The US crypto business is celebrating because the GENIUS Act, a framework for stablecoin regulation, was handed within the US Senate on June 17.
The invoice handed 68-30 in a bipartisan effort, roughly six weeks after Tennessee Senator Invoice Hagerty launched it to the Senate. It is going to now head to the Home of Representatives, the place Congress should reconcile it with the Home’s personal STABLE Act, which additionally seeks to control stablecoins.
The act holds a lot of provisions, from guidelines for issuers, Anti-Cash Laundering measures and necessary 1:1 backing of stablecoins with reserves like US {dollars} and short-term Treasury securities.
Lawmakers say the invoice will provide readability and stability, however financial and authorized observers have famous that the backing clause of the GENIUS Act might pose a systemic threat to the US financial system.
Senators declare GENIUS invoice strengthens Treasury demand
Hagerty stated, “This invoice will cement U.S. greenback dominance, it’ll shield clients, it’ll drive demand for U.S. treasuries.”
The GENIUS Act’s choice for US Treasurys as a backing asset has involved some observers. Professor Yesha Yadav at Vanderbilt College and Brendan Malone, who previously labored in funds and clearing on the Federal Reserve Board, launched a paper on June 10 detailing their place.
The invoice, based on crypto-focused lawyer Aaron Brogan, “deputizes stablecoin issuers as wholesale patrons of U.S. debt. The 1-1 collateral rule funnels new token income into Treasury payments.”
The authors are involved that backing stablecoins shouldn’t be scalable with the present state of the US Treasury market. Yadav and Malone say that Circle has a circulating provide of $60 billion, whereas round $900 billion is traded in secondary Treasury markets.
Which means at the moment, if an issuer like Circle had been to liquidate its property, there’ll doubtless be ample counterparties to which it might promote its Treasurys.
Nonetheless, that is topic to alter if the stablecoin market continues to develop, which the authors observe it has:
“Stablecoins have skilled surging development within the final 5 years, with issuance increasing from round $2B in 2019 to round $230B in excellent claims by the primary quarter of 2025.”
Moreover, the Treasury market has run into liquidity issues lately, that are the results of a number of components:
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Excessive-speed, automated securities sellers are offering stiffer competitors to major lenders.
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Put up-2008 laws require banks to have “deeper rainy-day buffers of capital.”
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(1) and (2) mixed imply banks “confront highly effective incentives to keep away from” collaborating in Treasury markets.
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Excellent tradable Treasury debt (which a Treasury safety represents) has grown from $4.8 trillion in August 2008 to $28.6 trillion by March 2025.
These components mixed imply that there are fewer counterparties accessible to buy the kind of large-scale actions of debt one would count on if a stablecoin agency had been to expertise insolvency and there have been a run on redeeming its tokens.
Associated: GENIUS Act could make stablecoins ‘a part of US monetary infrastructure’
The authors observe that neither the illiquidity of Treasury markets nor the potential for a stablecoin issuer is hypothetical. Circle noticed $2 billion in USDC (USDC) faraway from circulation within the days following the collapse of its banking companion, Silicon Valley Financial institution.
Treasury markets noticed a liquidity crunch in March 2020, through the COVID-19 market chaos, the place buyers couldn’t discover counterparties to commerce their Treasurys, “inflicting costs to develop into deeply distorted.”
This occurred once more in April 2025 when US President Donald Trump made radical shifts in US commerce coverage with new tariffs: “Treasuries buying and selling skilled extreme illiquidity and weird value actions. Buyers couldn’t commerce easily, invariably triggering issues concerning the causes of this newest breakdown.”
So, what does all of it imply?
Yadav and Malone state that more and more illiquid Treasury markets and the shortly rising stablecoin ecosystem each create dangers for one another.
Within the occasion of a big stablecoin issuer experiencing a run on stablecoins, illiquidity in Treasury markets and a scarcity of counterparties might stop the issuer from having the ability to promote its securities, and it will develop into bancrupt.
This might additionally have an effect on the credibility of Treasury markets. “Development of the stablecoin business seems to be going down with out important regard for the capability of the Treasury market to maintain this development in sensible phrases,” the authors state.
Associated: Stablecoin cost quantity reaches $94B, pushed by B2B Transfers
Growing demand from the stablecoin sector might additionally crowd out different debtors who need to embrace Treasurys of their portfolios.
It might additionally change US monetary coverage and choices on how the federal government funds itself. Quick-term obligations make up round one quarter of whole Treasury debt. Choice for 10- and 30-year bonds “signifies that policymakers can usually plan out numerous initiatives that require decades-long spending.”
Beneath the GENIUS Act, stablecoin issuers ought to ideally again their property with short-term Treasurys. If the present composition of Treasury debt shifts to favor the brief time period:
“Regulatory goals for stablecoins might effectively form how the US authorities funds itself and the prices that it has to pay to take action.”
Yadav and Malone conclude with three coverage implications:
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Regulatory coordination between stablecoin policymakers and the overseers of Treasury markets
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Guarantee market-making practices in secondary Treasury markets can handle elevated demand from stablecoin issuers
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Keep the nation’s creditworthiness.
The rising interconnection between Treasurys and stablecoins “alerts a coverage crucial to make sure that some great benefits of every amplifies the opposite, fairly than their fragilities undermining the entire.”
To their credit score, regulators look like making modifications to restrict these dangers, but it surely stays unclear how efficient will probably be.
Help for stablecoin invoice in US Home of Representatives
Earlier than the GENIUS Act can doubtlessly impose systemic dangers on the American monetary system, it first has to cross the Home of Representatives.
The bipartisan hurdle for crypto could be over with the vote within the Senate. Final yr, the Home of Representatives voted and handed a crypto invoice, which was despatched to a Democratic Senate, the place it did not make it on the docket.
If members are simply as amenable to pro-crypto laws as they had been final yr, the remaining subject is to reconcile the invoice with the Home’s Stablecoin Transparency and Accountability for a Higher Ledger Economic system (STABLE) Act.
Per a report from blockchain intelligence agency TRM Labs, “the 2 payments differ in construction and scope, each replicate a rising bipartisan understanding that stablecoins.”
Key points for dialogue embrace “the construction of federal oversight, coordination with state regulators, and the regulatory therapy of algorithmic stablecoins.”
Political issues, particularly the diploma to which Trump might revenue from the invoice, nonetheless linger. Senator Elizabeth Warren stated, “This can be a invoice that was written by the business that can supercharge the profitability of Donald Trump’s crypto corruption, whereas it undercuts client safety and weakens our nationwide protection.”
Rating Democratic Congresswoman on the US Home Committee on Monetary Companies Maxine Waters has been a vocal critic of Trump’s actions within the crypto world. Waters and different high-ranking opponents to the business might maintain up the invoice.
Democrats on the fence might also be swayed by Trump’s growing involvement with the business — which many within the crypto house see as deligitimizing — and the president’s tanking approval rankings.
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