THE GENIUS DILEMMA: INNOVATION VERSUS ANTIFRAUD IN STABLECOIN REGULATION

Seth C. Oranburg*

ABSTRACT

  The 2022 TerraUSD collapse, erasing $50 billion and exposing unregulated stablecoin risks in a $260 billion market, led Congress to enact the Guiding and Establishing National Innovation  --- or U.S. Stablecoins Act o ---

2025 or “GENIUS” Act. This statute exempts compliant payment stablecoins

rom the Securities Act’s “security” de — inition, en — orces strict reserve requirements, requires contractual redemption rights, and creates a priority claim in insolvency, thus predominately shi — ting en — orcement — rom ex post Rule 10b-5 litigation to ex ante prudential oversight while securing consumer assets via bankruptcy protections. This Article contends GENIUS resolves regulatory — ragmentation, optimizes risk allocation under uncertainty, and bolsters U.S. global leadership in digital assets. Yet it reveals latent tensions, including potential jurisdictional overlaps and diluted anti — raud measures, that require rapid rulemaking and interagency coordination to avert persistent issuers. Moreover, GENIUS may not apply to state-issued stablecoins, creating a di —

erent regime — or private issues and state actors. In — intech’s dynamic era, GENIUS could solidi — y stablecoins as digital payment pillars but demands vigilant execution to balance innovation and stability without repeating past

ailures. The Article examines GENIUS’s structure, doctrinal and policy impacts, and implementation roadmap. It argues that e —

ective implementation will cement stablecoins’ — uture, whereas — ailure risks exacerbating the very

ragmentation that GENIUS targets.

• Pro

  essor o — Law, University o — New Hampshire Franklin Pierce School o — Law; Director, Program on Organizations, Business, and Markets at NYU’s Classical Liberal Institute; J.D., University o — Chicago; B.A., University o — Florida.

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  2 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

  INTRODUCTION ……………………………………………………………………… 2 I. FROM FRAGMENTATION TO FRAMEWORK: THE PRE-GENIUS REGIME AND THE TRANSITION PHASE……………………………………………… 5 II. ARCHITECTURE OF PUBLIC LAW 119-27 ……………………………..10 III. ASSESSING GENIUS – DOCTRINAL COHERENCE, RISK ALLOCATION, AND ENFORCEMENT DYNAMICS ………………………………. 14 IV. GLOBAL PERSPECTIVES – MICA, SINGAPORE’S PSA, AND GENIUS’S UNIQUE SYNTHESIS…………………………………………………….. 21 V. IMPLEMENTATION ROADMAP – TURNING GENIUS INTO REALITY…………………………………………………………………………………….. 26 CONCLUSION ………………………………………………………………………. 31

INTRODUCTION

 In the shadow o ---  the 2022 TerraUSD collapse, a cataclysm that vaporized $50 billion in value overnight and exposed the perils o ---  unregulated digital assets, 1 Congress has  --- orged a new path  --- or stablecoins. The Guiding and Establishing National Innovation  --- or U.S. Stablecoins Act o ---  2025 (“GENIUS”), 2 enacted on July 18, 2025, 3 marks a watershed in  --- ederal

inancial regulation. By carving “payment stablecoins” out o — the Securities Act’s de — inition o — “security” 4 while imposing bank-like reserve

1 SEC v. Terra

orm Labs Pte. Ltd., No. 23-cv-1346 (JSR), 2024 WL 2797383, at *5

(S.D.N.Y. Apr. 5, 2024) (detailing the TerraUSD

raud and its market implications); Chainalysis, 2025 Crypto Crime Mid-Year Report 12–15 (2025), https://www.chainalysis.com/blog/2025-crypto-crime-mid-year-update/ (estimating $2.17 billion in stablecoin-related the — ts in H1 2025 alone); Chainalysis, 2024 Crypto Crime Trends: Illicit Activity Down as Scamming and Stolen Funds Fall, But Ransomware and Darknet Markets See Growth (2024), https://www.chainalysis.com/blog/2024-crypto-crime- report-introduction/ (noting 0.34% illicit activity in 2024 on-chain volume as baseline). 2 Guiding and Establishing National Innovation — or U.S. Stablecoins Act, Pub. L. No. 119-27,

139 Stat. 422 (2025) (codi

ied at 12 U.S.C. §§ 5901-5916) (“GENIUS”). 3 WilmerHale, What the GENIUS Act Means — or Payment Stablecoin Issuers, Banks, and

Custodians (2025), https://perma.cc/ZUW9-PUHM (con

irming enactment date). 4 The Securities Act o — 1933 broadly de — ines a “security” to include instruments like stocks,

bonds, and investment contracts, shaping what

alls under — ederal regulation. Securities Act o — 1933, Pub. L. No. 73-22, 48 Stat. 74 (codi — ied as amended at 15 U.S.C. §§ 77a–77aa). Under the Supreme Court’s Howey test, an “investment contract” exists when there is an investment o — money in a common enterprise with a reasonable expectation o — pro — its to be derived — rom the e —

orts o — others. SEC v. W.J. Howey Co., 328 U.S. 293 (1946). In crypto, this de — inition helps determine whether token sales, like certain initial coin o —

erings (ICOs), are securities, as seen in SEC en — orcement actions. 2025] THE GENIUS DILEMMA 3

requirements, 5 establishing priority status

or token holders in insolvency, 6 and mandating contract-type redemption rights, 7 the Act seeks to reconcile innovation with anti — raud sa — eguards in a market now valued at over $260 billion. 8 Yet this legislative bargain raises pro — ound questions: Does GENIUS resolve the doctrinal ambiguities that plagued pre-2025 en — orcement, or does it merely displace them? Can its prudential mandates e —

ectively mitigate systemic risks without sti — ling competition? And will GENIUS’s reliance on prudential supervision, bankruptcy protections, mandatory contractual rights prove an adequate substitute — or the robust private en — orcement tools o — Rule 10b-5? 9 Stablecoins, digital assets designed to maintain a stable value relative to

iat currencies like the U.S. dollar, have emerged as a cornerstone o —

decentralized

inance (DeFi) 10 and cross-border payments. 11 Their utility stems — rom providing liquidity without the volatility o — cryptocurrencies like Bitcoin, enabling e —

icient transactions in a borderless digital economy. 12 However, the absence o — comprehensive — ederal regulation has led to a

5 Reserve backing entails holding assets like cash or securities to underpin the value o

issued

tokens, ensuring stability and redeemability. Full 100% reserves mean the issuer holds assets matching or exceeding the value o — all circulating tokens. Paxos, — or example, backs its Binance USD (BUSD) stablecoin with U.S. Treasuries and cash equivalents, with regular audits con — irming this commitment. 6 GENIUS § 11(d) (amending the Bankruptcy Code to prioritize claims o — stablecoin holders

over general creditors, ensuring that in the event o

an issuer’s — ailure, reserve assets are distributed to token holders — irst). 7 GENIUS § 4(a)(1)(B) (codi — ied at 12 U.S.C. § 5903) (mandating that issuers redeem tokens

at par upon demand, thereby establishing the legal basis

or breach-o — -contract claims); see also GENIUS § 11 (providing bankruptcy priority — or these claims). Note that under § 17, the exemption — rom securities registration applies only to issuers who comply with these mandates. 8 2025 Crypto Crime Mid-Year Report 12–15 (2025), https://perma.cc/VEB9-H6N5, at 12

(market valuation as o

July 20, 2025). 9 17 C.F.R. § 240.10b-5 (2025); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723

(1975) (limiting private 10b-5 standing); Private Securities Litigation Re

orm Act o — 1995, Pub. L. No. No. 104-67, 109 Stat. 737 (codi — ied as amended in scattered sections o — 15 U.S.C.). Exchange Act Rule 10b-5, under the Securities Exchange Act o — 1934, bars

raudulent activities in securities transactions, including misstatements or manipulative practices. It’s o — ten used in insider trading cases, such as the prosecution o — Martha Stewart

or misleading statements about her stock sales. 10 DeFi liquidation occurs in decentralized — inance when a borrower’s collateral value drops

below a required threshold, triggering an automated sale to repay the loan and protect lenders. On the Compound protocol, — or example, i — a user borrows ETH with BTC as collateral and BTC’s price plummets, the smart contract sells the BTC, o — ten at a discount, to settle the debt. 11 A dollar-denominated stablecoin is pegged to the U.S. dollar, striving to maintain a

consistent 1:1 value through asset backing or other mechanisms. Tether (USDT), the largest stablecoin by market cap, serves as a prime example, widely used on crypto exchanges to shield traders — rom the volatility o — other cryptocurrencies. 12 Chainalysis, supra note 1, at 12 (highlighting stablecoins’ utility in borderless

transactions). 4 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

patchwork o

state-level oversight and — ederal en — orcement actions, creating uncertainty — or issuers and users alike. 13 GENIUS addresses this void by establishing a national — ramework, but in doing so, it reallocates authority

rom securities regulators 14 to banking supervisors, potentially weakening anti — raud protections while promoting innovation. This Article dissects GENIUS’s architecture, evaluates its doctrinal and policy implications, and charts a practical roadmap — or implementation. It draws on recent empirical data, including Chainalysis reports estimating $2.17 billion in stablecoin-related the — ts in the — irst hal — o — 2025, to underscore the stakes. 15 By synthesizing insights — rom U.S. en — orcement history, economic theory, and global comparatives, the Article argues that GENIUS represents a principled but precarious balance. I — implemented with vigilance, it could position the U.S. as a leader in digital-asset regulation; otherwise, it risks repeating past — ailures like the TerraUSD debacle. 16 The analysis proceeds as — ollows. Part I traces the — ragmented pre- GENIUS regime and outlines the transitional uncertainties — acing stakeholders, setting the stage — or understanding the Act’s trans — ormative potential. Part II unpacks the statute’s core provisions, situating them within a legislative lineage o — crypto-re — orm e —

orts and highlighting the trade-o —

s in design. Part III assesses GENIUS through doctrinal, economic, and en — orcement lenses, weighing its innovations against potential pit — alls and incorporating quantitative models — or risk allocation. Part IV draws comparative lessons — rom global regimes like the EU’s Markets in Crypto- Assets Regulation (MiCA) 17 and Singapore’s Payment Services Act, 18 o —

ering validation and cautionary tales. Finally, Part V provides actionable guidance — or regulators, industry counsel, and litigators navigating the Act’s rollout, including checklists and timelines to — acilitate compliance. Ultimately, this Article contends that GENIUS’s success hinges on more than statutory text. GENIUS demands dynamic implementation in — ormed by empirical monitoring and interagency collaboration. 19 As stablecoins

