The GENIUS Act creates a comprehensive federal framework for stablecoins. It imposes reserve requirements, mandates licensing, and shifts oversight from the SEC to banking regulators. It applies to every “person” that issues a payment stablecoin.

States are not persons.

The Act defines “person” to include “other business entity” — but states are sovereign entities, not business entities. This creates an unregulated third pathway for stablecoins that falls entirely outside the GENIUS framework. Wyoming has already launched its Frontier Stable Token (FRNT) as a “constitutionally protected public asset.” North Dakota’s state-owned bank is developing a “Roughrider” coin. These state-issued stablecoins bypass federal reserve requirements, licensing obligations, and disclosure mandates.

This is not a marginal curiosity. It revives Civil War-era tensions about state versus federal monetary authority. Before the National Bank Acts of the 1860s, states chartered their own banks and those banks issued their own currencies. The resulting patchwork of state banknotes — each of uncertain value, each backed by whatever the issuing state deemed sufficient — was one of the problems the national banking system was designed to solve.

The GENIUS Act may have inadvertently reopened that door. Whether the loophole is intentional or accidental, it creates a two-track system: private stablecoins subject to rigorous federal oversight, and state stablecoins subject to none. The competitive dynamics are predictable. If federal regulation is costly, issuers will lobby sympathetic state legislatures for state-sovereign tokens that achieve the same market function with fewer constraints.

Implementation rulemaking may close this gap. But as enacted, the statute’s definition of “person” leaves state-issued stablecoins in a regulatory no-man’s-land.

Read the full article: The GENIUS Dilemma: Innovation Versus Antifraud in Stablecoin Regulation, 9 Stanford Journal of Blockchain Law & Policy 1 (2025). SSRN