In the first 100 days of the Trump Administration, the United States has actively transformed itself from a crypto skeptic regime to an innovation-friendly one with a wholesale remake of the levers of government to ease regulated financial services firms engaging in digital assets-related activity.  

Innovation in the digital assets sector has thus far mostly been driven from outside the traditional banking sector with the stablecoin market especially dominated by non-bank issuers.  However, with the softening of the regulatory tone and Congress moving quickly to enact legislation to fill existing regulatory gaps, there are now substantial opportunities for banks to proactively harness and develop blockchain-based digital assets products and services including stablecoins.

The GENIUS Act

The Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “Genius Act”) was passed by the Senate on Tuesday, June 17, 2025. When passed by the House of Representatives and signed into law by President Trump, the Genius Act will provide for a regulatory framework that will allow subsidiaries of insured depository institutions and non-banks to issue stablecoins in the US.

The  Act provides for the issuance, management and use of stablecoins specifically:

• Limiting issuance of payment stablecoins to entities approved by federal or state prudential regulators;

• Requiring stablecoins to be fully backed on at least a 1:1 basis with US dollars or high-quality liquid assets such as short-dated U.S. Treasury securities;

• Enforcing segregation of reserves, limiting rehypothecation, and requiring monthly reserves composition reports;

• Establishing a dual federal and state regulatory regime for stablecoin issuers;

• Instituting an enhanced oversight regime for issuers of major stablecoins (>$10bn outstanding) which will be shared with federal prudential regulators for state registered stablecoin issuers; 

• Implementing consumer protection, KYC/AML and sanctions compliance requirements;

• Explicitly classifying regulated stablecoins as non-securities under federal law, ensuring they are treated as payment instruments rather than investment products;

• Barring stablecoins from paying yield or interest solely in connection with the holding, use or retention of the stablecoin, but not if they are deployed for other activities.

The Genius Act, which passed with bipartisan support, covers only those digital assets to be used for settlement or payment and for which an issuer is obligated to convert, redeem, or repurchase them for a fixed currency amount.  The Act therefore excludes from its scope tokenized deposits, or a deposit, as defined by the Federal Deposit Insurance Act, in tokenized form, which are regulated by existing bank and capital rules. 

The Act also provides for a mechanism for non-US stablecoin issuers regulated in another jurisdiction to issue stablecoins in the US, if the US Treasury Secretary determines that their countries of incorporation have a regulatory and supervisory framework that is comparable to the requirements of the Genius Act and such issuer registers with the US Office of the Comptroller of the Currency.

The provisions of the Genius Act will take effect on the earlier of (i) 18 months after the Act becomes law and (i) 120 days after the primary stablecoin regulator at the Federal level issues final regulations implementing the Genius Act.  The Act’s prohibition on the offer or sale of stablecoins that don’t comply with the Genius Act provides a three-year grace period from the date the Act becomes effective for issuers to come into compliance with the Act.

Preventing the Reemergence of SEC Staff Accounting Bulletin 121

Notably, the Genius Act includes a provision directly precluding a federal regulator like the SEC from implementing a Staff Accounting Bulletin 121 (“SAB 121”) type requirement that, under the tenure of the immediate past SEC Chair, Gary Gensler, required custody providers to include digital assets as liabilities on balance sheets.  Both the House and the Senate in 2024 attempted to repeal SAB 121, but President Biden vetoed the bill. Now, in the framework of the Genius Act, the Senate (and the House, if it also passes the bill) will forever prevent the SEC or another federal banking regulator from ever resurrecting it.

SEC Stablecoin Statement

The SEC and other federal regulators have taken a pro-innovation stance since the beginning of the new Trump Administration. The new Chair of the SEC, Paul Atkins, has publicly declared that it is a new day at the SEC and that policymaking will no longer be the result of ad hoc enforcement actions¹.

These are encouraging declarations from the main federal markets regulator overseeing the largest and most liquid capital market in the world. The SEC’s Division of Corporate Finance in April 2025 published a statement (the “SEC Stablecoin Statement”) indicating that they do not view the offer and sale of stablecoins as an offer or sale of securities if the stablecoins are:

• designed to maintain a stable value relative to the US dollar;

• can be redeemed for the US dollar on a one-to-one basis; and

• are backed by low-risk and readily liquid assets that meet or exceed the redemption value of the stablecoins in circulation.  

Stablecoin Opportunities for Banks

There now exists a substantial opportunity for US banks to issue regulated stablecoins, certainly on permissioned blockchain networks and potentially also on public blockchains, subject to AML controls such as whitelisting².  

Furthermore, the use of regulated stablecoins for interbank payments, margin, and settlements will reduce settlement times and has the potential to save trillions of dollars in margin requirements.

Finally, the doors are now open for banks to provide crypto-asset custody services.

In order not to create siloed liquidity that limits growth, consideration should be given to partnerships across banks, allowing for fungibility or interoperability.  The Genius Act contemplates a future where regulated stablecoins from different issuers may be interoperable with each other and the broader digital finance ecosystem and when ultimately signed into law by President Trump will present a first-of-its-kind clear regulatory framework allowing for subsidiaries of insured depository institutions and non-banks alike to issue stablecoins in the US.  

Where incentives are provided to encourage the use of new stablecoins, they must be structured so as not to be considered interest, which is something that Sentora has looked at extensively in relation to other international regulatory regimes.

Implications for Existing Stablecoins

Turning our attention to the existing stablecoin landscape, we immediately see bifurcation between those backed only by US treasuries and high-quality liquid assets (e.g. USDC, USDP, PYUSD, RLUSD) and those backed by more complex assets (e.g. USDT) or dynamically by crypto-assets (e.g DAI, USDe, USDD).  

The last two categories will run afoul of the strict reserve requirements under the Genius Act without any changes to their compositions. Looking at USDT (Tether) specifically, without changes, it is also unlikely to be able to comply with Genius Act provisions due in part to the opacity around its reserve assets and largely offshore operations in jurisdictions where the US Treasury Secretary may not determine have a regulatory and supervisory framework that is comparable to US requirements.

In the case of the major Treasury-backed stablecoins (USDC, RLUSD, USDP & PYUSD) they are all well placed to comply with the GENIUS Act due to the transparency around reserve management and robust AML practices in place.  Circle, Ripple & Paxos are all regulated in the US, and the coins comply with existing NYDFS requirements.

Conclusion

The Genius Act opens the door for US banks to join the existing NYDFS regulated stablecoin leaders and create a diverse mix of regulated US-treasury backed stablecoins which should drive adoption for payments and financial products.  The Act’s strict and transparent standards will favor institutions with existing robust risk management and AML procedures and we are still awaiting clarity on the interaction with Federal Reserve rules and the extent to which the stablecoins can be truly permissionless.

¹ Atkins, Paul S., Keynote Address at the Crypto Task Force Roundtable on Tokenization (May 12, 2025).

² The Genius Act requires Federal stablecoin regulators to establish a licensing, regulation, examination and supervision process and framework that prioritizes safety and soundness. The Federal Reserve Board’s Policy Statement on Section 9(13) of the Federal Reserve Act, which is still in effect, states that “the Board generally believes that issuing tokens on open, public, and/or decentralized networks, or similar systems is highly likely to be inconsistent with safe and sound banking practices.” These provisions together have the effect of limiting what a US bank can do on public blockchains even where the activity itself would otherwise be permitted in another forum.

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