13 Hester M. Peirce, Comm’r, U.S. Sec. & Exch. Comm’n, Statement: Getting Back on Base

(Feb.27, 2025), https://www.sec.gov/newsroom/speeches-statements/peirce-statement- coinbase-022725. 14 The Securities and Exchange Commission (SEC) en — orces securities laws and protects

investors. For example, the SEC reviews IPO

ilings and pursues actions against companies like Tesla — or misleading statements impacting stock prices. 15 Chainalysis, supra note 1, at 12-15. 16 SEC v. Terra — orm Labs Pte. Ltd., supra note 1. 17 The EU’s Markets in Crypto-Assets Regulation (MiCA), — ully applicable in 2024, governs

crypto issuers, exchanges, and custody with rules on transparency and stability. Stablecoin issuers, — or instance, must hold reserves and obtain authorization to operate across EU states. 18 Singapore’s Payment Services Act (PSA) o — 2019 regulates digital payment tokens, with

MAS stablecoin rules (2023) mandating reserve backing and Singapore-based issuance

or “MAS-regulated stablecoins.” An issuer must hold high-quality assets and gain MAS approval to meet these standards. 19 GENIUS §§ 3, 5, 15. 2025] THE GENIUS DILEMMA 5

underpin trillions in cross-border payments, GENIUS o

ers a pragmatic path

orward: stability without stagnation. Yet the coming years will reveal whether this congressional wager pays o —

or requires — urther amendments to secure the digital dollar’s — uture. 20

PART I: FROM FRAGMENTATION TO FRAMEWORK: THE PRE-GENIUS REGIME AND THE TRANSITION PHASE

  GENIUS ends a decade o ---  doctrinal  --- og surrounding dollar-denominated stablecoins. This Part I explains how that  --- og  --- ormed, why Congress dissipated it, and what liminal challenges remain. It begins by tracing the pre- 2025 en --- orcement mosaic, highlighting the jurisdictional overlaps that sti --- led innovation. Next, it identi --- ies the  --- inancial shocks and political pressures that propelled a  --- ederal statute, including the TerraUSD collapse 21 and subsequent mini-runs. 22 Then, it outlines the  --- irst-order uncertainties now  --- acing regulators, issuers, and courts, especially in light o ---  GENIUS’s amendment to the de --- inition o ---  security in the Securities Act o ---  1933.

  I.A Pre-2025 En --- orcement Patchwork

 For most o ---  the last decade, no single agency spoke with decisive authority on stablecoins, leading to a  --- ragmented regulatory landscape. 23 The Securities and Exchange Commission (SEC) pursued what one commentator called a “regulation-by-en --- orcement” strategy, 24  --- iling 171 crypto-asset cases between 2019 and 2024. 25 Those  --- ilings relied on the elastic de --- inition o ---  an investment contract, o --- ten treating even payment-oriented tokens as securities

20 WilmerHale, supra note 3 (projecting

uture amendments i — needed). 21 The collapse o — TerraUSD (UST) in May 2022 was a stark example o — an algorithmic

stablecoin’s

ailure. Issued by Terra — orm Labs, UST lost its $1 peg, crashing to near zero amid rampant sell-o —

s, a ballooning supply o — its paired token LUNA, and eroded investor trust, leading to over $50 billion in losses. This event exposed the — ragility o — algorithmic designs, drove Terra — orm Labs into bankruptcy, and resulted in — raud charges against its

ounder, Do Kwon. 22 A mini-run describes a rapid, small-scale withdrawal o —

unds that strains an institution’s

liquidity, while bank-run dynamics re

lect a sel — - — ueling panic where — ear o — insolvency sparks mass redemptions, risking collapse. Suppose social media rumors cast doubt on a stablecoin’s reserves; a mini-run might see 10% o — holders redeem tokens in a day, potentially escalating into a — ull crisis i — the issuer struggles to meet demands. 23 Peirce, supra note 13. 24 “Regulation-by-en — orcement” occurs when agencies like the SEC use lawsuits to shape

industry behavior instead o

clear rules. The SEC’s suits against — irms like Coinbase — or unregistered operations set precedents through litigation rather than proactive guidance. 25 Cornerstone Research, SEC Cryptocurrency En — orcement: 2024 Update 3 (2025). 6 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

based on their

unctional characteristics. 26 This approach created uncertainty, as issuers could not predict whether their tokens would be deemed investment contracts subject to registration and disclosure requirements. At the same time, the Commodity Futures Trading Commission (CFTC) staked out overlapping claims, 27 labeling certain tokens “commodities” and bringing anti — raud actions under the Commodity Exchange Act. 28 FinCEN 29 layered on Bank Secrecy Act 30 requirements — or exchanges, mandating anti- money laundering (AML) programs and suspicious activity reporting. 31 State banking and trust supervisors, most prominently the New York Department o — Financial Services, 32 imposed bespoke licensing schemes, — urther complicating compliance — or multi-state operations. 33 The litigation outcomes were inconsistent, exacerbating the con — usion. SEC v. Ripple Labs produced a split decision: XRP sales in primary markets were securities transactions, but secondary-market trades were not. 34 In 2023, the SEC sued Binance Holdings; a 2025 voluntary dismissal clari — ied little

26 E.g., Terra

orm, supra note 1, at *12–15 (S.D.N.Y. Dec. 28, 2023) (holding that the

algorithmic stablecoin UST was an investment contract because it was marketed alongside the Anchor Protocol, which promised returns o — up to 20%, thereby creating a reasonable expectation o — pro — it); SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 324–28 (S.D.N.Y. 2023) ( — inding XRP tokens sold to institutional investors were investment contracts, but programmatic sales on exchanges were not, distinguishing the token’s use as a bridge currency — rom the investment scheme); SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 371–74 (S.D.N.Y. 2020) (rejecting the argument that “Grams” were a currency rather than a security, holding that the “commercial reality” was an investment into a not-yet-built ecosystem); SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169, 178–80 (S.D.N.Y. 2020) (holding that the “Kin” token, designed as a medium o — exchange — or a digital ecosystem, was an investment contract because the ecosystem relied on the issuer’s entrepreneurial e —

orts to create value). 27 The Commodity Futures Trading Commission (CFTC) regulates — utures, options, and

swaps markets. It oversees Bitcoin

utures on plat — orms like the CME and has authority over certain crypto derivatives. 28 Commodity Exchange Act, 7 U.S.C. §§ 1–27 — (2025); CFTC v. My Big Coin Pay, Inc., 334

F. Supp. 3d 492 (D. Mass. 2018). 29 The Financial Crimes En — orcement Network (FinCEN), a U.S. Treasury bureau, analyzes

transaction data to

ight — inancial crimes. Crypto exchanges, — or instance, must register as money services businesses and implement AML programs under FinCEN rules. 30 The Bank Secrecy Act (BSA) o — 1970 mandates — inancial institutions to record and report

certain transactions to combat money laundering. Banks,

or instance, — ile Currency Transaction Reports (CTRs) — or cash deposits over $10,000, which FinCEN analyzes to investigate suspicious activity. 31 31 U.S.C. §§ 5311–5336 (2025). 32 The New York Department o — Financial Services (NYDFS) regulates — inancial institutions,

including crypto

irms via its BitLicense. Gemini, — or example, must comply with NYDFS’s strict standards to operate in New York. 33 N.Y. Comp. Codes R. & Regs. tit. 23, § 200 (2025). 34 The Ripple Labs/XRP litigation began with a 2020 SEC lawsuit alleging unregistered

securities sales. A 2023 ruling

ound institutional XRP sales were securities but programmatic ones were not, leading to a 2025 settlement with a $125 million — ine, paid in cash. Ripple, supra note 26, at 328–30. 2025] THE GENIUS DILEMMA 7

about token status

or U.S. users. 35 The result was a jurisdictional lottery that sti — led innovation and con — used investors, as market participants navigated con — licting signals — rom — ederal and state authorities. 36

  I.B Catalysts  --- or Legislative Action

  Two stress events  --- inally moved Congress to act, highlighting the systemic risks posed by unregulated stablecoins. First, the May 2022 collapse o ---  TerraUSD erased $50 billion in value,  --- orcing decentralized- --- inance liquidations that rippled through traditional markets. 37 Hearings be --- ore the Senate Banking Committee drew attention to the absence o ---  reserve-quality rules or redemption guarantees, underscoring the need  --- or  --- ederal intervention. 38
  Second, a series o ---  2023–24 mini-runs on state-chartered trust companies issuing dollar-backed stablecoins exposed gaps in consolidated supervision. 39 Although issuers redeemed at par, 40  --- ederal o ---

icials worried that an uncontrolled run could leak into payment-systems plumbing. 41 Federal Reserve 42 Chair Jerome H. Powell and Treasury Secretary Scott Bessent urged Congress to establish a — ederal lane and pre-empt inconsistent state laws. 43 The legislative turning point came when the House Financial Services Committee coupled consumer-protection concerns with a deregulatory carrot: excluding bona — ide payment stablecoins — rom the de — inition o — security in the Securities Act o —

1. 44 That exclusion promised relie

rom Rule 10b-5 litigation risk while preserving market-integrity goals through guaranteed prudential oversight, priority claims in insolvency, and a private right o —

35 The Binance en

orcement action, a 2023 SEC lawsuit against Binance and Changpeng

Zhao

or unregistered operations and — und commingling, was dismissed in May 2025 amid a policy shi — t, leaving major crypto issues unresolved. Voluntary Dismissal, SEC v. Binance Holdings Ltd., No. 1:23-cv-01599 (D.D.C. May 29, 2025). 36 Chainalysis, 2024 Crypto Crime Report, supra note 1, at 45(discussing con — usion in

regulatory landscape). 37 Senate Comm. on Banking, Housing, & Urban A —

airs, Hearing on “Stablecoins: Building

a Sa

er Payment System” 4 (June 15, 2022); Chainalysis, 2025 Crypto Crime Mid-Year Report, supra note 1, at 12. 38 Id. 39 High-quality liquid assets (HQLA) are easily convertible to cash with minimal value loss,

such as government bonds or central bank reserves, o

ten mandated by regulators to ensure liquidity in crises. Under Basel III rules, banks might hold U.S. Treasury securities as HQLA to cover potential out — lows during a 30-day liquidity crunch. 40 Chainalysis, 2025 Crypto Crime Mid-Year Report, supra note 1, at 12 (mini-runs and

gaps). 41 Id. ( — ederal concerns on runs). 42 The Federal Reserve’s Board o — Governors sets monetary policy and supervises banks.

During 2022-2023,

or example, it raised interest rates to tame in — lation. 43 Powell Testimony o — 2025. 44 15 U.S.C. § 77b(a)(1) (2025); WilmerHale, supra note 3. 8 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

action through mandatory redemption rights. This compromise built bipartisan support, leading to rapid passage.

