The GENIUS Dilemma:
Stable Tokens & NH DAO Law
How the Guiding and Establishing National Innovation for U.S. Stablecoins Act (Pub. L. 119-27) intersects with New Hampshire’s DAO Act (RSA 301-B) and its Commission to Study Stable Tokens (RSA 383:26) – and why the tension between decentralization and central-bank-style reserve requirements may define the next chapter of DAO law.
2025
The Collapse That Changed Everything
On May 7, 2022, TerraUSD (UST) began a death spiral. Within seventy-two hours, the algorithmic stablecoin’s peg shattered. By May 12 it traded below $0.10. The Luna Foundation Guard’s $3.5 billion Bitcoin reserve evaporated. Roughly $50 billion in combined market capitalization disappeared. Retail investors on five continents suffered losses. The collapse was not the first stablecoin failure, but it was the largest, and it made Congressional inaction politically untenable.
Pre-GENIUS Regulatory Fragmentation
Before the GENIUS Act, the U.S. stablecoin regulatory environment was a patchwork quilt. The SEC asserted that many stablecoins were investment contracts under the Howey test. The CFTC argued certain stablecoins were commodity interests. FinCEN treated stablecoin issuers as money services businesses subject to the Bank Secrecy Act. State money-transmitter licensing regimes applied in most jurisdictions. The result: 171 crypto enforcement actions between 2019 and 2024, duplicative compliance costs, and a chilling effect on U.S.-based innovation.
- SEC position: Stablecoins can be securities if marketed as yield-bearing investments; antifraud provisions of Exchange Act apply.
- CFTC position: Commodity interests; jurisdiction over derivatives but uncertain over spot markets.
- FinCEN: Money services business registration; AML/KYC under BSA; SAR filing obligations.
- OCC (2020-21 interpretive letters): National banks may hold stablecoin reserves; issuance authority unclear.
- State regimes: New York BitLicense, Wyoming SPDI, NH banking division oversight – 50 different answers.
Regulatory History at a Glance
Fig. 1. Key milestones in stablecoin regulation from the TerraUSD collapse to the NH DAO Registry sprint.
“The GENIUS Act reflects a congressional determination that the ambiguity surrounding stablecoin regulation was itself a systemic risk – one that the collapse of TerraUSD had made undeniable. By creating a single federal floor and a defined state option, Congress chose prudential regulation over continued reliance on enforcement as a substitute for rulemaking.” – Seth C. Oranburg, The Genius of the GENIUS Act, Stanford J. Blockchain L. & Pol’y (2026)
What Is a Stable Token?
Three overlapping concepts govern the GENIUS Act’s scope. Understanding their relationships is essential before any compliance analysis:
- Stablecoin (colloquial)
- Any digital asset designed to maintain a stable value relative to a reference asset (typically USD). Includes algorithmic stablecoins, commodity-backed tokens, and fiat-backed instruments. Not a defined legal term.
- Stable Token (NH law, RSA 383:26)
- New Hampshire’s statutory term for a blockchain-based token issued or studied by the NH Commission, intended to maintain a stable value. Broader than a GENIUS Act payment stablecoin; may include tokens issued by governmental entities.
- Payment Stablecoin (GENIUS Act § 2(22))
- A digital asset that: (1) is designed to be used as a means of payment or settlement; (2) the issuer represents will be convertible, redeemable, or repurchasable for a fixed amount of monetary value; and (3) is not a security under the Securities Act of 1933 (other than as expressly made applicable). Algorithmic stablecoins do not qualify. Reserve-backed tokens may qualify.
GENIUS Act § 2(22): The Statutory Definition
The Act defines a payment stablecoin as a digital asset that is – (A) used or designed to be used as a means of payment or settlement; (B) denominated in a national currency (not limited to United States dollars); (C) the issuer of which represents will be convertible, redeemable, or repurchasable for a fixed amount of monetary value; and (D) backed by permissible payment stablecoin reserves. The definition expressly excludes algorithmic stablecoins whose backing asset is another digital asset.
Qualifying vs. Non-Qualifying Reserves (§ 4)
Not all reserve assets satisfy GENIUS’s § 4 requirements. The statute draws a bright line between high-quality liquid assets and riskier instruments:
Source: GENIUS Act § 4(a). Bar width is illustrative of liquidity/safety, not a statutory percentage.
