U.S. Senate Pushes GENIUS Act Forward, Proposing Initial Legal Framework for Stablecoin Management
Here's a quick breakdown:
- Senate Majority Leader John Thune is pushing to fast-track a vote on the GENIUS Act, a bill aimed at regulating stablecoins in the United States.
- The bill, sponsored by Senator Bill Hagerty, passed through the Senate Banking Committee with a 18-6 vote, securing bipartisan support.
- Traditional banking advocates, however, voice concerns, dubbing the bill as "shadow deposits" that could threaten banks' stability.
- The GENIUS Act differs from the House's STABLE Bill in several aspects, including the use of money market funds as reserves, regulatory approaches for stablecoins, and the handling of algorithmic stablecoins.
- Reports suggest that Coinbase and Andreessen Horowitz are attempting to delay stablecoin legislation votes.
The GENIUS Act: A Closer Look
The GENIUS Act is the Senate's attempt to create a solid regulatory framework for stablecoins pegged to the U.S. dollar. This bill promises stringent capital, liquidity requirements, robust risk management systems, and strict adherence to the Bank Secrecy Act (BSA) for anti-money laundering (AML) and sanctions obligations. Stablecoin issuers will be required to obtain licenses, with oversight split between state and federal levels based on the issuer's size.
Unlike the GENIUS Act, the STABLE Act primarily focuses on requiring stablecoin issuers to be licensed and insured depository institutions, ensuring compliance with existing bank rules and consumer protection laws. While it emphasizes the need for AML compliance, the operational specifics are less detailed compared to the GENIUS Act.
Critics and Concerns
Despite its progress, the bill faces criticism from traditional banking advocates and concerns about its potential impact on the financial system and consumers. Particularly, Arthur Wilmarth, a professor from The George Washington University, terms the bill "deeply flawed" and warns of "grave and unacceptable dangers."
Wilmarth contends that non-bank stablecoin issuers could compete with FDIC-insured banks by offering what he terms as "shadow deposits," potentially destabilizing the traditional banking system. Furthermore, he raises concerns about Big Tech companies and commercial enterprises acquiring non-bank stablecoin issuers, potentially enabling these firms to enter the banking industry.
Beyond these immediate implications for stablecoins, the GENIUS Act aims to fortify U.S. dollar dominance in global finance, stemming from concerns about maintaining American financial leadership in a rapidly digitalizing global economy.
Regardless of the opposition, the GENIUS Act signifies the initial significant step by U.S. lawmakers to establish clear rules for the burgeoning stablecoin sector, a crucial component of the cryptocurrency ecosystem that has gained traction in recent years.
The GENIUS Act, a Senate-proposed bill, seeks to enforce capital, liquidity, and risk management regulations on stablecoins, positioning them as a significant aspect of the cryptocurrency business and technology landscape. Critics, particularly traditional banking advocates, argue that the bill may lead to the creation of 'shadow deposits' (non-bank stablecoin issuers), potentially endangering the stability of the traditional banking system and the finance sector as a whole.
