Stablecoin Frameworks in Queue: The US Approach to Regulating Stablecoin Issuers

Key Takeaways

The US has historically regulated stablecoins through fragmented enforcement efforts but is now moving towards dedicated legislation with two new bills: the GENIUS Act and the Waters Bill.
The GENIUS Act promotes a market-driven approach, allowing smaller issuers to operate under state supervision while subjecting larger issuers to federal oversight, with strict one-to-one reserve requirements and a requirement of monthly reserve certifications.
The Waters Bill takes a more restrictive stance, placing all stablecoin issuers under Federal Reserve oversight, banning Big Tech-issued stablecoins, and outright prohibiting algorithmic stablecoins.
Prior legislative proposals, including the Lummis-Gillibrand Payment Stablecoin Act and the Clarity for Payment Stablecoins Act, have influenced these new bills.
In comparison, the UAE’s Payment Token Services Regulation provides a clearer and more centralised regulatory framework compared to the still-developing US approach, which remains divided between state and federal oversight.
The outcome of these legislative efforts will determine whether the US can maintain its competitiveness in the stablecoin market or risks falling behind jurisdictions like the UAE, EU, and Singapore.

Introduction

Regulation of digital assets in the United States (“US”) has always been piecemeal, with regulation through enforcement efforts by federal agencies extending existing financial laws to digital assets in an ad hoc manner. Unlike jurisdictions that have developed dedicated frameworks addressing cryptocurrencies, the US has yet to establish a clear regulatory framework for cryptocurrencies. However, this is set to change soon as President Trump’s approach to the regulation of cryptocurrencies is indicative of a more proactive stance (we discussed our views on the potential trajectory of cryptocurrency regulations in Trump’s second term in a previous article). In his current tenure, he has passed an executive order to promote the growth and use of digital assets.[1]

Stablecoins, particularly those pegged to the US dollar, have demonstrated their ability to optimise cross-border payments and enhance transaction efficiency. The stablecoin market saw transactions worth more than $10.8 trillion in 2023,[2] which has only increased since then, and the current market capitalisation of the stablecoin market stands at USD 216.05 billion.[3] Given their increasing role in financial markets, it has become imperative for the U.S. to establish a regulatory framework for stablecoin issuers. The U.S. currently lags behind its contemporaries, such as the European Union,[4] Hong Kong,[5] Singapore,[6] and UAE,[7] which already have or are in the process of comprehensively regulating stablecoins.

The New Stablecoin Bills in Congress

In February alone, two stablecoin bills have been introduced in US Congress – one in the Senate and the other in the House of Representatives, both taking a different approach to regulating stablecoins.

The Guiding and Establishing National Innovation for U.S. Stablecoins (“GENIUS Act”)[8]

The GENIUS Act was introduced in the US Senate by Senator Bill Hagerty, with a focus on fostering innovation while ensuring financial stability and competitiveness in the market. The GENIUS Act proposes a tiered regulatory approach, allowing smaller stablecoin issuers to operate under state supervision while subjecting larger issuers to federal oversight. It mandates that all stablecoin issuers should be registered under the federal payment stablecoin regulator or the state regulator, as applicable.[9]

Key Provisions:

One-to-One Reserve Requirements: Stablecoin issuers are required to maintain reserves on at least a one-to-one basis, which may comprise United States currency, funds held as demand deposits, treasury bills, repurchase agreements, reverse repurchase agreements, money market funds or Central Bank reserve deposits.[10]
Bar on Rehypothecation: There is a strict bar on rehypothecation or reuse of the reserves, except to create liquidity to facilitate redemption of the stablecoins.[11]
Monthly Reserve Certifications: Stablecoin issuers under the GENIUS Act are required to get a monthly certification of the reserves.[12]
Regulatory Oversight: The GENIUS Act allows smaller stablecoin issuers whose market capitalisation is under USD 10 billion to operate under state supervision, provided the state offers the same regulatory standards.[13] For all other stablecoin issuers, the Federal Reserve’s regulatory framework would be applicable to depository institutions, and the Office of the Comptroller of the Currency’s (“OCC”) framework would apply to non-bank issuers.[14]
Algorithmic Stablecoins: The GENIUS Act requires that a study of “endogenously collateralised stablecoins”, or algorithmic stablecoins, be carried out and the findings presented before the US Congress to better understand the benefits and risks of its features.[15]
Compliance with Other Laws: Stablecoin issuers are required as financial institutions under the Bank Secrecy Act[16] and are required to adhere to anti-money laundering (“AML”) and sanctions regulations. Stablecoin issuers are also subject to the Gramm-Leach-Bliley Act on consumer financial privacy.[17]