GENIUS Act Architecture
Legislative History
The GENIUS Act did not emerge from a vacuum. Its conceptual lineage runs through two prior bills that failed to become law:
- Token Taxonomy Act of 2019 (H.R. 2144) – proposed to exclude qualifying digital tokens from SEC securities regulation. Never enacted but established the conceptual distinction between payment tokens and investment tokens.
- CLARITY Act of 2025 (H.R. 3633) – companion to GENIUS in the 119th Congress; addressed broader digital asset classification. GENIUS was enacted first (July 18, 2025) while CLARITY remained pending.
GENIUS passed the Senate 68–30 and the House 308–122, reflecting rare bipartisan consensus driven by the post-TerraUSD political environment and industry lobbying for regulatory clarity.
Key Provisions
PPSI Licensing
Creates the Permitted Payment Stablecoin Issuer (PPSI) category. Any entity issuing payment stablecoins must be a PPSI. Licensing routes: OCC (national), Federal Reserve (insured depository institutions), or approved state regulator for issuers ≤$10B.
100% Reserves
PPSIs must maintain permissible reserves equal to 100% of outstanding payment stablecoins. Prohibits rehypothecation of reserves. Monthly public attestation by registered public accounting firm required.
Securities Carve-Out
Payment stablecoins are not securities under the Securities Act of 1933 (§ 17). The GENIUS Act does not create a private right of action for redemption failures; enforcement is through the prudential regulators and the penalty provisions in § 3(f).
Extraterritorial Reach
Foreign issuers offering payment stablecoins to U.S. persons must register with Treasury or comply with a Treasury-certified foreign regulatory regime “substantially similar” to GENIUS requirements.
Anti-Money Laundering Protections
PPSIs are explicitly “financial institutions” under the Bank Secrecy Act. Full AML/KYC obligations apply: suspicious activity reports, customer identification, transaction monitoring, OFAC sanctions screening.
“Person” Definition
Defines “person” as an individual, partnership, company, association, trust, or other business entity. The phrase “business entity” – versus the broader “entity” in earlier drafts – is the source of the governmental entity exclusion debate.
The “Person” Loophole: States Outside GENIUS
The most consequential and least-discussed textual change between the introduced bill (S. 1582) and the enacted law is in the definition of “person” in § 2(24). The introduced bill read “or other entity”; the enacted statute reads “or other business entity.” Two words added; a universe of regulatory questions created.
The practical implication: governmental entities – states, municipalities, state authorities, commissions – are arguably not “persons” under GENIUS. If they are not persons, they cannot be PPSIs, but they also may not be required to become PPSIs. A state government that issues its own stable token may be entirely outside the GENIUS regulatory framework.
The Civil War Banking Analogy: Why This Pattern Repeats
American monetary history is rife with state-federal currency competition. During the Civil War, the National Bank Act of 1863 taxed state banknotes out of existence precisely because Congress feared a fragmented currency system would undermine the union’s war finance. The modern echo: if states can issue stable tokens outside GENIUS, the federal government’s ability to enforce a uniform reserve standard is weakened.
The constitutional dimension is significant. The Supremacy Clause would make GENIUS preemptive over state law where it conflicts – but only if GENIUS actually applies to the state actor. The § 2(24) “business entity” carve-out, if interpreted broadly, could replicate the pre-1863 fragmentation problem. Treasury rulemaking in the 12-month window post-enactment will be watched closely for clarification.
Cf. Veazie Bank v. Fenno, 75 U.S. (8 Wall.) 533 (1869) (upholding 10% tax on state banknotes as constitutional exercise of congressional currency power); McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819) (implied powers include currency regulation).
Three Regulatory Pathways
Under the GENIUS Act, a payment stablecoin issuer has three possible regulatory homes. The choice of pathway determines oversight regime, capital requirements, applicable federal preemption, and enforcement exposure:
Federal Qualified Issuer
Licensed by OCC (for non-bank entities), Federal Reserve (for insured depository institutions), or the FDIC. No size limit. Full federal prudential supervision. OCC or Fed examination authority. Preempts inconsistent state money-transmitter laws. Suitable for issuers above $10B or seeking national scale.
