This article mainly discusses the two major stablecoin-related bills that will be submitted for review in 2025: the GENIUS Act and the STABLE Act, and explores the impact these bills may have on the growth of stablecoins.

Original article: GENIUS Act vs STABLE Act: Will Congress Kill or Fuel Stablecoin Growth?

By: Leviathan News

Compiled by: LlamaC

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Since the FTX crash, stablecoin supply has doubled to $215 billion in 18 months, and this figure does not yet include contributions from emerging crypto players such as Ondo, Usual, Frax and Maker.

With interest rates currently at 4-5%, the stablecoin industry is extremely profitable. Tether made a staggering $14 billion (!) in profit last year with less than 50 employees. Circle is also planning to file an IPO application in 2025. Stablecoins are sweeping everything.

With Biden leaving office, stablecoin legislation is inevitable in 2025. The banking industry has watched Tether and Circle seize the market for five years. Once the new law is passed to legalize stablecoins, major banks across the United States will surely issue their own digital dollars.

There are currently two important legislative proposals on the agenda: the United States Stablecoin National Innovation Leading Act of 2025 (GENIUS Act) proposed by the Senate, and the Stablecoin Transparency and Ledger Economic Optimization Accountability Act of 2025 (STABLE Act) introduced by the House of Representatives.

These bills have been going back and forth for a long time... but now we have finally reached an agreement and one of them will be officially passed before the end of this year.

Both the GENIUS Act and the STABLE Act attempt to establish a federal licensing framework for issuers of “payment stablecoins,” establish strict reserve requirements, and clarify regulatory responsibilities.

Payment stablecoins are just a fancy name for legal digital dollars issued by banks or non-bank institutions based on their own balance sheets. Such digital assets are specifically used for payment settlement, their value is anchored to a fixed currency (usually pegged to the US dollar at a 1:1 ratio), and are backed by short-term government bonds or cash as reserves.

Opponents of stablecoins worry that they will weaken the government’s control over monetary policy. I recommend reading Gorton and Zhang’s authoritative book, “Taming Wildcat Stablecoins,” which examines these concerns in detail.

The first iron rule of the modern dollar is to maintain the peg and not decouple.

A dollar is always worth the same no matter where you are.

Whether you deposit it into a JPMorgan Chase account, store it in a Venmo or PayPal account, or use it as Roblox platform credits, you must always follow these two rules when using U.S. dollars:

• All dollars must be freely convertible: there should be no mental account of dollars being divided up as "special," "reserved," or tied to specific uses. Dollars held by JPMorgan should not be treated any differently than dollars on Tesla's balance sheet.
• Dollars are fungible: all dollars have equal value in all scenarios, whether in cash, bank deposits or reserves.

The entire fiat currency financial system is built on this core principle.

The core responsibility of the Federal Reserve is to maintain a stable and strong exchange rate for the U.S. dollar and eliminate any risk of decoupling.

The above slide is from Zoltan Pozsar’s How the Financial System Works. This authoritative guide to the U.S. dollar will help you deeply understand the legislative intent of these stablecoin bills.

Currently, all stablecoins are classified as private shadow currencies, located in the lower right corner of the classification chart. Even if companies such as Tether or Circle go bankrupt or are shut down, although it will cause a devastating blow to the cryptocurrency field, the impact on the entire financial system will be almost negligible. Our daily lives will continue to operate as usual.

Economists worry that risks would arise if stablecoins were legalized, banks were allowed to issue them and they became public shadow currencies.

Because in a fiat currency system, the only critical question is who will be covered when a crisis occurs - as revealed in the slide above.

Remember the 2008 financial crisis? At that time, U.S. mortgage securities accounted for only a tiny share of the global economy, but the banking industry generally adopted a high-leverage operation model of nearly 100 times, and collateral was circulated between the balance sheets of various institutions. When banks such as Lehman Brothers collapsed, high leverage and balance sheet risk transmission mechanisms triggered a series of chain collapses.

Global monetary institutions such as the Federal Reserve and the European Central Bank had to intervene to protect banks from the bad debt crisis. Despite the tens of billions of dollars spent on rescue, the banking industry was finally able to stabilize. The Fed will always rescue the banking system because if the banks collapse, the global financial system will be paralyzed, and those institutions with weak balance sheets may even be at risk of losing their dollar peg.