The Waters Bill for the regulation of payment stablecoins (“Waters Bill”)[18]

The second bill, introduced by Representative Maxine Waters, provides a more centralised approach with a heavier focus on consumer protection. It places all stablecoin issuers under strict federal supervision.

Key Provisions:

Mandatory Federal Reserve Oversight: All stablecoin issuers must be registered and fall under the direct supervision and oversight of the Federal payment stablecoin regulator or the Federal Reserve (depending upon whether the stablecoin issuer is a depository institution or a non-bank), with strong reserve requirements to ensure financial stability.[19]
One-to-One Reserve Requirements: Stablecoin issuers are required to maintain reserves on at least a one-to-one basis, which may comprise United States currency, funds held as demand deposits, treasury bills, or repurchase agreements.[20]
Bar on Rehypothecation: Similar to the GENIUS Act, there is a strict bar on rehypothecation or reuse of the reserves, except to create liquidity to facilitate redemption of the stablecoins.[21]
Ownership Restrictions: Anyone convicted of financial crimes, such as insider trading, embezzlement, cybercrime or money laundering, is prohibited from serving as the CEO or owning or controlling more than 5% of the shares of a stablecoin issuer.[22] This provision would, for example, bar former FTX CEO Sam Bankman-Fried from holding equity in or leading any stablecoin firm
Algorithmic Stablecoins: Unlike the GENIUS Act, the Waters Bill outrightly prohibits endogenously collateralised stablecoins (algorithmic stablecoins) from being issued by imposing a moratorium of 2 years.[23]
Compliance with Other Laws: All stablecoin issuers are subject to the Bank Secrecy Act regarding AML and sanctions regulations, along with the Gramm-Leach-Bliley Act which imposes measures on data privacy and safeguards.[24]
Ban on Big Tech-Issued Stablecoins: The Waters Bill requires the Federal Reserve to prohibit a non-financial commercial company from controlling a stablecoin issuer.[25] This would preclude tech giants such as Facebook, Google, and X from issuing stablecoins, preventing major technology firms from controlling digital payments.
Restrictions on Offshore Stablecoin Issuers: The Waters Bill includes a provision on extraterritoriality, which prohibits the offering or sale of stablecoins in the US unless the stablecoin is permitted under the said legislation.[26] This provision aims to prevent offshore companies, such as USDT issuer Tether Limited Inc, from evading U.S. regulations and operating without sufficient oversight.

Both bills represent decisive steps toward stablecoin regulation, but they reflect starkly different philosophies. The GENIUS Act promotes a flexible, innovation-driven framework that seeks to enhance US competitiveness while enforcing consumer protection and AML safeguards. The Waters Bill takes a more restrictive stance, reflecting Representative Waters’ prior wariness towards cryptocurrencies, by centralising oversight under the Federal Reserve and introducing stronger consumer protection measures, particularly aimed at preventing corporate dominance and financial misconduct.

PRIOR LEGISLATIVE PROPOSALS

The recent stablecoin bills add to a growing list of legislative frameworks for digital assets currently under consideration in the US Congress. Over the past few years, lawmakers have proposed multiple bills aimed at defining the regulatory landscape for stablecoins and broader digital asset markets.