State Qualified Issuer
Licensed by a GENIUS-certified state regulator. Issuer must have ≤$10B in outstanding payment stablecoins. State must have a regulatory regime “substantially similar” to GENIUS (100% reserves, AML, redemption rights, etc.) certified by the Federal Reserve. GENIUS sets the federal floor; states add requirements on top.
State Actor Shadow Pathway
A governmental entity (state, commission, authority) that is not a “business entity” under § 2(24) may issue stable tokens entirely outside GENIUS. No reserve certification, no PPSI license, no BSA designation required by the Act – though state law and other federal law still apply. This pathway is legally uncertain pending Treasury rulemaking.
Oranburg’s Three State Pathways Under GENIUS
States face three distinct strategies for engaging with GENIUS-regulated stablecoin markets:
Host Federally Licensed Issuers
The default path. A state provides a favorable business environment (trust company charters, regulatory sandboxes) so that federally licensed PPSIs locate operations in the state. No state certification required. NH can attract PPSI headquarters and reserve custodians through existing RSA 392 trust company law.
Become a Certified State Regulator
A state seeks Federal Reserve certification under § 7 that its regulatory regime is “substantially similar” to GENIUS. Once certified, the state can license PPSIs with ≤$10B outstanding. Requires enacting 100% reserve, redemption, attestation, and AML rules. Treasury approval needed.
Issue a State-Backed Token
A state governmental entity (commission, authority, or agency) issues its own stable token. If the state is not a “business entity” under § 2(24), it may operate outside GENIUS. This path is legally unsettled and depends on Treasury rulemaking. Wyoming (FRNT) and NH (RSA 383:26 Commission) are potential pioneers.
Fig. 2. Three state strategies for engaging with GENIUS-regulated stablecoin markets.
The DAO Dilemma
The most acute tension for New Hampshire stakeholders is between RSA 301-B’s decentralization requirements and the GENIUS Act’s centralized, bank-like oversight model for payment stablecoin issuance.
Under RSA 301-B:5(IX), a DAO qualifies as “decentralized” only if: (1) no single person controls 20% or more of the governance interest; (2) no person has unilateral control over the DAO’s assets or operations; and (3) the source code is public. See Measuring Decentralization for mathematical analysis.
Three structural options exist for a DAO that wishes to participate in the stablecoin market:
Option A: Two-Entity Structure (DAO + PPSI Subsidiary)
The DAO maintains its decentralized governance structure while creating a wholly owned or majority-owned traditional entity (LLC, corporation, or trust company) to serve as the PPSI. The DAO governance controls the subsidiary through ownership, but the subsidiary itself has centralized compliance officers and satisfies GENIUS requirements.
Risk: If the subsidiary is controlled by the DAO, and the DAO is a “person” under § 2(24), the DAO itself may be treated as the issuer, negating the structural separation. Additionally, RSA 301-B DAO status requires that no person have unilateral control – if the DAO’s governance controls the PPSI, regulators may view the DAO as having unilateral control over the token issuance function.
Analogy: Trust company holding company structures; Federal Reserve holding company framework (12 U.S.C. § 1841 et seq.).
Option B: State Actor Pathway via NH Commission (RSA 383:26)
RSA 383:26 creates a New Hampshire Commission to Study Stable Tokens. If NH’s Commission issues stable tokens as a governmental entity, it may fall within the § 2(24) carve-out. The DAO could then contract with the Commission as a service provider – handling smart contract execution, wallet infrastructure, and network operations – without itself being the issuer.
Advantage: The governmental issuer pathway preserves full DAO participation in the network without requiring the DAO to become a PPSI. The DAO earns fees for infrastructure services rather than issuing the token.
Risk: Treasury rulemaking could define governmental entities as persons. The Commission’s enabling statute (RSA 383:26) may need to be interpreted as authorizing token issuance, not just study. Constitutional questions about state currency competition with federal law remain.
Option C: Commodities Lane (CFTC Jurisdiction)
If a token does not qualify as a payment stablecoin under § 2(22) – for example, because it is pegged to a commodity basket rather than a national currency, or because it is used for settlement in commodity markets rather than general payment – it may fall under CFTC jurisdiction rather than GENIUS. CFTC oversight of spot commodity markets is currently limited, creating a potential gap that a DAO-issued token might occupy.