One does not need to go back to 2008 to find similar cases.

In March 2023, Silicon Valley Bank collapsed in just one weekend, triggered by a run on the bank caused by concentrated withdrawals through digital channels and panic on social media. The bank's collapse was not due to high-risk mortgages, financial derivatives or cryptocurrency investments, but because its "safe assets" - long-term US Treasury bonds - depreciated sharply as interest rates soared. Although Silicon Valley Bank is not a large player in the financial system, its collapse could trigger systemic risks, forcing the Federal Reserve, the Federal Deposit Insurance Corporation and the Treasury Department to urgently provide full guarantees for all deposits (including those exceeding the standard insurance limit of $250,000). This rapid rescue operation reveals a profound lesson: when people's trust in US dollar assets is shaken, the entire financial system may collapse in an instant.

The collapse of SVB quickly spread to the cryptocurrency market. At the time, Circle, the issuer of USDC, had a total circulation of about $30 billion, and most of its reserves were stored in SVB. That weekend, USDC decoupled by about 8 cents, falling to $0.92 at one point, causing panic in the entire crypto market. Imagine if such asset decoupling occurred on a global scale, the consequences would be disastrous - this is the potential risk brought by these new stablecoin bills. Allowing banks to issue stablecoins on their own means that policymakers may embed volatile financial instruments deeper into the global financial system, and when the next financial crisis inevitably comes, its destructiveness will be infinitely magnified.

The core idea of ​​the above slide is that once a financial crisis breaks out, the government will ultimately need to step in to rescue the financial system.

The U.S. dollars currently in circulation can be divided into several categories, each with different levels of security.

The US dollar issued directly by the government (i.e. M0 currency) enjoys the full credit endorsement of the US government and is essentially risk-free. However, as the currency level extends to the banking system and is divided into M1, M2 and M3, the effectiveness of the government guarantee will decrease step by step.

This is precisely the crux of the controversy surrounding bank bailouts.

Bank credit is the core of the U.S. financial system. However, banks often pursue risk maximization within the legal framework, resulting in excessive leverage and crises. Once their risk-taking behavior gets out of control, it will trigger a financial crisis, and the Federal Reserve will have to intervene to provide relief to avoid the collapse of the entire financial system.

The worry is that because the vast majority of money today exists in the form of bank credit, and banks are highly interconnected and highly leveraged, the simultaneous collapse of several banks could set off a chain reaction that would impact entire industries and asset classes.

We saw this firsthand in 2008.

Who could have predicted that a seemingly localized part of the U.S. housing market would destabilize the global economy? However, due to excessive leverage and fragile balance sheets, the banking system was vulnerable when the collateral that was once considered safe collapsed.

This background explains why stablecoin legislation is controversial and progress is slow.

Therefore, legislators have always maintained a prudent attitude and clearly defined the qualification standards for stablecoins and their issuers.

This cautious attitude has given rise to two opposing legislative proposals: the GENIUS Act takes a more flexible regulatory approach to the issuance of stablecoins, while the STABLE Act strictly limits issuance qualifications, interest payments and issuer qualifications.

Still, both bills mark important progress that could potentially unlock trillions of dollars in funding for on-chain transactions.

Let’s take a closer look at the two bills to see what similarities and differences they have, and ultimately what the core controversy is.

The GENIUS Act: A regulatory framework for stablecoins proposed by the US Senate

The GENIUS Act (full name: The United States Stablecoin National Innovation Guidance Act), introduced in 2025, was jointly proposed by Tennessee Republican Senator Bill Hagerty, Tim Scott, Kirsten Gillibrand, Cynthia Loomis and other bipartisan lawmakers in February 2025.

On March 13, 2025, the bill was passed by the Senate Banking Committee with 18 votes in favor and 6 votes against, becoming the first cryptocurrency-related bill to successfully pass.

The GENIUS Act clearly defines stablecoins as a digital asset whose value is typically pegged 1:1 to the U.S. dollar and is primarily designed for payment or settlement scenarios.

While there are other types of “stablecoins,” such as Paxos’ gold-backed PAXG, tokens tied to commodities such as gold and oil are generally not covered by the current draft of the GENIUS Act, which only targets stablecoins tied to fiat currencies.