The Financial Innovation and Technology for the 21^st Century Act was passed by the US House of Representatives in May 2024, and sought to delineate the jurisdiction and authority of the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) with respect to digital assets.[27] This Bill remains to be passed by the US Senate.[28]
The Lummis-Gillibrand Payment Stablecoin Act was introduced in the US Senate in April 2024 and received bipartisan support,[29] but remains to be passed by either House of Congress. Many of its key provisions, particularly those concerning reserve requirements and issuer oversight, have been carried forward into the GENIUS Act.
The Clarity for Payment Stablecoins Act was introduced in 2023 as the first comprehensive federal regulatory framework for stablecoins with requirements for stablecoin issuers, clear supervisory and enforcement regimes, and provisions on the safeguarding of stablecoins.[30] While it did not advance significantly, it laid the groundwork for subsequent legislative efforts, including the latest stablecoin bills.

COMPARISON WITH THE UAE

As the U.S. grapples with establishing a stablecoin regulatory framework, other jurisdictions have moved ahead with clearer, more structured approaches. The Central Bank of UAE (“CBUAE”) has already introduced Payment Token Services Regulation (“PTSR”) in 2024, which provide a comprehensive framework for the issuance and oversight of stablecoins. Comparing the U.S. regulatory proposals with the UAE’s existing regulations highlights key differences in scope, oversight, and market approach.

Factor	UAE	US
Regulatory Clarity	The PTSR provide a single, unified framework for payment tokens under the CBUAE, ensuring that all issuers comply with a standardised regulatory regime. This eliminates uncertainty and prevents conflicting oversight.	The US approach remains fragmented, with multiple federal agencies—including the SEC, CFTC, OCC, and the Federal Reserve—asserting jurisdiction, often resulting in overlapping and inconsistent requirements. While the GENIUS Act and Waters Bill attempt to bring structure, the debate over regulatory authority continues, with both bills including oversight by multiple agencies.
Licensing and Oversight	Under the CBUAE’s framework, stablecoin issuers must obtain a license and comply with strict reserve, disclosure, and operational requirements. The licensing process applies to all issuers, ensuring regulatory uniformity.	The GENIUS Act proposes a tiered system, where smaller issuers (below market capitalisation of USD 10 billion) could operate under state supervision, while larger issuers would require federal oversight. The Waters Bill, on the other hand, mandates federal registration for all issuers, similar to the UAE’s licensing requirement.
Reserve Requirements and Consumer Protection	The CBUAE mandates strict one-to-one reserve backing for payment tokens, ensuring that every issued token is fully collateralised with liquid assets such as cash or highly secure financial instruments.	Both the GENIUS Act and the Waters Bill adopt a similar one-to-one reserve model, allowing reserves in U.S. dollars, treasury bills, and other liquid instruments, while prohibiting rehypothecation The Waters Bill goes a step further to restrict big tech firms from issuing stablecoins, which exists in neither the PTSR, nor the GENIUS Act.
Algorithmic Stablecoins	The PTSR prohibits the issuance of algorithmic stablecoins and the performance of any services related to them.	Both bills are similarly antagonistic to algorithmic stablecoins. While the GENIUS Act takes a wait-and-watch approach, requiring the Federal Reserve to conduct a study to better understand the risks involved, the Waters Bill proactively prohibits the issuance of algorithmic stablecoins.
Approach to Offshore and Foreign Issuers	The PTSR allows for the registration of a foreign payment token issuer, permitting them to issue stablecoins denominated in a currency other than the UAE Dirham (“Foreign Payment Tokens”). Such Foreign Payment Tokens are permitted to be used in the UAE.	The Waters Bill, by contrast, explicitly restricts offshore issuers from bypassing US regulations, signaling a more protectionist approach. The GENIUS Act remains silent on this point.

While both the UAE and US recognize the importance of stablecoin regulation, their approaches differ significantly. The UAE’s PTSR provides a clear, centralized, and business-friendly framework, making it an attractive jurisdiction for stablecoin issuers seeking regulatory certainty. The US, on the other hand, continues to debate competing proposals, with the GENIUS Act favouring a market-driven approach and the Waters Bill advocating for stronger federal oversight.