CLARITY Act Caveat: The CLARITY Act, if enacted, would fill many of these gaps by defining digital commodity classification. Until CLARITY passes, the commodity lane remains a viable but uncertain alternative for DAO-issued tokens that can be structured outside the § 2(22) definition.
Risk: Structuring transactions primarily to avoid regulatory definitions has led courts and regulators to look through formal labels. The substance-over-form doctrine would apply: if a token functions as a payment stablecoin, courts may treat it as one regardless of structural labels.
Pathway Classifier Tool
Answer four questions to determine which GENIUS Act regulatory pathway applies to your token issuance project. This tool is illustrative only – consult qualified legal counsel.
(pegged to a national currency, used for payment, not an algorithmic stablecoin)
Implementation Timeline
GENIUS establishes a phased implementation schedule designed to give existing issuers time to comply while preventing regulatory gaps. Key milestones:
Global Comparison
The GENIUS Act joins a growing body of international stablecoin law. The following table compares GENIUS with the EU’s Markets in Crypto-Assets Regulation (MiCA) (Regulation 2023/1114) and Singapore’s Payment Services Act (PSA) 2019 (as amended 2023):
| Criterion | GENIUS Act (U.S.) | EU MiCA | Singapore PSA |
|---|---|---|---|
| Reserve Requirement | 100% permissible reserves (T-bills, Fed deposits, cash, overnight repos) | At least 30% in insured deposits; balance in low-risk assets; no single asset class limit specified | Full backing in Singapore dollars or equivalent liquid assets; MAS approval required |
| Redemption Right | Mandatory at par, within 1 business day (§ 5); enforcement through regulators | Mandatory at par upon request; up to 30-day window for large redemptions | Redemption at par required; timeframe set by MAS Notice on Digital Payment Tokens |
| Private Enforcement | No statutory private right of action; enforcement through prudential regulators and § 3(f) penalties | No private right of action; enforcement by national competent authorities | No private right of action; MAS enforcement only |
| Securities Law Interaction | Payment stablecoins are not securities; SEC carve-out (§ 17) | EMTs/ARTs subject to MiCA, not MiFID II (separate regimes) | Digital payment tokens not capital markets products under Securities and Futures Act |
| State/Regional Issuers | Governmental entities possibly excluded per § 2(24) “business entity” | EU Member States are not issuers; no governmental carve-out per se | MAS can exempt Singapore government securities |
| Algorithmic Stablecoins | New issuances prohibited (§ 8); existing ones face sunset | Prohibited if not asset-referenced; endogenous-collateral tokens banned | Not addressed expressly; falls under general digital payment token regime |
| AML/KYC | BSA designation; full FinCEN requirements (§ 8) | AMLD6 compliance; national competent authority supervision | MAS Notice PSN02 on AML/CFT; travel rule compliance |
| Systemic Oversight | FSOC annual report; potential systemically important designation | EBA oversight of “significant” ARTs/EMTs; €5B daily transaction threshold | MAS macroprudential powers; DPT service provider framework |
| Foreign Issuer Access | Treasury registration or certified-equivalent foreign regime (§ 3(e)) | Third-country issuers must establish EU entity or be equivalence-recognized | Must hold MAS license; no equivalence framework yet established |
Fig. 3. Comparative state stablecoin regulatory status. No state has yet achieved GENIUS Act certification.
Why GENIUS Is Stricter Than MiCA on Reserves
MiCA requires that at least 30% of e-money token reserves be held in insured deposits at credit institutions (Article 36(1)(b) MiCA). The remaining 70% can be invested in a broader range of low-risk assets including sovereign bonds, money market funds, and similar instruments. MiCA also permits a reserve management framework where issuers invest in assets bearing some credit risk, provided the investment policy is disclosed and approved.
GENIUS, by contrast, permits a narrow set of categories: U.S. Treasury bills with maturity ≤93 days, Federal Reserve deposits, physical U.S. dollars or demand deposits, overnight repos collateralized by Treasury securities, and government money market funds invested solely in qualifying assets (§ 4(a)(1)(A)(vi)). This list excludes non-government money market funds and corporate debt of any kind.