Commodity-backed tokens are generally regulated by the CFTC or SEC based on their structure and purpose, rather than by legislation specifically targeting stablecoins.

If Bitcoin (BTC) or gold ever become a mainstream payment currency — such as when we all move to a Bitcoin-funded utopia — the bill might apply; but for now, they remain outside the direct scope of the GENIUS Act.

This is a bill proposed by the Republicans. The proposal was prompted by the Biden administration and the Democratic Party's refusal to enact any legislation targeting cryptocurrencies during the previous administration.

The bill establishes a federal licensing system, clearly stipulates that only authorized entities can issue payment stablecoins, and divides compliant issuers into three categories:

• Bank Subsidiary – A subsidiary of an insured depository institution (such as a bank holding company) that is specifically responsible for issuing stablecoins.
• Uninsured depository institutions – These may include trust companies or other state-chartered financial institutions that accept deposits but are not insured by the Federal Deposit Insurance Corporation (FDIC). Many current stablecoin issuers fall into this category.
• Non-bank entities – A new federal charter category for stablecoins issued by non-bank institutions (sometimes referred to as "payment stablecoins" in the bill). Such issuers will be subject to federal charter approval and supervision by the U.S. Office of the Comptroller of the Currency (OCC).

It is not difficult to imagine that all stablecoin issuers must use highly liquid, high-quality assets such as cash, bank deposits or short-term U.S. Treasury bonds as full 1:1 reserves. At the same time, these institutions are also required to disclose their reserves publicly on a regular basis and accept audits by licensed accounting firms to ensure operational transparency.

A major highlight of the GENIUS Act is its dual regulatory structure: small issuers of stablecoins with a circulation size of less than $10 billion can continue to be regulated by state agencies as long as their state's regulatory standards are no lower than federal guidelines.

Wyoming has become the first state in the U.S. to attempt to issue a stablecoin regulated by state law.

Large issuers are subject to direct federal regulation, primarily through the Office of the Comptroller of the Currency (OCC) or the relevant federal banking regulators.

It is worth noting that the GENIUS Act clearly stipulates that compliant stablecoins do not fall into the category of securities or commodities. This move not only clarifies the division of regulatory powers and responsibilities, but also eliminates market concerns about the SEC (U.S. Securities and Exchange Commission) or CFTC (U.S. Commodity Futures Trading Commission) intervening in supervision.

Critics have previously advocated that stablecoins should be included in the scope of securities regulation. Obtaining securities status means that their issuance and circulation will be more convenient and widespread.

"The STABLE Act: House Rules"

In March 2025, U.S. Representatives Brian Steele (R-Wisconsin) and French Hill (R-Arkansas) jointly proposed the Stablecoin Transparency and Accountability for Ledger Economic Optimization Act (STABLE Act). Although the bill is highly similar to the GENIUS Act, it adds a unique financial risk prevention and control mechanism.

Crucially, the bill explicitly prohibits stablecoin issuers from providing interest or returns to holders, thereby ensuring that stablecoins are used only as a payment tool to replace cash rather than an investment product.

In addition, the STABLE Act stipulates that the issuance of new algorithmic stablecoins (i.e. stablecoins that rely entirely on digital assets or algorithms to maintain their pegs) will be suspended for two years until further regulatory assessments are completed and corresponding safeguard mechanisms are established.

Two Acts, Sharing the Same Legal Basis

Although there are some differences, the GENIUS Act and the STABLE Act show important consensus, which reflects that the two parties have reached a broad consensus on the basic principles of stablecoin regulation. The core consensus of the two bills is mainly reflected in:

• Stablecoin issuers are required to obtain strict licenses to strengthen regulatory compliance.
• It is stipulated that stablecoins must be fully backed 1:1 by highly liquid, low-risk reserve assets to prevent solvency risks.
• Implement strict transparency requirements, including regular public disclosure and independent audits.
• Establish clear consumer protection mechanisms, with a focus on asset isolation measures and priority repayment rights in the event of the issuer's bankruptcy.
• By clearly defining that stablecoins are neither securities nor commodities, a clear basis is provided for regulation, thereby optimizing the jurisdiction and supervision process.