  I.C Immediate Post-Enactment Uncertainties

  GENIUS provided some certainty while creating new question. The statute establishes a licensing regime  --- or “permitted payment stablecoin issuers,” mandates 100 percent high-quality liquid reserves, 45 and grants stablecoin holders senior bankruptcy priority. 46 Crucially, GENIUS amends the entire securities regulation apparatus to exclude a payment stablecoin

rom the de — inition o — “security” “when issued in compliance with Pub. L. 119-27.” 47 GENIUS sharply narrows the reach o — anti — raud Rule 10b-5 while giving token holders a cause o — action — or delayed redemptions. 48 Regulators now — ace sequencing challenges. The Treasury Secretary must prescribe disclosure templates and valuation methodologies. 49 The Federal Reserve must determine how non-bank issuers may access master accounts. 50 Courts must harmonize GENIUS with existing anti- — raud doctrines: does a misstatement about reserves now — all exclusively under the Act’s private right, or can investors still invoke Rule 10b-5 against intermediaries? GENIUS does not answer these questions. 51 The market response is equally — luid. Bank-a —

iliated issuers can continue operations but must overhaul attestation work — lows. 52 Venture

45 Token issuance involves creating and distributing digital tokens, such as stablecoins,

typically minted on a blockchain. Redemption at par allows holders to exchange tokens back to the issuer — or their nominal value, like swapping one token — or $1. Picture a user depositing $100 into a stablecoin plat — orm, receiving 100 tokens, spending some on payments, and later redeeming the rest — or $100 in cash. 46 Id. §§ 3, 4, 14. 47 Speci — ically, GENIUS § 17(a) amends the Investment Advisers Act o — 1940 (15 U.S.C.

80b–2(a)(18)); GENIUS § 17(b) amends the Investment Company Act o

1940 (15 U.S.C. 80a–3(c)(3)); GENIUS § 17(c) amends the Securities Act o — 1933 (15 U.S.C. 77b(a)(1)); GENIUS § 17(d) amends the Securities Exchange Act o — 1934 (15 U.S.C. 78c(a)(10)); GENIUS § 17(e) amends the Securities Investor Protection Act o — 1970 (15 U.S.C. 78lll(14)); and GENIUS § 17( — ) amends the Commodity Exchange Act (7 U.S.C. 1a(9)). 48 GENIUS § 4(a)(1)(B) mandates that issuers redeem tokens at par upon demand, thereby

establishing the legal basis

or breach-o — -contract claims); see also GENIUS § 11 (providing bankruptcy priority — or these claims). The exemption — rom securities registration applies only to issuers who comply with these mandates. 49 Id. § 4. 50 Id. § 5. 51 WilmerHale, supra note 3 (discussing other legislation). 52 WilmerHale, supra note 2 (overhaul — or bank-a —

iliated issuers). 2025] THE GENIUS DILEMMA 9

unding has swung toward custody analytics 53 and compliance-as-a-service 54 startups. 55 State-based trust companies weigh whether to convert into

ederally licensed issuers or rely on GENIUS’s state-quali — ication pathway while lobbying — or accommodating Treasury rules. 56 Under GENIUS, state- quali — ied issuers with ≤$10 billion outstanding may opt to remain under comparable state regimes, but larger issuers must transition to — ederal oversight within 360 days. 57

PART II: ARCHITECTURE OF PUBLIC LAW 119-27

 Congress did more than  --- ill statutory gaps; it rewired several pillars o ---

ederal — inancial regulation. Part II explains how lawmakers arrived at the enacted text, unpacks the statute’s operative provisions, and identi — ies the tools regulators must use to turn legislative language into durable rules. It begins by situating GENIUS within a legislative lineage stretching back to the 2019 Token Taxonomy Act. 58 Next, it parses the statute’s most consequential provisions. Then, it maps the rulemaking mandates and sa — e- harbor authority that will determine the law’s practical bite. Finally, it transitions to the doctrinal and policy evaluation in Part III.

  II.A Legislative Lineage

 E ---

orts to cra — t bespoke crypto legislation began with the Token Taxonomy Act o — 2019, which would have removed “digital tokens” — rom the Securities Act de — inition o — security. 59 That bill never le — t committee, but it seeded a deregulatory argument. Payment-oriented crypto assets di —

er

53 Custody analytics uses tools and blockchain

orensics to monitor and veri — y assets held in

custody, ensuring transparency and spotting irregularities. Firms like Chainalysis,

or instance, help exchanges track wallet addresses to con — irm reserve holdings and — lag suspicious transactions. 54 Compliance-as-a-service involves outsourced plat — orms providing tools — or regulatory tasks

like anti-money laundering (AML) checks and know-your-customer (KYC) processes. Elliptic, — or example, o —

ers crypto — irms automated transaction monitoring to detect illicit activity and produce regulatory reports. 55 Chainalysis, 2025 Crypto Crime Mid-Year Report, supra note 1, at 12 (venture — unding

shi

ts). 56 Arnold & Porter, Client Advisory, What You Need to Know About the New Stablecoin

Legislation, https://perma.cc/DG2G-3467 (July 21, 2025); Sidley Austin LLP, The GENIUS Act: A Framework — or U.S. Stablecoin Issuance (July 21, 2025), https://perma.cc/3FV9- H6ZQ (noting state issuers with ≤$10 billion outstanding may opt — or state-only regulation under comparable regimes). 57 GENIUS § 3(c). 58 The Token Taxonomy Act, a 2019 dra — t bill that didn’t pass, aimed to exclude certain

unctional digital tokens — rom securities laws i — not marketed as investments, seeking clarity

or blockchain projects. 59 Token Taxonomy Act, H.R. 2144, 116th Cong. (2019). 10 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

undamentally — rom investment contracts. They there — ore deserve bespoke treatment. 60 A second wave arrived with the CLARITY Act o —

1. 61 It was introduced shortly a — ter the collapse o — several crypto lending plat — orms. 62 CLARITY proposed an optional disclosure-plus-exemption model. Its — ailure in the Senate Banking Committee signaled that discretionary exemptions could not command bipartisan con — idence. 63 GENIUS advanced by coupling deregulatory relie — with hard prudential constraints. The House Financial Services Committee built a coalition o —

consumer-protection advocates and industry groups. It promised two deliverables: exclusion o — quali — ying stablecoins — rom the de — inition o —

security, and a bank-like reserve and disclosure regime that would quell run risk. 64 The bill passed both chambers with surprising speed once leadership adopted these twin pillars. 65 This lineage re — lects a progression — rom broad exemptions to targeted, balanced re — orms.

  II.B Key Provisions

 GENIUS creates a comprehensive  --- ramework  --- or private stablecoin issuers through three key concepts: exclusive licensing pathways, strict prudential constraints, and a structural shi --- t  --- rom securities torts to contractual remedies. Interestingly, this  --- ramework both reaches beyond U.S. borders and re --- uses to govern U.S. states.

  II.B.1 Who Can Issue Payment Stablecoins?

 GENIUS creates three overt pathways  --- or entities to legally issue stablecoins in the United States (without complying with securities regulations), plus one covert pathway that emerges  --- rom what the statute does not say. The  --- irst two pathways require  --- ederal regulatory oversight. The third, more innovative, pathway allows  --- or state regulatory oversight. The  --- ourth, shadow, pathway allows states as sovereigns to issue their own coins without abiding by GENIUS requirements.
 The  --- irst  --- ederal pathway runs through existing  --- ederal banks. Section 2(23)(A) permits any subsidiary o ---  an insured depository institution (meaning

60 Id. (deregulatory argument). 61 The CLARITY Act o — 2025, a dra — t bill advanced in Congress, aims to create a

comprehensive regulatory

ramework — or digital assets, de — ining SEC and CFTC roles and addressing custody and market structure. It builds on e —

orts like the Clarity — or Payment Stablecoins Act. 62 Creating Legal Accountability — or Rigidly Innovating Token Yield (“CLARITY”) Act, H.R.

3633, 118th Cong. (2025). 63 Id. ( — ailure in Senate). 64 WilmerHale, supra note 2 (coalition building). 65 WilmerHale, supra note 2 (passage speed). 2025] THE GENIUS DILEMMA 11

any FDIC-insured bank or savings association) to issue payment stablecoins i — approved by its parent bank’s — ederal regulator. In practice, this means any o — the roughly 4,400 FDIC-insured banks in the United States can create a dedicated subsidiary — or stablecoin operations. 66 The second — ederal pathway allows companies without bank parents to obtain direct — ederal charters. Section 2(23)(B) de — ines “Federal quali — ied payment stablecoin issuers” as entities chartered speci — ically — or stablecoin issuance by the Treasury Department or Comptroller o — the Currency. A

intech company like Circle, which currently issues USDC, could pursue this route by applying — or a bespoke — ederal charter. The applicant submits to comprehensive — ederal oversight in exchange — or the ability to operate nationwide without navigating state-by-state licensing. This pathway creates a new category o — a — ederally chartered — inancial institution designed expressly — or the stablecoin market. The third pathway preserves state regulatory innovation through conditional — ederal recognition. Section 2(23)(C) permits “State quali — ied payment stablecoin issuers,” which are companies supervised under state law, to operate i — their state’s regime receives certi — ication as “substantially similar” to GENIUS’s requirements. A company chartered as a New York limited purpose trust company, — or example, could quali — y i — New York’s regulatory — ramework satis — ies the Stablecoin Certi — ication Review Committee’s standards under Section 4(c). This allows states to cra — t tailored approaches while ensuring baseline — ederal standards. The state pathway contains an important growth limitation: once a state-supervised issuer’s outstanding stablecoins exceed ten billion dollars, Section 4(d)(2) requires it either to transition to direct — ederal oversight within 360 days or cease issuing new coins. This threshold prevents systemically important issuers — rom operating outside robust — ederal supervision. Section 3(a) makes these three pathways exclusive — or private actors. Any person who does not — it into one o — these categories is prohibited — rom issuing payment stablecoins to U.S. persons. An o —

shore issuer with no U.S. regulatory relationship cannot legally market stablecoins to Americans even via the internet unless it — irst obtains status under one o — these three

rameworks. Section 3(e) extends this prohibition to any o —

er “located in the United States,” closing potential jurisdictional gaps. Yet a — ourth pathway exists in the statute’s negative space. Section 2(24) de — ines “person” to include only private organizational — orms: an individual, partnership, company, corporation, or “other business entity.” Governmental entities do not appear in this de — inition. I — states are not “persons” under the

66 Federal Deposit Insurance Corporation, Statistics at a Glance: Historical Trends (Q3

2025), available at https://www.

dic.gov/quarterly-banking-pro — ile/ — dic-statistics-glance [https://perma.cc/VC3P-2Y6T] (reporting 4,379 FDIC-insured commercial banks and savings institutions as o — September 30, 2025). 12 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

Act, then Section 3(a)’s prohibitions do not bind them. State-issued stablecoins would — all outside GENIUS entirely. Wyoming and North Dakota have embraced this interpretation. Wyoming launched the Frontier Stable Token (FRNT) in August 2025, characterizing it as a “constitutionally protected public asset” exempt — rom

ederal oversight. 67 North Dakota’s state-owned Bank o — North Dakota is developing the “Roughrider” coin under the same theory. 68 Other states may

ollow, creating a competitive dynamic between GENIUS-regulated private stable token issuers and non-GENIUS state-sovereign stablecoins.

  II.B.2 What Constrains Payment Stablecoin Operations?

