3 billion to $3.5 billion per year in interest income, depending on prevailing rates and reserve composition.

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In 2023, Circle and Coinbase formalized a revenue-sharing agreement to clarify how yield from USDC reserves is distributed. Under this structure, Coinbase retains 100% of the yield generated from USDC issued and held directly on its platform, while also receiving 50% of the yield generated from USDC circulating off-platform — meaning tokens held across exchanges, DeFi protocols, and third-party wallets.

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This model aligns incentives between issuer and distributor: Circle manages compliance, reserve backing, and audits, while Coinbase drives adoption, liquidity, and ecosystem growth. The result is a transparent, sustainable partnership that keeps USDC both economically viable and widely trusted across the digital asset landscape.

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The U.S. Virgin Islands (USVI) could implement a similar partnership structure under the state-qualified issuer model authorized by the GENIUS Act. By working with an approved stablecoin issuer, the territory could host a U.S. Virgin Islands–backed digital dollar or regional stablecoin variant — fully collateralized and transparently managed under U.S. oversight. The issuer would handle custody, compliance, and Treasury-backed reserves, while the USVI provides the regulatory jurisdiction and economic environment.

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This collaboration could open a new form of public-private revenue sharing. For example:

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- The issuer could allocate 20%–30%of annual yield income from Treasury holdings directly to the territory as a jurisdictional partnership fee.

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- Those proceeds could fund fintech education, local economic development, or physical infrastructure in the Virgin Islands.

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- Over time, the territory could reinvest its share to expand compliance staffing, blockchain auditing, and cross-border payment systems — creating a self-sustaining innovation loop.

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By aligning economic incentives between the issuer and the territory, this model transforms compliance into collaboration. The USVI would not just regulate digital assets — it would participate in their economic upside. Like Circle and Coinbase, the partnership would fuse financial stability with growth, positioning the Virgin Islands as a first-mover in revenue-backed, government-partnered stablecoin issuance within the U.S. ecosystem.

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For the full text of the GENIUS Act, which outlines the regulatory framework for payment stablecoins, you can access the official documents here.

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