Although the underlying principles are the same, the GENIUS Act and the STABLE Act differ significantly in three key areas:

• Interest payment clause: The GENIUS Act supports stablecoins to provide interest or income to holders, which opens up space for financial innovation and expands the application scenarios of stablecoins. However, the STABLE Act explicitly prohibits interest payments and strictly limits stablecoins to be used only as a payment tool and cannot have investment or interest-bearing functions.
• Algorithmic stablecoins: The GENIUS Act is cautiously open, requiring regulators to closely study and monitor such stablecoins rather than directly banning them. The STABLE Act is completely different, explicitly suspending the issuance of new algorithmic stablecoins for two years. This tough measure stems from a high degree of vigilance against previous market crashes.
• Differences between state and federal regulatory standards: The GENIUS Act clearly stipulates that when the issuance scale of stablecoins reaches US$10 billion, the issuer must switch from state-level regulation to federal regulation, thereby clearly defining its systemic importance. Although the STABLE Act recognizes similar standards, it does not set specific numerical thresholds, leaving room for regulators to flexibly adjust according to market changes.

Why no interest? Analysis of the ban on stablecoin income

The STABLE Act (and previous related proposals) proposed by the House of Representatives contains an interesting provision: stablecoin issuers are prohibited from paying interest or any other form of income to holders.

In practice, this means that compliant payment stablecoins must operate like digital cash or a stored value instrument - holding 1 stablecoin can be exchanged for 1 US dollar at any time, but no additional income will be generated over time.

This is in stark contrast to other financial products such as bank savings that may generate interest, or products such as money market funds that can provide income.

Why are such restrictions imposed?

"The establishment of the 'no interest rule' has multiple legal and regulatory bases, and its roots are in US securities laws, banking laws and related regulatory guidelines."

Avoiding Securities Characterization

One of the main reasons for prohibiting interest payments is to prevent stablecoins from being judged as investment securities under the Howey Test.

The Howey Test (derived from a 1946 U.S. Supreme Court ruling) states that an asset constitutes an “investment contract” (i.e., a security) if it involves the investment of funds into a common enterprise and the expected profits come primarily from the efforts of others. A stablecoin that is purely a payment tool is not intended to make a profit—it is simply a token with a value anchored at $1.

However, when the issuer starts to provide returns (for example, a stablecoin pays a 4% annualized rate of return through reserves), users will expect to profit from the issuer's operations (the issuer is likely to generate this part of the income by investing in reserves). This situation may trigger the Howey Test, causing the U.S. Securities and Exchange Commission to determine that the stablecoin falls within the scope of securities issuance.

In fact, former SEC Chairman Gary Gensler has suggested that some stablecoins may be considered securities, especially those that simulate money market fund shares or have profit-making properties. To this end, the framers of the STABLE Act explicitly prohibit the payment of interest or dividends to coin holders, thereby eliminating any profit expectations - ensuring that stablecoins are used only as payment tools, not investment contracts. With this move, Congress was able to clearly classify regulated stablecoins as non-securities, as stated in both bills.

But the problem with this ban is that interest-bearing stablecoins like Sky’s sUSDS and Frax’s sfrxUSD already exist on-chain. Banning interest payments will only create unnecessary barriers for companies that want to experiment with different business models and stablecoin systems.

Maintaining the boundaries between banking and non-banking sectors

The U.S. banking law has always classified deposit-taking as the exclusive business scope of banks (and savings institutions/credit unions). (Deposits are securities products)

The Bank Holding Company Act (BHCA) and its supporting regulations, enacted in 1956, clearly stipulate that commercial enterprises are not allowed to accept deposits from the public. If they want to conduct deposit-taking business, the subject must be a regulated banking institution, otherwise they will be treated as banks and face comprehensive regulatory requirements.

A financial instrument in which a customer gives you U.S. dollars and agrees to return them with interest, which is essentially a deposit or investment note.

Regulators said that if stablecoins function too similarly to bank deposits, they may be subject to relevant legal restrictions.

By prohibiting interest payments, the STABLE Act is intended to prevent stablecoins from masquerading as uninsured bank accounts. Such tokens would be classified as stored-value cards or prepaid balances — products that non-bank institutions can issue under current regulations if they meet certain conditions.

