Client Memo: The GENIUS Act is now law. What does it means for Investors?

Long story short: The recently passed Genius Act establishes a regulatory framework around stablecoins, which use cryptocurrencies.  The real impact is it legitimizes cryptocurrencies and effectively initializes the web3 economy.  The web3 economy is a decentralized blockchain-powered internet that enables completely digital financial transactions without intermediaries.   

As one analyst put it:   

With full reserve backing and real-time redemption, the age of fast, programmable and globally accessible digital dollars has arrived. 

The Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), signed into law on July 18, 2025, is the first comprehensive U.S. federal legislation specifically regulating stablecoins.   

This landmark law establishes unified federal and state standards for how payment stablecoins may be issued and managed in the United States. It represents a significant turning point for the digital asset sector, aiming to protect consumers, promote innovation, and solidify the dollar’s global role in the digital economy. 

Now stablecoins can fulfill their original promise: being the "digital dollar" that works better than actual dollars for most digital transactions.  Essentially, it is a bridge between fiat currencies (fiat is a term that simply means a government issued currency with no intrinsic value and not backed by a physical commodity like gold) and crypto.   

What is a Stablecoin? 

In simple terms, a stablecoin is a digital token (“cryptocurrencies”) whose value is pegged to that of another currency, commodity, or financial instrument.  The goal of a stablecoin is in the name – stability and aims to reduce or even eliminate the volatility associated with traditional cryptocurrencies like Bitcoin.  That volatility has made cryptocurrencies unsuitable for standard, everyday transactions. 

Stablecoins pursue price stability by maintaining reserve assets as collateral or through algorithmic formulas that are supposed to control supply.   

The reserve assets can be US dollars held in a bank or custody account.  For example, for every one token, the issuer has $1 held in reserve.  The risk here is it relies on the trust of the issuer.   

Other types of stablecoins use other cryptocurrencies as the collateral instead of a fiat currency (like dollars, euro, yen, etc).  Instead of a 1:1 reserve, they are over-collateralized to account for the volatility.  In most cases, by 50% or more, i.e. $1.50 worth of crypto to $1.00 of assets in the stablecoin.   

Some of the advantages of stablecoins include: 

• Cross-border transfers using stablecoins are often much faster and cheaper than traditional banks or wire transfers.  This is especially useful for international freelancers (fast growing segment), remittances, and settlements between businesses. 

• In countries with unstable currencies or inflation, stablecoins like USDT or USDC give citizens access to dollar-denominated savings and transactions, even without a U.S. bank account. 

• Anyone with a smartphone can hold and use stablecoins—offering financial access to the unbanked or those under oppressive regimes or in disaster zones. 

The New Strict Regulatory Oversight and Reserve Requirements 

The Genius Act regulates the issuance of stablecoins only to “permitted payment stablecoin issuers”—banks, certain nonbank financial institutions, or qualifying state-chartered firms. 

It also adds oversight by relevant federal agencies (e.g., Federal Reserve, OCC) or, for smaller issuers, by state regulators with federal coordination. Issuers with more than $10 billion must have federal supervision. Additionally, Foreign stablecoin issuers must meet comparable regulatory requirements and register with U.S. authorities. 

All payment stablecoins must be backed 1:1 with high-quality, highly liquid assets, such as U.S. dollars, U.S. Treasuries, or equivalent securities.  Issuers are required to hold sufficient assets to fully redeem all outstanding stablecoins on demand. 

Issuers also must provide monthly, public disclosures of reserve composition, and undergo regular, independent audits to ensure reserve sufficiency and transparency. 

Other key provisions: 

• Stablecoin issuers are prohibited from paying interest, yield, or bonuses to holders, ensuring stablecoins are not marketed as deposit accounts or investment vehicles. 

• This distinction helps limit systemic risk and differentiates payment stablecoins from products like money market funds or DeFi yield products. 

Most requirements become effective by early 2027 or within 120 days of final rulemaking by federal regulators.   

The is an historical moment as we are at the forefront of a transition from what was a fringe, experimental technology to a mainstream financial instrument.  We are not buying or using stablecoins at Noble, but what this does is make bitcoin and crypto in particular, a useful security.   

As always, we welcome any questions you may have. 

Sincerely, 

Mark J Asaro, CFA 

Noble Wealth Management