 The May 2022 collapse o ---  TerraUSD exposed a critical vulnerability: algorithmic stablecoins promised dollar parity without the reserves to honor it. When holders rushed to redeem, the stabilization mechanism  --- ailed, erasing $50 billion in days. 69
 GENIUS mitigates this by mandating that every stablecoin dollar be backed by a liquid asset dollar. Section 4(a)(1)(A) requires 100 percent reserves held exclusively in cash, short-term Treasuries (under 93 days), Treasury-backed repos, or government money market  --- unds. These assets ensure immediate liquidity, eliminating the asset-liability mismatch o ---  prior runs. However, this prudential constraint caps returns. Issuers restricted to Treasury yields cannot seek higher returns in corporate bonds or equities, and mandatory accounting attestations  --- urther increase operational costs.
 Section 4(a)(11) prohibits issuers  --- rom paying holders “any  --- orm o ---

interest or yield… solely in connection with the holding” o

stablecoins. This creates an asymmetric model: issuers earn interest on reserves but cannot share it. The issuer’s primary revenue is the “ — loat” (the spread between Treasury yields and zero-interest liabilities) minus compliance costs. Unlike

67 See Wyoming Stable Token Act, Wyo. Stat. Ann. §§ 40-30-101 et seq. (authorizing the

Wyoming Stable Token Commission to issue state stablecoins); see also, Omor Ibne Eshan, Wyoming Is Launching Its Frontier Stablecoin. Should You Buy the State-Backed Crypto Here?, YAHOO! FINANCE (Aug. 25, 2025), https:// — inance.yahoo.com/news/wyoming- launching- — rontier-stablecoin-buy-201917221.html; Eli — Azra Güven, A US State Breaks Ground! Ethereum, Avalanche, and Five Altcoins Selected — or Its First-o — -its-Kind Stablecoin!, BITCOINSISTEMI (Aug. 19, 2025), https://en.bitcoinsistemi.com/a-us-state-breaks- ground-ethereum-avalanche-and- — ive-altcoins-selected- — or-its- — irst-o — -its-kind-stablecoin/ [https://perma.cc/XK4E-7DJ7]. 68 See N.D. H.B. 1475, 68th Leg. Assem., Reg. Sess. (2023) (authorizing the Bank o — North

Dakota to study and implement digital asset viability).; see also Jacob Orledge, Bank o

North Dakota to launch state’s — irst stablecoin known as Roughrider coin, NORTH DAKOTA MONITOR (Oct. 8, 2025), https://northdakotamonitor.com/2025/10/08/bank-o — -north-dakota- to-launch-states- — irst-stablecoin-known-as-roughrider-coin/ [https://perma.cc/C9FQ-FEND] 69 See FSOC, Report on Digital Asset Financial Stability Risks and Regulation, at 48 (2022)

(detailing the collapse o

TerraUSD and the limitations o — algorithmic stabilization), https://home.treasury.gov/system/ — iles/261/FSOC-Digital-Assets-Report-2022.pd — . 2025] THE GENIUS DILEMMA 13

banks, which pro

it by lending at higher rates than they pay depositors, GENIUS issuers operate on a thin, strictly regulated margin. By prohibiting yield, Congress legislatively classi — ies stablecoins as payment instruments, not investments. Money does not earn interest; securities do. This shi — ts stablecoins — rom investment contracts subject to securities law to monetary instruments subject to banking regulation, limiting their ability to disrupt interest-bearing alternatives like money market — unds. Critically, the Act creates en — orceable rights. Section 2(22)(A)(ii)(I) embeds the redemption obligation into the de — inition o — “payment stablecoin,” and Section 4(a)(1)(B) mandates public disclosure o — redemption procedures. Previously, issuers like Tether and Circle maintained reserves but exercised discretion over redemptions, which became evident when USDC suspended redemptions during the March 2023 Silicon Valley Bank — ailure. 70 GENIUS eliminates this discretion. A holder denied redemption can sue — or breach o —

contract, removing the burden to prove

raud or market manipulation. The regime prioritizes operational soundness over — inancial incentive: reserves ensure solvency, the yield prohibition ensures a “boring” payment tool, and mandatory redemption ensures the right to exit.

  II.B.3 Why Contract-Type Rights Instead o ---  Tort-Style Liability?

  Section 17 excises compliant stablecoins  --- rom the de --- inition o ---

“security” across six

ederal statutes, including the 1933 and 1934 Acts. The operative language is uni — orm: “The term ‘security’ does not include a payment stablecoin issued by a permitted payment stablecoin issuer.” This categorical exclusion removes the primary — ederal anti — raud tool applied to digital assets since Howey. This exemption is a statutory pivot — rom tort-based en — orcement to contract-based en — orcement. Securities law relies on a disclosure-and-liability regime. It assumes that i — issuers disclose material risks, investors can price them. When — raud occurs, Section 10(b) and Rule 10b-5 allow plainti —

s to sue without a direct contractual relationship, provided they prove material misrepresentation, scienter, reliance, economic loss, and loss causation. 71 Plainti —

s can even presume reliance via the — raud-on-the-market doctrine, enabling massive class actions. 72 Stablecoins break this model. They circulate peer-to-peer, decoupling the issuer’s representations — rom the holder’s purchase. A user buying USDC on a decentralized exchange in 2026 has no direct link to Circle. I — Circle misrepresented reserves in 2024, the 2026 buyer su —

ers harm but cannot easily prove reliance on the stale statement. Furthermore, proving scienter

70 Securities Exchange Act o

1934 § 10(b), 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. 71 See Circle Internet Financial, Update on USDC and Silicon Valley Bank (Mar. 11, 2023)

(announcing delayed redemptions due to reserve entrapment at SVB). 72 Basic Inc. v. Levinson, 485 U.S. 224, 241–47 (1988). 14 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

(intent to deceive) is nearly impossible when reserves are attested monthly but runs happen hourly. The TerraUSD collapse illustrated this gap: algorithmic — ailure, not necessarily — raud, caused the loss, leaving investors with no viable securities- — raud claim. GENIUS resolves this mis — it by embedding the redemption obligation into its very de — inition o — “payment stablecoin.” GENIUS operationalizes this by requiring public disclosure o — redemption procedures. This e —

ectively codi — ies the stablecoin as a statutory bearer instrument: i — an issuer — ails to redeem, the holder sues to en — orce this statutory obligation, obviating the need to prove scienter, reliance, or — raud. The Act rein — orces this shi — t by amending the Bankruptcy Code to grant stablecoin holders priority status. Section 11(d) creates a new priority class, placing stablecoin claims senior to general creditors and even administrative expenses. Crucially, GENIUS modi — ies the automatic stay to permit redemptions — rom segregated reserves even during bankruptcy. The doctrinal signi — icance is pro — ound: Congress has determined that securities law asks the wrong question. Securities regulation asks, “Did you disclose the risk?” GENIUS asks, “Do you have the money?” By mandating 100 percent reserves in Treasury bills, Congress rejects the hypothesis that disclosure cures risk in monetary instruments.

  II.B.4 Where Does GENIUS Reach?

   The Act de --- ines the regime’s perimeter with a pro --- ound contradiction: it

orti — ies the U.S. payment system against — oreign and private actors while leaving the back gate unlocked — or domestic state governments. GENIUS asserts aggressive extraterritoriality, prohibiting unlicensed stablecoin activity that involves an “o —

er or sale…to a person located in the United States.” 73 Inside this — ence, private issuers are deemed “ — inancial institutions,” triggering the — ull Bank Secrecy Act surveillance apparatus, including KYC, SARs, and OFAC screening. 74 While the legislation compels issuers to maintain strict oversight o — their customer base to prevent illicit — inance, it explicitly preserves a zone o — privacy — or individuals transacting directly through sel — -custody wallets. 75 Yet this control seemingly collapses at the state line. By de — ining a regulated “person” to include individuals and corporations but omitting governmental entities, the

73 GENIUS § 3(e). 74 Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1114 (1970) (codi — ied as amended at 31

U.S.C. §§ 5311–5336); see 31 U.S.C. § 5318(l) (customer identi

ication and know your client requirements); id. § 5318(g) (suspicious activity reporting). 75 C. — . GENIUS § 4(a)5(A) (mandating that permitted issuers be treated as — inancial

institutions subject to the Bank Secrecy Act, requiring the identi

ication and veri — ication o —

all account holders) with GENIUS § 3(h)(1) (exempting direct peer-to-peer trans

ers between personal wallets — rom the Act’s regulations). 2025] THE GENIUS DILEMMA 15

statute creates a sovereign gap. Because states are not “persons,” they are technically immune — rom GENIUS’s prohibitions and reserve mandates. As mentioned above, Wyoming has arguably seized on this negative space, characterizing its “Frontier Stable Token” not as a private product but as a public asset exempt — rom — ederal oversight. North Dakota is — ollowing suit with its “Roughrider” coin. I — this interpretation holds, GENIUS creates a state-sponsored shadow banking system: private issuers like Circle must hold 100% Treasury reserves, while state governors may issue tokens backed by di —

erent assets, — ree — rom — ederal supervision.

  II.C Implementation Toolkit

 Turning statutory text into workable policy requires coordinated rulemaking streams. The Treasury Secretary must  --- irst issue reserve-asset valuation methodologies and disclosure templates to operationalize the reserve requirements. 76 Second, the Federal Reserve must determine how to apply its existing master-account guidelines to these new permitted issuers. 77 Section 4(a)(13) explicitly maintains the status quo by neither expanding nor contracting legal eligibility. The Board retains its  --- ull discretionary authority under the Federal Reserve Act to evaluate requests  --- rom these entities. 78 While the statute does not mandate speci --- ic quantitative thresholds  --- or access, the Board may choose to apply its established tiered-review  --- ramework, potentially considering  --- actors such as an issuer’s leverage ratio or applying a speci --- ic capital surcharge as a condition  --- or services. 79 Establishing these parameters is a critical element o ---  the regulatory toolkit  --- or addressing the liquidity risks central to stablecoin stability.
 Third, interagency coordination will be pivotal. Section 3(c) gives Treasury limited exemption authority, shaped by late-stage compromises a --- ter broad sandbox language drew skepticism. 80 The new Stablecoin Certi --- ication Review Committee (chaired by Treasury, with Fed and OCC members) evaluates whether state regulatory regimes as “substantially similar” to

ederal standards. 81 I — certi — ied, these state regimes allow smaller issuers to operate under state supervision without a — ull — ederal charter.

76 GENIUS § 13(a) (mandating that the Secretary o

the Treasury, primary Federal regulators,

and State regulators promulgate regulations to carry out the Act within one year o

enactment). 77 GENIUS § 5(a)(1)(B) (directing primary Federal payment stablecoin regulators to establish

a process and

ramework — or licensing and supervision that prioritizes sa — ety and soundness). 78 GENIUS § 4(a)(13) (a “Rule o — Construction” clari — ying that the Act does not expand or

contract legal eligibility

or Federal Reserve bank services or deposits). 79 GENIUS § 4(a)(4)(A)(i) (authorizing regulators to implement capital requirements tailored

to the business model and risk pro

ile o — permitted issuers). 80 GENIUS § 3(c). 81 GENIUS § 4(c) (setting — orth the “substantially similar” standard — or the certi — ication and

periodic recerti

ication o — State regulatory regimes — or payment stablecoins). 16 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

 Fourth, FSOC oversight provides a macroprudential backstop. Section 15 mandates annual FSOC reports on stablecoin systemic risks. FSOC could even invoke its Dodd-Frank powers 82 to designate a stablecoin arrangement as systemically important, 83 though it has not used such authority in years. 84 While GENIUS’s  --- ramework is specialized, general administrative law still applies. Major rules will  --- ace State Farm-style arbitrary-and-capricious review 85 i ---  challenged. 86 Robust interagency consultation and cost-bene --- it analysis are thus essential to insulate the new rules  --- rom judicial invalidation. 87
 These tools collectively turn GENIUS  --- rom legislative intent into operational reality. Regulators must deploy them judiciously to avoid

ragmentation, as discussed in Part III.