As one legal expert put it, companies should not be able to circumvent compliance requirements under the Federal Deposit Insurance Act and the Bank Holding Company Act simply because they package their deposit-taking activities as stablecoins.

Indeed, if stablecoin issuers were allowed to pay interest, they could compete with banks for deposit-like funds (but lack the equivalent protections of FDIC insurance or Federal Reserve regulation), which would likely be viewed as unacceptable behavior by banking regulators.

It is worth noting that the stability of the US dollar and the financial system depends entirely on the credit capacity of banks - including issuing home loans, commercial loans and other trade-related debts, which are often accompanied by extremely high leverage, and retail deposits are used as a key backstop to support their reserve requirements.

JP Koning's point about PayPal USD is very instructive and relevant to the current discussion. Currently, PayPal actually offers two different forms of USD services.

One is the regular PayPal balance you are familiar with - this type of funds is stored in the form of US dollars in a traditional centralized database. The other is a new cryptocurrency, PayPal USD, which runs on blockchain technology.

You might think that traditional methods are safer, but surprisingly, PayPal's cryptocurrency version of the dollar is actually safer and provides more comprehensive protection for consumers.

Here’s why: Regular dollars in a PayPal account aren’t necessarily backed by the safest assets.

A review of PayPal's public disclosure documents shows that only about 30% of its customer funds are allocated in top-level safe assets such as cash or U.S. Treasuries, while nearly 70% of the funds are invested in higher-risk, longer-term asset classes such as corporate bonds and commercial paper.

Even more disturbing is that, strictly speaking, these traditional account balances are not actually owned by you.

If PayPal goes bankrupt, you will become an unsecured creditor and will have to work with other creditors to recover the money owed. You will be lucky if you can recover the full amount of your funds.

In contrast, the cryptocurrency version of PayPal USD must strictly comply with New York State Department of Financial Services regulations, and its value must be fully backed by ultra-safe short-term assets such as cash equivalents and U.S. Treasuries.

Not only is the asset reserve of this stablecoin safer, but the ownership of the cryptocurrency balance is clearly attributed to the user: the relevant reserves must be held in the name of the holder's benefit by law. This means that even if PayPal goes bankrupt, you can get your funds returned before other creditors.

This distinction is critical, especially when considering overall financial stability. Stablecoins such as PayPal USD are not subject to the balance sheet risks, leverage or collateral issues that are common in the banking system.

When a financial crisis hits—just when people need safe havens the most—investors may flock to stablecoins, precisely because they have nothing to do with banks’ risky lending practices or the instability of fractional reserve lending. Ironically, stablecoins may end up functioning more like safe havens than the risky speculative vehicles they are widely believed to be.

This is catastrophic for the banking system. By 2025, money flows have become synced with the internet. The collapse of Silicon Valley Bank (SVB) was compounded by panicked investors rapidly withdrawing their funds through digital channels, a chain reaction that worsened and ultimately led to its complete collapse.

Stablecoins are a superior form of money and banks are deeply afraid of them.

The compromise of these bills is that as long as the dollar tokens issued by non-bank institutions do not involve the function of paying interest, they can be allowed to be issued - thus avoiding direct encroachment on the business area of ​​banks' interest-bearing accounts.

This draws a clear line: banks are responsible for taking deposits and making loans (and can also pay interest), while the bill stipulates that stablecoin issuers are only required to hold reserves and process payments (they are not allowed to engage in lending business and do not pay interest).

This is essentially a modern interpretation of the concept of "narrow banking", where stablecoin issuers function similarly to 100% reserve banks and should not engage in maturity transformation or provide interest income.

Historical comparison (Glass-Steagall and Regulation Q)

The Glass-Steagall Act, enacted in 1933, is known for its separation of commercial and investment banking businesses. At the same time, Regulation Q was introduced, which for decades prohibited banks from paying interest on demand deposit accounts (i.e., checking accounts). The original intention of this policy was to curb vicious competition among banks to attract deposits and maintain the stability of the financial system (excessive risk-taking behavior caused by high-interest deposits in the 1920s led to the bankruptcy of many banks).

Although Reg Q's prohibitions were eventually phased out (and completely lifted in 2011), its core philosophy was that everyday trading funds should not double as interest-earning investments.