The congressional rationale, articulated in the Senate Banking Committee report, was that the TerraUSD collapse demonstrated that any yield-seeking in reserve management created run risk. By limiting reserves to the four most liquid, safest U.S.-government-related assets, Congress sought to make payment stablecoins function like narrow banks – institutions that take deposits but invest only in safe government assets and pay no interest to depositors.
The tradeoff: GENIUS issuers cannot generate yield on reserves (other than from T-bill interest), potentially limiting their business model to transaction fees. MiCA issuers have more flexibility but face greater reserve risk.
New Hampshire’s Angle
New Hampshire sits at a unique intersection of all three regulatory regimes discussed in this analysis: it has the most developed state DAO statute (RSA 301-B), a legislative commission specifically studying stable tokens (RSA 383:26), and the University of New Hampshire Interoperability Laboratory (UNH-IOL) actively engaged in blockchain governance research. Four specific intersection points require attention:
DAO Stablecoin Issuance
A RSA 301-B DAO that wishes to issue a payment stablecoin must navigate the centralization-vs-decentralization tension. The two-entity structure (Option A) or the commodity lane (Option C) are most likely compatible with maintaining DAO status under RSA 301-B:5(IX).
State-Issued NH Stable Token
The NH Commission to Study Stable Tokens under RSA 383:26 is a governmental body. If it issues a stable token directly, the § 2(24) “business entity” analysis suggests it may operate outside GENIUS. Treasury rulemaking will clarify, but NH has a first-mover opportunity.
State Qualified Issuer Certification
For private issuers ≤$10B, NH’s Banking Division must seek Federal Reserve certification of NH’s regulatory regime as “substantially similar” to GENIUS. NH would need to enact: 100% reserve requirement, mandatory redemption rights, monthly attestation rules, and BSA equivalency. Existing NH money-transmitter law may partially satisfy these requirements.
Reserve Custody in NH
NH trust companies (chartered under RSA 392) may serve as permissible custodians for payment stablecoin reserves. This creates a potential NH competitive advantage: PPSIs licensed under Pathway A or B could custody reserves at NH-chartered trust companies, bringing fee income and regulatory activity to the state.
Deep Dive: GENIUS Securities Carve-Out and NH Enforcement
Before the GENIUS Act, a payment stablecoin holder who suffered losses due to issuer misrepresentations about reserve backing might have brought a claim under Rule 10b-5 (17 C.F.R. § 240.10b-5) if the stablecoin was treated as a security. Rule 10b-5 requires: (1) a material misrepresentation or omission; (2) scienter (knowingly or recklessly); (3) in connection with the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss causation.
Under GENIUS § 17, payment stablecoins are no longer securities for Securities Act purposes. The Rule 10b-5 path is eliminated. The GENIUS Act does not create a private right of action to replace it. Instead, enforcement of reserve and redemption obligations runs through the prudential regulators (OCC, Federal Reserve, or certified state regulator), with penalties under § 3(f) of up to $1,000,000 per violation and up to 5 years imprisonment for willful violations.
Practical implications for NH: NH’s Consumer Protection Act (RSA 358-A) may provide a parallel state-law remedy for deceptive acts by stablecoin issuers, though the absence of a federal private right of action makes state consumer protection law more important for injured holders. The NH Banking Commission could enforce reserve requirements administratively, complementing federal regulatory action.
The shift from ex post securities enforcement to GENIUS’s ex ante prudential model means that NH’s Banking Division becomes a more important enforcement actor than it was when the SEC was the primary enforcer.
Resources
Statutes & Official Text
Academic Sources
- Oranburg, The Genius of the GENIUS Act, Stanford JBLP (2026)
- Bloomberg Law: GENIUS Act Analysis
- BIS Working Papers: Stablecoin Risk
- Oranburg, Market Power and Governance Power, CPI (2025)
Practice Resources
- WilmerHale GENIUS Act Client Alert
- Sidley Austin: GENIUS Act Signed
- EU MiCA Regulation 2023/1114
- OCC Interpretive Letter #1179 (stablecoin custody, 2021)