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1.0 INTRODUCTION
The rapid evolution of digital finance has amplified the need for regulatory frameworks. Transformative technologies such as cryptocurrency e.g. stablecoins (digital tokens pegged to fiat currencies or other assets), amongst others, are already used for payments, remittances and cross-border settlements. Their emergence has exposed regulatory gaps and consumer protection issues. Thus, in response, in July 2025, the United States enacted the Guiding and Establishing National Innovation for U.S. Stablecoin (GENIUS Act). The law is a legislative framework that creates the first federal licensing and supervisory regime for payment stablecoin issuers.1 By establishing clear regulatory guidelines, protecting consumers, and fostering an inclusive digital economy, the GENIUS Act seeks to strike a careful balance between enabling technological advancement and ensuring responsible financial governance.2
2.0 BACKGROUND: WHY THE GENIUS ACT?
Stablecoins gained prominence as a medium of exchange and store of value within the digital financial ecosystem, however the regulatory landscape was fragmented and this led to concerns over their potential to disrupt traditional financial systems, pose risks to consumer protection, and contribute to market instability.3 Cases such as the collapse of TerraUSD (UST), which wiped out about $50 billion in value in May 20224 and investigations into Tether, whose operators overstated reserves and paid $18.5 million to settle with the New York Attorney General,5 highlighted risks. Recognising these challenges, U.S. lawmakers proposed the GENIUS Act to create a cohesive and forward-looking framework that balances innovation with accountability. The Act draws from existing financial regulatory principles while adapting them to the unique characteristics of blockchain-based assets.
3.0 STABLECOINS: DEFINITIONS & RISKS
To better understand the implications of the GENIUS Act, it is essential to clarify the key concepts that it regulates.
"Cryptocurrency" refers to digital or virtual currencies that use systems for secure transactions and operate on decentralized networks, primarily built on blockchain technology.6
"Stablecoins" represents a form of cryptocurrency designed to maintain a consistent value over time. As the term "stable" suggests, these digital assets are typically pegged to a stable reserve, such as a fiat currency like the U.S. dollar, meaning they are not intended to significantly gain or lose value, unlike more volatile cryptocurrencies.7
Risks: The rapid rise of stablecoins has created significant regulatory and operational risks. The TerraUSD collapse showed how algorithmic stablecoins can fail without strong reserves or oversight. Similarly, Tether's misrepresentation of its reserves underscored the need for transparency and regulation. These examples underscore the fragility that can accompany the misuse or mismanagement of stablecoins in the absence of well-defined regulatory oversight. While the technology behind stablecoins offers real promise for transforming financial systems, it also opens the door to market instability, consumer harm, and systemic contagion if not adequately regulated.
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Footnotes
1. Coinshares, "GENIUS Act Ushers in New U.S. Crypto Era" (2025) GENIUS Act Ushers in New Crypto Era in U.S. accessed on 3rd August 2025
2. Ashikur Rahman Nazil, 'The GENIUS Act: Regulatory Framework for Stablecoins and Its Implications for the U.S. Financial System' (19th July 2025) https://www.researchgate.net/publication/393797013_The_GENIUS_Act_Regulatory_Framework_for_Stablecoins_and_Its_Implications_for_the_US_Financial_System accessed 27 July 2025.
3. Covington, "the Genius Act becomes law: Key provisions from the Federal Stablecoin Regulatory Framework" The GENIUS Act Becomes Law: Key Provisions from the Federal Stablecoin Regulatory Framework | Covington & Burling LLP accessed on 2nd August 2025
6. Kaspersky, 'What Is Cryptocurrency and How Does It Work?' (8 December 2018) https://www.kaspersky.com/resource-center/definitions/what-is-cryptocurrency?srsltid=AfmBOoqRgo0vVP7x7fRmYZuNTOm-h1vdPkV2_NuKXB_ZhYQAgyHqsw7w accessed 27 July 2025
7. ibid
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