PART III: ASSESSING GENIUS – DOCTRINAL COHERENCE, RISK ALLOCATION, AND ENFORCEMENT DYNAMICS

  This Part III evaluates whether GENIUS achieves its goal o ---  marrying innovation with market integrity. It begins by arguing that the Act’s carve-out aligns with, rather than repudiates, core securities doctrines like Basic’s  --- raud- on-the-market presumption 88 and Halliburton II’s price-impact rule. 89 Next, it examines the Act’s economic logic, suggesting it allocates calculable risks to regulators while reducing Knightian uncertainty 90 in markets. Then, it

82 Section 113 o

the Dodd-Frank Act (2010) empowers the Financial Stability Oversight

Council (FSOC) to designate non-bank

irms as systemically important, triggering stricter oversight. Post-2008, FSOC applied this to — irms like AIG, though some designations were later li — ted. 83 A systemically important designation — lags institutions whose — ailure could destabilize the

economy, triggering tougher rules. Post-Dodd-Frank,

irms like Goldman Sachs — ace higher capital requirements and stress tests as SIFIs. 84 Federal Deposit Insurance Corporation, 2021 Annual Report (2021),

https://www.

dic.gov/about/ — inancial-reports/reports/2021annualreport/ (discussing FSOC powers under Dodd-Frank). 85 Arbitrary-and-capricious review, per Motor Vehicle Manu — acturers Ass’n v. State Farm

(1983), requires agencies to justi

y actions with reasoned explanations. The court, — or instance, vacated NHTSA’s airbag rule revocation — or lacking su —

icient rationale. 86 Motor Vehicle M — rs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983). 87 WilmerHale, supra note 2 (discipline through review). 88 The — raud-on-the-market theory — rom Basic Inc. v. Levinson (1988) lets securities — raud

plainti

s presume reliance on public misrepresentations in e —

icient markets. In class actions over — alse earnings reports, investors don’t need to prove they read the statements. 89 The price-impact rebuttal — rom Halliburton Co. v. Erica P. John Fund (2014) allows

de

endants to challenge — raud-on-the-market claims by showing misstatements didn’t a —

ect stock prices. A company might use event studies to argue a misleading press release had no market impact. 90 Knightian uncertainty, named a — ter Frank Knight, describes unpredictable unknowns

without assignable probabilities, unlike calculable risks with known odds. While roulette odds (1/38) represent calculable risk, predicting the economic impact o — an unprecedented AI breakthrough re — lects Knightian uncertainty due to the lack o — historical data. 2025] THE GENIUS DILEMMA 17

analyzes the new private en

orcement mechanism as a signaling device. Finally, it addresses potential counterarguments, transitioning to the global perspectives in Part IV.

  III.A Doctrinal Coherence

  The Securities Act exclusion in GENIUS § 17(c) appears, at  --- irst glance, to repudiate Basic Inc. v. Levinson’s  --- raud-on-the-market doctrine. It exempts payment stablecoins  --- rom Rule 10b-5 entirely. 91 Yet the exemption is narrower than it looks. It applies only to coins issued in compliance with GENIUS. Non-compliant tokens remain  --- ully subject to the  --- ederal securities laws. The statute there --- ore draws a bright doctrinal line. Fully collateralized, licensed, and transparent stablecoins are not “securities”; those outside the regime continue to be analyzed under Howey and its progeny. 92 In e ---

ect, Congress resolved a decade o — ambiguity by codi — ying what counts as a purely payment instrument. Rather than undercutting — raud-on-the-market principles, GENIUS operationalizes them in a di —

erent way. Basic presumed that in an e —

icient market, public misrepresentations distort price; Halliburton II later allowed de — endants to rebut this by showing no price impact. 93 GENIUS preempts the scenario entirely — or compliant stablecoins: real-time reserve disclosures and strict asset requirements mean that price should always re — lect — undamental value (one dollar), leaving little room — or Basic-type misin — ormation to a —

ect the market price. 94 In that sense, § 17(c) can be read as completing the trajectory o — Halliburton II: it preserves price integrity by making material

acts (reserve status) continuously available, thereby reducing the need — or litigation presumptions. At the same time, GENIUS does not abandon the logic o — Basic — or the broader crypto market. Non-compliant or algorithmic stablecoins, 95 and other crypto tokens promising pro — its, remain subject to Rule 10b-5. Indeed, Halliburton II’s — ocus on price impact — inds a parallel in GENIUS’s design: any stablecoin that — ails to maintain the mandated transparency would lose its exemption and potentially — ace anti — raud action, ensuring that only tokens with demonstrably sound backing avoid securities treatment. 96 In short,

91 Basic Inc. v. Levinson, 485 U.S. 224 (1988). 92 GENIUS § 17(c). 93 Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014). 94 GENIUS § 4 (disclosures). 95 An algorithmic stablecoin maintains its value through automated algorithms and smart

contracts that adjust token supply based on market demand, rather than relying on

ull collateral reserves. Imagine a scenario where a stablecoin’s price dips below $1 due to waning demand; the algorithm might reduce the number o — tokens in circulation by “burning” some, aiming to nudge the price back to its target. 96 Halliburton Co. v. Erica P. John Fund, Inc., supra note 121, at 279. 18 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

Congress re

ined, rather than rejected, the en — orcement toolkit, shi — ting much o — it — rom courtrooms to regulatory o —

ices. Finally, GENIUS streamlines en — orcement by discarding the complex scienter doctrine in — avor o — strict contract-type liability. Unlike Rule 10b-5, which restricts recovery to cases where plainti —

s can prove “knowing or reckless” misconduct, the GENIUS’s mandatory redemption regime imposes an objective per — ormance standard. 97 This renders the heightened pleading standards o — the PSLRA and Tellabs obsolete — or stablecoin holders. 98 By replacing the murky inquiry into a CEO’s state o — mind with a binary test, asking whether issuer redeemed the token at par value, GENIUS lowers the barrier to recovery, trading the doctrinal nuance o — securities — raud — or the blunt e —

iciency o — contract law.

  III.B Risk-Allocation E ---

iciency

  Economic theory distinguishes calculable risk  --- rom Knightian uncertainty. 99 Traditional banking law manages measurable liquidity risk via capital ratios and stress tests. 100 Uncertainty remains in the blind spot. 101 GENIUS attacks this problem by trans --- orming what was uncertainty (the true value o ---  reserves in opaque stablecoins) into quanti --- iable risk through mandatory disclosures and asset rules. By  --- orcing reserve composition into Treasury bills and cash, the Act ties stablecoin stability to the well-modeled risks o ---  short-term sovereign debt. 102
  This is evident in market dynamics: a recent BIS 103 study  --- ound that a $3.5 billion in --- low into stablecoins (prompting equivalent T-bill purchases) could lower 3-month Treasury yields by ~2 basis points, whereas a $3.5 billion out --- low raises yields by ~6–8 basis points. 104 The asymmetry suggests that redemptions (runs) hit harder than in --- lows, re --- lecting uncertainty-driven surges in liquidity demand. 105
  By constraining reserves to near-riskless assets, GENIUS limits the variance o ---  those impacts. The same BIS paper noted that such reserve

97 See Ernst & Ernst v. Hoch

elder, 425 U.S. 185 (1976). 98 See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007); see also Private

Securities Litigation Re

orm Act (PSLRA) o — 1995, Pub. L. No. 104-67, 109 Stat. 737 (imposing heightened pleading standards to curb — rivolous securities class actions, requiring plainti —

s to plead with particularity — acts giving rise to a strong in — erence o — scienter). 99 Frank H. Knight, Risk, Uncertainty, and Pro — it ch. 7 (1921). 100 Federal Deposit Insurance Corporation, 2021 Annual Report, supra note 112. 101 Id. 102 GENIUS Act, supra note 2, § 4. 103 The Bank — or International Settlements (BIS) studies stablecoins’ economic impacts and

risks. A 2025 BIS report noted that $3.5 billion in stablecoin Treasury holdings could shi

t short-term yields by 25 basis points, arguing stablecoins — all short as sound money due to stability and elasticity issues. 104 BIS Working Papers No. 1270, supra note 75, at 1. 105 Id. 2025] THE GENIUS DILEMMA 19

mandates compress the risk premia 106 embedded in stablecoin prices— essentially anchoring them to government debt yields. 107 This may reduce speculative trading on stablecoin solvency, shrinking the “uncertainty tax” that markets previously extracted — rom less certain stablecoins. 108 In turn, that could narrow the gap between privately optimal reserve levels and socially optimal ones, aligning issuer incentives with systemic stability. 109 There is also an in — ormational e —

iciency gain. Under GENIUS § 4, monthly reserve attestations by a registered accounting — irm become a baseline transparency requirement. 110 In theory, this regular — low o — hard in — ormation should replace the rumor-driven swings that characterized earlier stablecoin episodes. Price volatility stemming — rom misin — ormation or — ear could be dampened as — acts become available on a set schedule. In — inancial terms, the Act attempts to convert an environment o — uncertainty (unknown reserve quality) into one o — risk (known reserve quality with some variance). Markets can price risk; they panic at uncertainty. GENIUS thus strives to

oster a more continuous equilibrium, although whether monthly disclosures su —

ice versus real-time proo — s will likely be an area — or — uture re — inement. 111 Lastly, the Act’s in — lexible rules do raise questions about innovation. By

reezing reserve composition to government-issued or overnight assets, GENIUS bets that the e —

iciency gains — rom certainty outweigh the lost yield or — lexibility. Critics might argue this e —

ectively turns stablecoins into narrow banks, 112 unable to evolve new models. But Congress appears to have judged that, at least — or a core payment medium, stability and predictability are paramount. Given the systemic stakes (stablecoins serve as settlement and liquidity in crypto markets), treating them as public money equivalents has a compelling risk-utility rationale. I — new technology allows di —

erent risk mitigation (e.g., real-time audits or algorithmic stabilization), regulators may need to revisit these strictures, but — or now the pendulum clearly swings toward minimizing unknowns.