CONCLUSION

As these bills progress through Congress, their reception among lawmakers, financial institutions, and the crypto industry will shape the future of stablecoin regulation in the United States. Market players are awaiting regulatory developments in order to make the first move, with Bank of America confirming that they will enter the stablecoin market after the introduction of appropriate regulations.[31] While the GENIUS Act and Waters Bill show significant discourse and progress, the US still lags behind jurisdictions like the UAE, EU, and Singapore, which have already established stablecoin regulations. The outcome of these regulatory efforts will determine whether the US fosters innovation in digital assets or risks falling behind in the global stablecoin market.

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[1] Strengthening America Leadership in Digital Financial Technology (Jan. 23, 2025), https://www.whitehouse.gov/presidential-actions/2025/01/strengthening-american-leadership-in-digital-financial-technology/

[2] Stablecoins and the New Payments Landscape, Coinbase (Aug. 5, 2024), https://www.coinbase.com/institutional/research-insights/research/market-intelligence/stablecoins-new-payments-landscape#:~:text=The%20stablecoin%20market%20settled%20more,today’s%20largest%20incumbent%20payment%20networks.

[3] Top Stablecoins Coins Today by Market Cap, Forbes, https://www.forbes.com/digital-assets/categories/stablecoins/?sh=509cb8401cd0

[4] The EU has introduced the Markets in Crypto-Assets Regulation, which includes provisions specifically governing asset-referenced and fiat-backed stablecoins.

[5] The Hong Kong Monetary Authority introduced a regulatory framework for fiat-referenced stablecoin issuers. Consequently, the Hong Kong government published the Stablecoins Bill, which is currently under consideration and set to become law in the coming months. See: https://cointelegraph.com/news/hong-kong-stablecoins-bill-regulation

[6] The Monetary Authority of Singapore regulates stablecoins as digital payment tokens under the Payment Services Act 2019.

[7] The Central Bank of UAE regulates stablecoins as payment tokens under the Payment Token Services Regulations.

[8] Draft bill, available at :https://www.hagerty.senate.gov/wp-content/uploads/2025/02/GENIUS-Act.pdf

[9] Section 2(15), Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (Bill).

[10] Section 4(a)(1), Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (Bill).

[11] Section 4(a)(2), Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (Bill).

[12] Section 4(a)(3), Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (Bill).

[13] Section 4(b), Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (Bill).

[14] Section 4(a)(7), Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (Bill).

[15] Section 11, Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (Bill).

[16] Section 4(a)(5), Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (Bill).

[17] Section 6(a)(1)(B), Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (Bill).

[18] Draft bill, available at: https://democrats-financialservices.house.gov/uploadedfiles/02.10.25_stable_2024_xml_12.3.24.pdf.

[19] Section 3(b)(1), Unnamed Bill for Regulation of Payment Stablecoins.

[20] Section 3(c)(4)(A), Unnamed Bill for Regulation of Payment Stablecoins.

[21] Section 3(c)(4)(B), Unnamed Bill for Regulation of Payment Stablecoins.

[22] Section 3(c)(8), Unnamed Bill for Regulation of Payment Stablecoins.

[23] Section 7, Unnamed Bill for Regulation of Payment Stablecoins.

[24] Section 3(c)(2), Unnamed Bill for Regulation of Payment Stablecoins.

[25] Section 3(e)(2)(A), Unnamed Bill for Regulation of Payment Stablecoins.

[26] Section 10, Unnamed Bill for Regulation of Payment Stablecoins.

[27] Available at: https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=409277

[28] https://www.congress.gov/bill/118th-congress/house-bill/4763

[29] Senators Introduce Bipartisan Legislation to Create US Stablecoin Regulatory Framework, Practical Law (Apr. 27, 2024), https://content.next.westlaw.com/w-043-1407?cid=9072277&chl=int&sfdccampaignid=7014O000001JkmVQAS&transitionType=Default&contextData=%28sc.Default%29

[30] Available at: https://www.congress.gov/bill/118th-congress/house-bill/4766

[31] Ayesha Aziz, Bank of America Plans to Launch Stablecoin Once U.S. Legislation is Passed, CEO Says, Yahoo Finance (Feb. 27, 2025), https://finance.yahoo.com/news/bank-america-plans-launch-stablecoin-081305207.html.