Stablecoins are essentially designed to act as highly liquid trading balances, similar to current deposits or cash on hand in traditional finance. Legislators’ prohibition of interest-bearing is a continuation of this traditional concept: ensuring that payment tools are simple and safe, and drawing a clear line between them and investment products with yield attributes.

This approach also avoids the formation of a similar uninsured shadow banking system (see Pozsar's point above, and note that private shadow banks are generally not eligible for bailouts)

If the issuer of the stablecoin provides interest income, its operating model is essentially the same as that of a bank - after absorbing funds, it earns interest by investing in government bonds or issuing loans.

However, unlike banks, the lending and investment activities of stablecoin issuers are not subject to other regulatory constraints except for the reserve requirements. Users may mistakenly regard them as safe as bank deposits, but fail to realize the potential risks.

Regulators are concerned that this could trigger a "bank run risk" in a crisis - if the public mistakenly believes that stablecoins are as safe as bank accounts, once their value fluctuates, it could lead to large-scale concentrated redemptions, exacerbating overall market pressure.

Therefore, the interest-free rule requires stablecoin issuers to hold reserves, but prohibits them from chasing returns through borrowing or risky investments, thereby significantly reducing the risk of a run (because reserves are always equal to liabilities).

This definition protects the stability of the financial system by preventing large amounts of money from flowing into unregulated, bank-like financial instruments.

Effectiveness, practical value and influence

The direct impact of the bill is to fully incorporate stablecoins into the regulatory framework, which is expected to improve their security and transparency.

Currently, stablecoin issuers such as Circle (USDC) and Paxos (PayPal USD) voluntarily comply with strict state-level regulatory requirements, especially New York State’s trust framework system, but there is no unified standard at the federal level.

These new regulations will establish uniform national standards to ensure that each stablecoin is fully backed by high-quality assets such as cash or short-term government bonds at a 1:1 ratio, providing consumers with greater protection.

This is a major win: the move strengthens trust and makes stablecoins safer and more reliable, especially after high-profile crisis events such as the UST collapse and SVB’s closure.

Furthermore, by clarifying that compliant stablecoins do not fall under the umbrella of securities, the ongoing threat of a U.S. Securities and Exchange Commission (SEC) regulatory raid is eliminated, thereby shifting regulatory responsibility to more appropriate financial stability regulators.

In terms of innovation, these bills are surprisingly progressive.

Unlike earlier strict proposals (such as the initial STABLE draft in 2020, which mandated that only banks could issue stablecoins), these new bills open a path for fintech companies and even large technology companies to issue stablecoins by obtaining federal charters or partnering with banks.

Imagine that companies such as Amazon, Walmart, and even Google issue their own brand of stablecoins and gain widespread circulation in their huge ecosystems.

Facebook was very forward-looking when it tried to launch Libra in 2021. In the future, every company may issue its own branded token, and even influencers and ordinary individuals may have their own digital currency...

Would you consider buying Elon Coin or Trump Coin?

Count us in.

However, these bills also come with significant trade-offs.

No one can predict where decentralized stablecoins will ultimately go. It is questionable whether they will be able to effectively manage capital reserves, pay licensing fees, conduct ongoing audits, and bear other compliance costs. This situation could inadvertently give large incumbents such as Circle and Paxos an advantage, while squeezing out small or decentralized innovators.

What will happen to DAI? If they cannot obtain a license, they may be forced to withdraw from the US market. The same is true for Ondo, Frax and Usual, none of which currently meet regulatory requirements. We may witness a major reshuffle in the industry in the second half of this year.

in conclusion

The United States' progress in promoting stablecoin legislation fully demonstrates the significant progress made in related discussions in just a few years.

What was once considered fringe is now at the forefront of a new financial revolution, and although it comes with strict conditions, it is about to receive formal recognition from official regulators.

We have made great progress, and these bills will drive a new wave of stablecoin issuance.

The GENIUS Act is more inclined to allow market innovation (such as interest mechanisms or new technology applications) within the regulatory framework, while the STABLE Act takes a more cautious approach to these areas.

These differences will have to be reconciled as the legislation moves forward, but given the bipartisan support and the Trump administration’s stated desire to push legislation through by the end of 2025, one of the proposals will eventually become law.

This is a win for our industry and the dollar.

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