106 A risk premium is the extra return investors seek

or taking on calculable risk, while an

“uncertainty tax” metaphorically captures the economic drag

rom Knightian uncertainty, like reduced investments. In volatile markets, bond yields might include a 2% risk premium; during geopolitical crises, an additional 1% “uncertainty tax” could emerge as investors hoard cash. 107 Id. 108 Id. 109 Id. 110 GENIUS Act, supra note 2, § 4(1)(B). 111 Proo — -o — -reserves is a process, o — ten involving cryptographic methods or third-party

audits, to veri

y that a crypto custodian holds enough assets to cover all customer deposits or tokens. Crypto exchange Kraken, — or instance, uses independent audits to con — irm 1:1 asset backing, updating reserve statuses on real-time dashboards — or transparency. 112 A narrow bank accepts deposits but invests only in sa — e assets like central bank reserves,

avoiding risky loans. Imagine a narrow bank parking all customer deposits at the Fed, earning modest interest but o —

ering lower rates to depositors due to minimal risk. 20 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

 III.C Private En --- orcement and Market Signaling

  GENIUS shi --- ts the primary mechanism o ---  market discipline  --- rom ex post litigation to ex ante liquidation. In a securities regime, the primary deterrent is the  --- ear o ---  a class-action lawsuit years later, a risk aggressive managers o --- ten discount. Under GENIUS, the deterrent is immediate insolvency. Because every redemption request tests the issuer’s solvency in real-time, and

ailure to pay triggers de — ault, the market disciplines issuers instantly. This binary structure collapses the complex procedural machinery o —

securities

raud (proving scienter, reliance, and loss causation) into a simple objective inquiry: Did the issuer pay? I — the answer is no, the remedy is not a years-long discovery process, but the immediate seizure and distribution o —

ring-

enced collateral. This doctrinal pivot imposes a deliberate trade-o —

. Holders — orego the potential — or speculative “lost pro — it” damages common in securities class actions. In exchange, they gain the certainty o — par value, secured by a property right rather than a promise. Insolvency becomes a mechanical liquidation o — speci — ic assets rather than a chaotic battle — or residual value.

 III.D Counter-Arguments and Caveats

  Critics raise three main objections. The  --- irst is regulatory  --- ragmentation: GENIUS leaves multiple licensing pathways:  --- ederal bank, state trust, or non- bank Treasury license. Fragmentation, however, is mitigated by reciprocal recognition and uni --- orm asset standards. A state regime cannot signi --- icantly diverge i ---  it wants certi --- ication, and large issuers inevitably  --- all under  --- ederal supervision as discussed. The Act essentially mimics dual banking in the crypto context; while that may introduce some arbitrage, the $10 billion threshold and  --- ederal oversight triggers act as circuit breakers. Over time, one expects convergence rather than divergence, especially as Treasury can tighten equivalence criteria i ---  needed.
  A second concern is whether a primarily ex ante  --- ramework can handle

ast-moving — raud or — ailures. Skeptics point out that no matter how strict the rules, bad actors may still lie about reserves or engage in risky o —

-balance- sheet schemes. I — agencies are slow or under-resourced, problems could — ester (as in bank — ailures where examiners miss red — lags). In those cases, would GENIUS’s limited private suits su —

ice to uncover and recti — y misconduct? Possibly not; private plainti —

s usually act a — ter-the- — act, and i — in — ormation is tightly controlled by issuers, even the attestation process could be gamed. The Act’s answer is heavy criminal penalties — or — alse statements (speci — ically, the Act creates new — ederal penalties o — up to $1 million and 5 years imprisonment 2025] THE GENIUS DILEMMA 21

or violations), 113 and reliance on whistleblowers or auditors to sur — ace issues. It remains a trade-o —

: by curbing class actions, some — raud might slip through longer, but Congress likely calculated that the trade-o —

is worth the innovation gains. Still, regulators must be vigilant because the — ramework’s credibility hinges on swi — t en — orcement o — the most egregious violations, lest con — idence erode. A third critique is that GENIUS might undercut innovation by ossi — ying one model o — stablecoins. The private right’s narrow scope could disincentivize potential issuers who want to experiment outside the strict limits, since doing so would mean entering the Wild West o —

ull securities law liability. Similarly, the reserve constraints e —

ectively outlaw algorithmic stablecoins or those using corporate debt, perhaps — oreclosing — uture breakthroughs that could manage stability di —

erently. Proponents would respond that the catastrophic — ailure o — TerraUSD and others justi — ied taking those o —

the table, at least until a proponent can convincingly demonstrate a sa — er design. The Act does allow the Treasury Secretary (with Fed input) to expand permissible reserves or grant targeted exemptions, 114 so there is a sa — ety valve — or innovation. But use o — that valve will demand compelling evidence. In short, the law is intentionally conservative; it is easier to relax rules later than to tighten them a — ter a crisis. Whether that stance holds in a global competition (i — other jurisdictions allow more experimentation) is a strategic question beyond doctrinal boundaries.

PART IV: GLOBAL PERSPECTIVES – MICA, SINGAPORE’S PSA, AND GENIUS’S UNIQUE SYNTHESIS

 U.S. lawmakers did not write on a blank slate. This Part IV compares GENIUS’s approach with the EU’s comprehensive Markets in Crypto-Assets Regulation (MiCA) 115 and Singapore’s evolving Payment Services Act (PSA) regime. 116 The contrast reveals GENIUS as a hybrid model, blending aggressive prudential rules with private en --- orcement, which is a combination not  --- ully seen elsewhere. It begins by examining MiCA’s all-in licensing and prudence. Next, it explores Singapore’s  --- lexible start and tightening  --- uture. Then, it moves toward a global synthesis. Finally, it transitions to the implementation roadmap in Part V. These comparisons o ---

er both validation and cautionary tales, in — orming U.S. regulators as they implement the Act.

  IV.A Europe’s MiCA: Administrative Supervision

113 GENIUS § 3(

) (establishing criminal o — up to $1,000,000 and 5 years imprisonment — or

knowingly participating in unlicensed issuance o

payment stablecoins). 114 GENIUS § 3(c). 115 Regulation (EU) 2023/1114, o — the European Parliament and o — the Council o — 31 May

2023 on Markets in Crypto-Assets, 2023 O.J. (L 150) 40 (“MiCA”). 116 Payment Services (Amendment) Act 2021 (Act 2 o — 2021) (Sing.) (“PSA”). 22 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

   The European Union took a top-down approach in MiCA, which requires any issuer o ---  asset-re --- erenced tokens (including stablecoins tied to

iat) to secure prior authorization — rom a national regulator be — ore o —

ering the token in the EU. 117 In practice, this is a license- — irst, operate-later regime: no EU circulation without regulatory approval o — a detailed crypto-asset white paper and compliance with capital and governance rules. 118 MiCA provided an transitional measures allowing existing issuers to continue operating while seeking authorization. GENIUS similarly a —

ords a transition period and provisional registration, re — lecting an iterative rollout to avoid market disruption. 119 MiCA’s prudential requirements parallel GENIUS’s in spirit but di —

er in — lexibility. For “e-money tokens” 120 (single- — iat stablecoins), MiCA Article 36 mandates issuers maintain a reserve o — low-risk assets at 100% o —

outstanding tokens, notably requiring that at least 30% o

reserves (rising to 60% — or signi — icant tokens) be held in liquid bank deposits. 121 By comparison, GENIUS § 4 allows no such latitude: reserves must be cash or ≤93-day Treasuries only. 122 The U.S. opted — or a stricter de — inition o — “high-quality liquid asset,” likely in — luenced by its experience with money market — und runs and a desire — or absolute clarity on liquidity. 123 EU regulators, having contended with negative interest rates and bank reliance, allowed a bit o —

diversi

ication (e.g., bank deposits) on the theory that short-term bank debt can be sa — e in moderation. 124 The transatlantic di —

erence in reserve composition limits may thus re — lect di —

erent — inancial contexts and risk tolerances. Still, both regimes converge on requiring — ull (or near- — ull) collateralization and prohibiting the risky rehypothecation 125 practices that contributed to past crypto crashes. Another distinction is en — orcement modality. MiCA places primary weight on administrative supervision: marketing communications must be “ — air, clear and not misleading,” and regulators have the power to halt issuance or withdraw authorization immediately. 126 However, MiCA also

117 MiCA arts. 16–23, 43–51. 118 Id. 119 GENIUS § 20(a). 120 An “e-money token” under MiCA is a crypto-asset tied to a single — iat currency, like

electronic money, with strict reserve and redemption rules. A hypothetical euro-pegged “EURT” token would require the issuer to hold — ull euro reserves. 121 MiCA art. 36 ( — or ARTs) and art. 50 ( — or EMTs). 122 GENIUS § 4. 123 WilmerHale, supra note 3 (stricter U.S. limit rationale). 124 Id. 125 Rehypothecation happens when a — inancial institution uses client-deposited assets, like

securities, as collateral

or its own borrowing, ampli — ying risks i — markets — alter. In traditional

inance, a broker might use a client’s stocks to secure a loan; in crypto, some custodians

aced backlash — or rehypothecating user assets, a — actor in collapses like FTX. 126 MiCA art. 53 (marketing o — e-money tokens). 2025] THE GENIUS DILEMMA 23

includes explicit statutory civil liability by allowing token holders to sue issuers — or damages i — the white paper is misleading or incomplete. 127 GENIUS similarly combines regulatory supervision with private en — orcement but achieves it di —

erently. Rather than a statutory civil liability provision — or disclosure — raud, GENIUS creates en — orcement through contractual obligation (mandatory redemption) and property rights (bankruptcy priority). Token holders can sue — or breach o — the redemption obligation or assert priority claims in insolvency. A key di —

erence is the mechanism: MiCA creates a statutory tort — or bad disclosure; GENIUS creates a statutory contract — or non-payment. It will be interesting to see whether a tort-type regime or a contract-type regime better optimized the innovation and anti — raud tradeo —

s. Finally, MiCA’s scope is broader in covering the — ull spectrum o — crypto- assets, but within stablecoins it draws lines between “signi — icant” stablecoins and others. I — a stablecoin (whether asset-re — erenced or e-money) exceeds certain thresholds (volume, users, or value), it — aces additional oversight — rom the European Banking Authority, akin to systemically important status. 128 GENIUS doesn’t explicitly designate “systemic” stablecoins, but the FSOC reporting and the $10 billion state oversight cuto —

serve a similar tiering

unction. 129 In both regimes, big players get heightened scrutiny one way or another. The lesson seems to be: contain risks by scaling oversight with scale o — operations—a principle likely to be mirrored globally as stablecoins become integral to — inance.

