The US Senate recently passed the Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (GENIUS Act) on June 17, 2025, in a decisive 68-30 vote, marking a watershed moment for cryptocurrency regulation and the integration of digital assets into America's financial infrastructure.
What Are Stablecoins, and Why Should Investors Care About Upcoming Regulations?
Stablecoins are a unique segment of the cryptocurrency market engineered for price stability. Their value is typically pegged to a reserve asset—most commonly the U.S. dollar—making them fundamentally different from volatile tokens like Bitcoin and Ethereum. Leading stablecoins such as USDC (USD Coin), USDT (Tether), and DAI aim to maintain a constant 1:1 ratio with the dollar through distinct stabilization mechanisms:
- Fiat-backed stablecoins (e.g., USDC, USDT) are supported by reserves in cash and short-term U.S. Treasuries.
- Crypto-backed stablecoins (e.g., DAI) use overcollateralization with assets like Ether.
- Algorithmic stablecoins rely on smart contracts to adjust token supply dynamically in response to market demand.
This engineered stability makes stablecoins critical infrastructure in digital finance. They're not only key to frictionless cross-border payments but also essential for trading on crypto exchanges, preserving liquidity, and interacting with decentralized finance (DeFi) protocols. As regulators turn their attention to these assets, understanding the mechanics and implications of legislative shifts is becoming essential for market participants.
The GENIUS Act establishes comprehensive regulatory guardrails for payment stablecoins, requiring issuers to maintain full 1:1 backing through high-quality liquid assets including cash, Treasury securities, and Federal Reserve deposits. Key provisions include:
- Dual regulatory pathway: Issuers can choose federal oversight through the Office of the Comptroller of the Currency (OCC) or state regulation, provided their outstanding stablecoins remain under $10 billion and state frameworks align with federal standards.
- Enhanced transparency: Monthly disclosure of reserve compositions is mandatory, with issuers managing over $50 billion in stablecoins subject to annual independent audits.
- Algorithmic stablecoin approach: Rather than implementing an outright ban, the Act mandates a Treasury Department study examining the risks of algorithmic stablecoins.
- Consumer safeguards: Stablecoin holders receive priority repayment rights in issuer bankruptcies, while anti-money laundering requirements strengthen compliance frameworks.
Having previously held USDC before divesting, I hadn't been closely following crypto developments until Visa's nearly 5% stock decline following the Act's passage caught my attention—particularly significant given Visa's substantial weight in my US equity portfolio. This market reaction raises the critical question: Are we witnessing the early stages of stablecoins displacing traditional payment networks like Visa and Mastercard?
From the looks of it, the threat to Visa and Mastercard is pretty significant as the Act creates a clear federal framework for stablecoins, allowing not just banks but also retailers and tech firms to issue their own fully-backed digital dollars. The incentive to do so is huge as the transaction costs of stablecoins are lower as compared to the traditional payment networks. This could force Visa and Mastercard to lower their fees which will directly impact their revenue growth.
The saving grace is that Visa has recognized the threat and is actively adapting to the rise of stablecoin-based payments by integrating stablecoins into its own infrastructure and expanding partnerships with fintech and crypto firms. Key strategies include:
- Stablecoin Settlement: Visa now allows clients to settle transactions using stablecoins like USDC and is expanding this capability to more partners and markets, including enabling 24/7 settlement and supporting additional stablecoins and blockchains.
- Cross-Border Payments: Visa is leveraging stablecoins to streamline cross-border transactions, reduce remittance costs, and enhance treasury operations, partnering with firms like Stripe, Yellow Card, Baanx, and Rain.
- Product Innovation: Visa is rolling out stablecoin-linked cards, enabling consumers to spend stablecoins at any Visa merchant, and launching platforms for banks to mint and manage stablecoins.
- Strategic Investments: Visa is investing in stablecoin-focused companies like BVNK to accelerate adoption and maintain leadership in digital payments.
- Bridging Ecosystems: Visa positions itself as a bridge between traditional finance and blockchain, helping banks and businesses integrate stablecoins while maintaining access to its global network
Visa’s approach is to embrace stablecoins as a complement to its network, not a threat, aiming to remain central to global payments as the ecosystem evolves. It is still early to conclude stablecoins will eventually replace Visa as the dominant payment system but for now I will continue to monitor the situation.
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