      IV.B Singapore’s VASP Rules: Flexible Start, Tightening Future

 Singapore’s stablecoin regulatory  --- ramework is anchored by the PSA, which came into  --- orce in 2020 and was signi --- icantly expanded in 2024 to cover custodial and trans --- er services. The Monetary Authority o ---  Singapore (MAS) grants licenses on an activity basis: exchange, trans --- er, or custody each requires separate approval and compliance with AML and technology- risk standards. 130 Capital and sa --- eguarding requirements scale with transaction volume, and providers must segregate customer assets in trust. 131 Unlike MiCA and GENIUS, Singapore’s PSA initially did not mandate reserve-asset composition and has instead relied on segregation and disclosure obligations to control run risk. 132 (In August 2023, MAS  --- inalized a stablecoin  --- ramework to ensure the value stability, requiring issuers o ---

“MAS-regulated stablecoins” to maintain 100% reserve assets in cash, cash

127 MiCA arts. 26 (ART civil liability) and 52 (EMT civil liability). 128 MiCA arts. 43, 56. 129 GENIUS § 15. 130 PSA § 6. 131 PSA § 23. 132 Id. 24 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

equivalents, or ≤3-month government debt and to honor redemption within

ive days, bringing Singapore’s approach closer to a prudential model.) 133 MAS also exercises discretionary powers to issue conditional or restricted licenses, tailoring requirements to — irm-speci — ic risk ( — or instance, imposing additional capital on a stablecoin issuer or limiting business lines i — deemed necessary). Singapore’s en — orcement record provides another data point. MAS issued 35 reprimands and one license cancellation across the broader payments and crypto sectors in 2023/24. It imposed its — irst AML-related composition penalties under the PSA in June 2025 against — ive providers (totaling S$960,000 million in — ines). 134 The light en — orcement touch may re — lect high compliance, limited supervisory capacity, or both. Notably, no major stablecoin incidents have originated — rom MAS-licensed issuers, perhaps due to the relatively small scale o — its issuers and proactive risk management by — irms seeking to maintain Singapore’s reputation. 135 Still, some observers argue that the absence o — stronger action indicates that a purely activity-based regime might miss latent risks until they materialize, as regulators are not delving into reserves or business models unless problems emerge. From an innovation perspective, Singapore’s — lexible licensing sparks entrepreneurship but risks supervisory lag. 136 GENIUS splits the di —

erence: incumbents get time to adapt, new entrants — ace up — ront hurdles, and everyone must converge on identical reserves. 137 In e —

ect, the U.S. chose to tolerate less diversity in stablecoin models in exchange — or more certainty, whereas Singapore historically tolerated more diversity at the expense o — potential unseen — ragilities. However, with MAS’s new stablecoin rules (which closely parallel GENIUS in requiring high-quality reserves and timely redemption), the gap is narrowing. One could argue Singapore used a sandbox mentality (let the market grow — irst, then regulate key aspects) while the U.S. jumped to de — ine the end-state structure nationally. Each path has merits: Singapore’s MAS combines central-bank — unctions with market supervision, enabling agile, activity-based oversight that could adapt quickly; 138 U.S. regulators are

ragmented, thus GENIUS allocates duties across Treasury, the Fed, and state supervisors, — orcing them into collaboration. 139 E —

ective coordination

133 Morgan Lewis, Monetary Authority o

Singapore Finalises Stablecoin Regulatory

Framework (Aug. 22, 2023), https://www.morganlewis.com/pubs/2023/08/monetary- authority-o — -singapore- — inalises-stablecoin-regulatory- — ramework. 134 Monetary Authority o — Singapore, En — orcement Actions (July 3, 2025),

https://www.mas.gov.sg/regulation/en

orcement/en — orcement-actions. 135 Although Terra — orm Labs (creators o — TerraUSD/Luna) was incorporated in Singapore,

they were not regulated under the PSA as a stablecoin issuer at the time. 136 Payment Services (Amendment) Act 2021, supra note 171 ( — lexible licensing). 137 GENIUS § 20. 138 Monetary Authority o — Singapore, Annual Report 2024/25. 139 GENIUS §§ 3, 5. 2025] THE GENIUS DILEMMA 25

mechanisms (e.g., Treasury-Fed joint guidance or FSOC memoranda) will be critical to emulate the nimbleness that a unitary regulator like MAS enjoys. 140 Looking ahead, Singapore’s limited en — orcement might demonstrate the limits o — regulatory capacity. MiCA may — ace similar constraints once EU issuance scales. GENIUS anticipates this by creating a mandatory redemption obligation that gives token holders contractual remedies — or non-payment. Yet private en — orcement raises its own design questions: damage caps may discourage large investors — rom suing i — losses are small, and — ederal preemption means all cases crowd into — ederal courts, potentially creating a bottleneck i — dozens o — suits arise — rom a single incident. 141 The comparative lesson is that regulation o — stablecoins is not a one-time — ix but an ongoing governance challenge. Whether through regulatory — lexibility (Singapore), comprehensive licensing (EU), or a blended approach (U.S.), the regime must evolve with the market’s rapid innovation cycles while maintaining the public’s trust in a stable value instrument.

  IV.C Toward a Global Synthesis

  None o ---  the major jurisdictions have a monopoly on wisdom in this arena. The EU’s MiCA, Singapore’s PSA, and the U.S. GENIUS Act all aim to tame stablecoins, but each emphasizes di ---

erent tools. A possible convergence is visible: transparency and high-quality reserves are emerging as universal pillars (MiCA Art. 36, MAS’s 2023 — ramework, and GENIUS § 4 all hammer on this point). Conversely, approaches to en — orcement and innovation vary—Europe leans on administrative control, the U.S. on a mix o — regulation and litigation, and Singapore on phased regulation with later tightening. Over time, i — one approach yields markedly better outcomes (e.g.,

ewer runs, more innovation, or better integration with traditional — inance), others will likely adapt. Already, cross-pollination is happening. European regulators are watching U.S. developments, especially the interplay o — private suits and market behavior, since the EU historically hasn’t empowered private crypto litigation. 142 U.S. o —

icials, in turn, scrutinize MiCA’s rollout — or any regulatory arbitrage 143 or unintended consequences, such as crypto — irms relocating to Europe — or a more uni — ied regime. Singapore continues to serve as a regional hub whose experiments (like exchange licensing and now stablecoin reserves) provide valuable case studies. In a sense, stablecoin governance is in its “laboratory” phase globally, with each major — ramework

140 WilmerHale, supra note 3 (coordination critical). 141 WilmerHale, supra note 3 (design questions). 142 WilmerHale, supra note 3 (transparency constant). 143 Global regulatory arbitrage in crypto involves operating in jurisdictions with lax rules to

avoid compliance costs. Many exchanges base in places like the Seychelles to o

er leveraged trading banned in stricter regions like the U.S. or EU. 26 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

a live experiment. The likely endgame could be a set o

international standards or mutual recognitions, especially i — stablecoins underpin cross- border payments at scale. GENIUS explicitly nods to this by allowing — oreign stablecoins — rom comparable regimes to operate in the U.S. upon OCC registration and U.S. reserve custody. 144 That comparability assessment will e —

ectively judge MiCA, Singapore, and others against the U.S. benchmark, incentivizing a race to high standards. In conclusion, GENIUS’s strictness stands out. Some call it the strictest stablecoin regime in the world, but it may set a norm that others gradually approach. 145 Its novel blend o — prudential rigor and private en — orcement o —

ers a distinctive model, potentially in — luencing global standards as jurisdictions learn — rom each other’s experiments.

PART V: IMPLEMENTATION ROADMAP – TURNING GENIUS INTO REALITY

 GENIUS’s promise hinges on execution. Part V provides a practical roadmap  --- or stakeholders, drawing on the analysis in Parts I–IV to o ---

er actionable guidance. It addresses — our audiences: regulators, industry players, legal stakeholders, and policymakers. For each, it outlines immediate steps, anticipates challenges, and suggests strategies to align implementation with the Act’s goals o — stability, innovation, and anti — raud protection.

  V.A For Regulators (Treasury, Federal Reserve, OCC, FSOC)

  Regulators  --- ace a tight timeline to operationalize GENIUS. The Treasury Department will likely prioritize issuing reserve valuation methodologies and disclosure templates within six months o ---  enactment to give issuers clarity. 146 These rules must balance precision (e.g., speci --- ying acceptable T-bill maturities) with  --- lexibility (e.g., allowing minor deviations  --- or operational needs). The Federal Reserve’s master-account criteria  --- or non-bank issuers are equally urgent; early indications suggest a strict tiered approach, but the Board must avoid overly restrictive thresholds that exclude smaller players, as this could consolidate the market unduly. 147
  Interagency coordination is non-negotiable. The Stablecoin Certi --- ication Review Committee should establish clear metrics  --- or state-regime equivalence to prevent arbitrage. 148 Treasury’s exemption authority under § 3(c) should be used sparingly, reserved  --- or truly innovative pilots with robust

144 GENIUS § 18(a) (exceptions

or — oreign payment stablecoin issuers). 145 See WilmerHale, supra note 3. 146 GENIUS § 13(a) (rulemaking authority). 147 Board o — Governors o — the Federal Reserve System, Guidelines — or Evaluating Account

and Services Requests, FR Doc. 2022-17051 (Aug. 15, 2022) (or 87 Fed. Reg. 51,099 (Aug. 19, 2022) — or the Federal Register publication). 148 GENIUS § 4(c). 2025] THE GENIUS DILEMMA 27

risk controls. FSOC’s annual reports must go beyond boilerplate, leveraging BIS and Chainalysis data to quanti — y systemic risks and recommend targeted adjustments. Regulators should also prepare — or judicial challenges. Majority rules must be grounded in rigorous cost-bene — it analyses to withstand State Farm scrutiny. 149 A global lens is critical. Treasury should engage with IOSCO, BIS, and the FSB to shape emerging standards, ensuring U.S. interests (e.g., AML compliance and dollar dominance) are protected. 150 Bilateral agreements with the EU and Singapore could pave the way — or mutual recognition, reducing compliance burdens — or cross-border issuers while maintaining high standards. 151

  V.B For Industry (Issuers, Exchanges, Custodians)

  Issuers should initiate internal “GENIUS readiness” audits. For those planning to become permitted issuers, this means shoring up reserve management processes, engaging auditors  --- or monthly attestations, and ensuring redemption operations can meet same-day demands. Those deciding not to seek a license (perhaps due to business model incompatibility)  --- ace a hard stop: continuing to issue unlicensed stablecoins a --- ter the grace period will be illegal. Such  --- irms might pivot to other crypto products or relocate to jurisdictions outside U.S. reach (though extraterritorial provisions make that risky i ---  they have U.S. users).
  Exchanges and custodians will need to review their listings. Three years post-enactment, any stablecoin not issued by a permitted issuer is contraband in e ---

ect. Delisting non-compliant coins ahead o — time could mitigate en — orcement risk. These intermediaries should also strengthen disclosure to users about what regulatory status each stablecoin has (akin to how stockbrokers label whether an asset is SIPC-insured or not). Proactively investing in compliance tech, like real-time reserve veri — ication solutions or analytics that monitor issuer assets, could become a competitive advantage, as users gravitate to plat — orms that transparently prove stablecoin sa — ety. Bank-a —

iliated issuers can continue operations but must overhaul attestation work — lows to comply with the new standards. 152 Venture — unding has swung toward custody analytics and compliance-as-a-service startups, signaling market demand — or tools that — acilitate GENIUS adherence. 153 State-based trust companies weigh whether to convert into — ederally licensed

149 Motor Vehicle M

rs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983). 150 See WilmerHale, supra note 3 (discipline through review). 151 This might be done via bilateral agreements or through bodies like IOSCO or the BIS’s

Innovation Hub. 152 See WilmerHale, supra note 3 (overhaul — or bank-a —

iliated issuers). 153 Chainalysis, 2025 Crypto Crime Mid-Year Report, supra note 1, at 12 (venture — unding

shi

ts). 28 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

issuers. They could rely on § 7’s state-quali

ication track while lobbying — or accommodating Treasury rules. 154 (Under GENIUS, state-quali — ied issuers with ≤$10 billion outstanding may opt to remain under comparable state regimes, but larger issuers must transition to — ederal oversight within 360 days.) For counsel to existing issuers, the immediate task is to prepare applications and ensure they are — iled and pending be — ore the Act’s e —

ective date (January 18, 2027). Filing a timely application is critical because it unlocks the Section 5( — ) sa — e harbor, which allows regulators to waive — ull compliance requirements — or up to 12 months while the application is processed. Counsel should assemble a cross- — unctional team to map current reserve assets against the statutory list and dra — t a reserve-transition plan to ensure — ull compliance can be achieved within that strict 12-month waiver period.

  V.C For Legal Stakeholders (Litigators, Courts, Scholars)

 The early jurisprudence o ---  GENIUS will be de --- ined not by what the Act adds to  --- ederal litigation, but by what it removes. By explicitly amending the Securities Act and Exchange Act to exclude payment stablecoins  --- rom the de --- inition o ---  a “security,” GENIUS renders the traditional playbook o ---  private securities litigation (Blue Chip Stamps standing, 155 Janus “maker” liability, 156 and the PSLRA’s discovery stay 157) largely irrelevant. Plainti ---

s’ attorneys apparently cannot bring Section 10(b) — raud-on-the-market claims — or stablecoin de-pegs. Instead, the legal battle — ield will shi — t to state common law and bankruptcy court. Without a — ederal statutory private right o — action, plainti —

s will likely plead breach o — contract (based on the mandatory redemption policies required by Section 4) or state consumer protection violations. 158 De — ense counsel will — ace a complex strategic choice: de — end these cases in state court or attempt to remove them to — ederal court under the Grable doctrine by arguing that the state-law claim turns on a substantial — ederal issue (e.g., the interpretation o — “timely redemption” under GENIUS). 159

154 GENIUS § 7 (establishing the “State Quali

ied Payment Stablecoin Issuer” — ramework). 155 The standing limit — rom Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975)

restricts Rule 10b-5 lawsuits to actual securities buyers or sellers. Investors who avoided buying a stock due to — raud can’t sue; only those who traded and lost can. 156 The “maker” doctrine — rom Janus Capital Group v. First Derivative Traders (2011) limits

Rule 10b-5 liability to entities with ultimate control over a statement’s content. A mutual

und advisor, — or example, isn’t liable — or statements in a — und’s prospectus i — the — und issues it. 157 15 U.S.C. § 78u-4(b)(3)(B) (mandating a stay o — discovery during the pendency o — a

motion to dismiss in private securities litigation). 158 GENIUS § 7( — )(4) (explicitly preserving State consumer protection laws). 159 Grable & Sons Metal Prods., Inc. v. Darue Eng’g & M — g., 545 U.S. 308 (2005). 2025] THE GENIUS DILEMMA 29

  The most novel area  --- or judicial interpretation will be insolvency priority. Section 11 o ---  the Act amends the Bankruptcy Code to grant stablecoin holders a “ --- irst priority” claim over other creditors. 160 In the event o ---  an issuer  --- ailure, litigators will  --- ight  --- ierce battles over the scope o ---  this priority: does it apply to all assets in the estate or strictly the “required reserves”? Courts will need to determine how to distribute assets “ratably” i ---

an issuer has commingled

unds, potentially creating a new body o —

specialized crypto-bankruptcy case law that prioritizes token holders over general unsecured creditors. For scholars, GENIUS o —

ers — ertile ground — or interdisciplinary analysis. Economists can model the Act’s impact on stablecoin liquidity premiums using BIS data on Treasury yield e —

ects. 161 Legal theorists can explore how the statutory exclusion displaces Howey’s — unctional test in

intech contexts, potentially signaling a shi — t toward legislative rather than judicial classi — ication o — digital assets 162 Policy analysts could track consumer recovery rates in insolvency scenarios by utilizing historical banking data to assess whether strict mandatory redemption (Section 4) preserves user wealth more e —

ectively than disclosure-based securities litigation. 163 However, legal strategists must note that GENIUS largely eliminates

ederal private en — orcement avenues. By explicitly removing stablecoins — rom the de — inition o — a security (Section 17), the Act precludes Rule 10b-5 class actions. Instead o — well-pleaded complaints, under GENIUS, early case law will likely — ocus on the jurisdictional boundaries o — the regulators, as the Act relies on agency supervision and criminal penalties (Section 3( — )) rather than private civil litigation to police the industry.

  V.D For Policymakers and Future Revisions

  Implementation will undoubtedly reveal areas needing  --- ine-tuning. One

oreseeable adjustment is the scope o — permissible reserve assets. I —

macroeconomic conditions change (e.g., prolonged negative interest rates or a shortage o — T-bills), regulators might seek — lexibility to include other sa — e assets. Any such move should be evidence-based and perhaps conditional ( — or example, allowing certain AAA commercial paper up to a small percentage i —

justi

ied by market conditions). Another likely area o — evolution is interoperability and standards: as stablecoins become embedded in payment

160 GENIUS § 11(d) (amending 11 U.S.C. § 507 to create subsection (e) priority

or

stablecoin holders). 161 BIS Working Papers No. 1270. 162 C — . GENIUS § 17 (exempting stablecoins — rom the de — inition o — a security) with SEC v.

W.J. Howey Co., 328 U.S. 293 (1946). 163 See generally Adam J. Levitin, Not Your Keys, Not Your Coins: Unpriced Credit Risk in

Cryptocurrency, 101 Tex. L. Rev. 877 (2023) (analyzing credit risk and bankruptcy treatment o — custodial assets). 30 STANFORD JOURNAL OF BLOCKCHAIN LAW & POLICY [Vol. 9.1

systems, the government might issue standards on API access, messaging

ormat (ISO 20022 compliance), 164 or other technical matters to ensure they plug into FedNow or cross-border networks seamlessly. 165 Additionally, coordination with existing crypto en — orcement remains vital. The SEC and CFTC will continue policing — rauds involving crypto assets that — all outside GENIUS’s ambit (e.g., algorithmic “stablecoins” not covered). Agencies should clari — y via guidance how GENIUS and pre-existing regulatory

rameworks intersect. The SEC and CFTC are uniquely positioned to issue a statement regarding who regulates any token labeled as a “stablecoin” that does not quali — y as a “payment stablecoin” under GENIUS. Ongoing empirical evaluation is essential. The Act calls — or FSOC to track systemic risks, 166 but academia and industry should supplement with independent research: Has the incidence o —

raud or run events decreased? What are the innovation outputs (number o — new projects, capital raised) in the stablecoin space post-Act versus pre-Act? Are markets pricing stablecoin risk more uni — ormly? These data will in — orm whether GENIUS indeed delivered on its promise or i —

urther legislative tweaks are warranted. For instance, i — private suits prove too rare (perhaps because damages are too low to attract lawyers), Congress might consider enhancing penalties or expanding the CFPB’s speci — ic oversight authorities — or consumer protection. 167 Conversely, i — innovation appears stymied (say, U.S. stablecoin market share globally declines sharply), policymakers might broaden the scope o — the Section 3(c) sa — e harbors to allow — or larger-scale experimentation. 168 One should also keep an eye on the international dimension. Treasury’s role in recognizing — oreign stablecoin regimes will pressure U.S. regulators to articulate what “comparable” means. It’s plausible that a group o —

jurisdictions (G7 or G20) could converge on mutual principles such that a

oreign issuer could operate across multiple markets with one primary license. U.S. policymakers should engage in that dialogue early, to both share the U.S. experience and to ensure U.S. interests (like law en — orcement access to

164 The ISO 20022 messaging standard is a global

ramework — or — inancial communications,

supporting rich, structured data exchange in payments and securities. SWIFT’s adoption o

ISO 20022

or cross-border payments allows banks to include detailed in — ormation, like invoice numbers, in transaction messages. 165 FedNow®, launched by the Federal Reserve in 2023, is an instant payment service

enabling real-time, round-the-clock interbank trans

ers in the U.S. A small business, — or instance, might use FedNow to receive a customer payment at midnight, bypassing the delays o — traditional ACH trans — ers. 166 GENIUS §§ 15(a) (mandating primary Federal payment stablecoin regulators to annually

report on the status o

the industry) and 15(b) (mandating FSOC to incorporate those — indings into its annual reports). 167 GENIUS § 6(c) (preserving existing Federal consumer — inancial law). 168 GENIUS § 3(c) (authorizing limited sa — e harbors — or de minimis transaction volumes). 2025] THE GENIUS DILEMMA 31

transaction data) are baked into any global

ramework. 169 This might be done via bilateral agreements or through bodies like IOSCO or the BIS’s Innovation Hub. 170

CONCLUSION

  The GENIUS Act emerged  --- rom a con --- luence o ---  crisis and opportunity, born o ---  a desire to prevent another TerraUSD and to unleash the bene --- its o ---

stablecoins under a sa

er, uni — ied regime. Its success now hinges on diligent implementation. Early indicators are promising as markets have reacted with cautious optimism. Some major issuers have signaled an intent to obtain

ederal licenses, e —

ectively validating the Act’s approach. Internationally, U.S. leadership in crypto regulation has been bolstered, with some — oreign regulators now mulling similar carve-outs — or payment stablecoins. Yet the Act’s promise is not sel — -executing. As detailed in the implementation roadmap, success hinges on expeditious rulemaking, particularly regarding the capital and liquidity requirements under Section 4(a)(4) and the anti-money laundering standards under Section 4(a)(5). Equally critical is judicial — idelity to the mandatory redemption — ramework. Without interagency coordination and vigilant oversight, GENIUS risks perpetuating the very uncertainties it seeks to dispel, inviting either under- deterrence o — insolvency or over-deterrence o — innovation. Policymakers must there — ore view the Act not as a terminus but as a — ramework demanding iterative re — inement, in — ormed by empirical monitoring o — redemption reliability and market liquidity. In an era where stablecoins underpin trillions in cross-border payments and decentralized — inance, GENIUS o —

ers a pragmatic path — orward: stability without stagnation. I —

aith — ully implemented, it could trans — orm stablecoins

rom a regulatory a — terthought into a resilient pillar o — the U.S. — inancial system. The coming years will reveal whether this congressional wager pays o —

, or whether — urther amendments will be needed to secure the digital dollar’s — uture.

169 See Financial Stability Board, High-Level Recommendations o

the Regulation,

Supervision and Oversight o

Global Stablecoin Arrangements (July 2023) (promoting cross- border cooperation and in — ormation sharing). 170 IOSCO, a global securities regulator body, sets standards — or crypto markets to protect

investors. It has issued principles

or regulating crypto trading plat — orms akin to traditional exchanges.