By Partner, Michele Cea, Cea Legal P.C.

The United States took a major step towards regulating digital assets with the passage of the GENIUS Act on July 18th, 2025. The law marks a turning point for stablecoins, crypto tokens designed to maintain a steady value, typically pegged to the U.S. dollar, by establishing a clear framework for their issuance, custody and use.

This landmark legislation is expected to accelerate confidence and participation in the stablecoin market by providing legal certainty to issuers, investors, and financial institutions alike. It is also widely seen as a foundation for future digital asset laws.

A Comprehensive Framework for Digital Money

The GENIUS Act (Guides for Establishment of National Issuers of United States Stablecoins) is the first broad U.S. law aimed specifically at the digital asset industry. It establishes uniform federal standards for “payment stablecoins”, tokens used for payments or settlements that maintain a stable value relative to the U.S. dollar.

These stablecoins must be centrally administered and fully reserve-backed, with issuers obligated to redeem tokens at a fixed monetary value. Algorithmically stabilized or commodity-backed tokens, Central Bank Digital Currencies (CBDCs) and tokenized deposits are explicitly excluded from this definition.

The law’s goal is to ensure that stablecoins operate safely within the existing financial system, without creating systematic risk or consumer confusion.

What the Law Covers

The GENIUS Act defines payment stablecoins as USD-denominated, centrally administered, reserve-backed tokens used for payments or settlements. Issuers must be able to redeem tokens for a fixed monetary value and maintain that value through fully backed reserves.

The law excludes algorithmic and commodity-backed stablecoins, central bank digital currencies (CBDCs), and tokenized deposits. It also prohibits PPSI’s from paying interest or yield to stablecoin holders. In other worlds, payment stablecoins are treated as the digital equivalent of cash, not as investment products. The Act also makes clear that payment stablecoins are classified as neither securities nor commodities, reducing uncertainty over their regulatory treatment.

Key Provisions

Licensing and Oversight:

Only PPSIs can issue payment stablecoins in the U.S. These include subsidiaries of insured depository institutions, OCC-regulated non-bank issuers, branches of foreign banks, and approved state-regulated issuers with less than $10 billion in market capitalization. PPSIs are exempt from state money transmitter licensing, and other digital asset providers may only offer stablecoins issued by a PPSI.

This four-tier structure ensures oversight by appropriate federal or state authorities while allowing innovation to continue. The Treasury Department must also approve any state regimes that wish to supervise PPSIs, ensuring constant standards nationwide.

Reserve Requirements:

Issuers must maintain 1:1 reserves in fiat currency, deposits, Treasuries, or other liquid assets. Rehypothecation of reserves is prohibited. Issuers must publish monthly reserve reports, verified by an independent accounting firm, and provide CEO/CFO certification. Large issuers, those exceeding $50 billion in market cap, must also produce annual audited financial statements and disclose related-party transactions. These transparency and reporting provisions are designed to prevent the kind of market instability seen in past crypto collapses and to protect consumers by guaranteeing full backing for every issued token.

Risk Management and Compliance:

Federal and state regulators will issue additional rules covering capital, liquidity, and reserve diversification. PPSIs are considered financial institutions under the Bank Secrecy Act (BSA) and must comply with anti-money-laundering (AML) requirements. This designation means issuers must meet the same standards as traditional banks when it comes to customer due diligence, transaction monitoring, and suspicious activity reporting.

Custody Rules:

Custodial service providers must meet supervision and segregation standards to ensure user assets are protected. Custodians must maintain separate accounts for customer holdings, undergo regular audits, and remain subject to federal or state examination.

Implementation Timeline

The GENIUS Act takes effect 18 months after enactment of 120 days after final regulations are issued, whichever comes later. Federal and state regulators must finalize implementing rules within 12 months, while the ban on unlicensed issuance begins three years after enactment. As regulations are developed, current issuance methods and existing regulatory guidance remain relevant.

Existing stablecoin issuers have a transition period to adjust to the new licensing framework. During this phase, current federal guidance remains in effect, allowing national banks, FDIC-insured institutions, and federal saving associations to engage in approving stablecoin activities, such as custody and payment settlement, without prior supervisory approval. This phased rollout gives the industry time to comply while minimizing disruption to ongoing stablecoin operations and payment customs.

Options for Issuers

Because the GENIUS Act’s licensing processes are still being developed, stablecoin issuers currently rely on several established regulatory routes:

Money Service Business (MSB) and State Money Transmitter License (MTLs): Registration with FinCEN and licensing in each state, with full AML compliance and a partner bank for fiat custody.
State Trust Company: Offers flexibility and the ability to custody clients funds but may still require MTLs in certain states.
National Bank or National Trust Bank Charter: Provides federal preemption and fewer state-by-state hurdles, though review processes are lengthy and capital requirements higher. Each route comes with tradeoffs in terms of speed, cost, and regulatory scrutiny, and issuers must select the strategy that best aligns with their long-term compliance strategy.

Treatment of Non-U.S. Issuers

Non-U.S. stablecoin issuers must obtain PPSI status, operate through a licensed U.S. branch, or seek an equivalency determination from the Treasury Department. This ensures foreign issuers meet comparable standards to those operating domestically.

Foreign entities must also demonstrate that their home-country regulations provide equivalent protections for consumers, reserves and AML compliance. Those failing to meet U.S. standards may be barred from serving the domestic market.

A Gradual but Defining Shift

The GENIUS Act provides long-awaited clarity for the stablecoin sector and signals a more defined role for digital assets in the U.S. financial system. While questions remain around decentralized finance, algorithmic stablecoins, and cross-border transactions, the law represents a structured path forward.

This Act marks a pivotal moment for integrating blockchain-based payment systems into the regulated economy, bridging innovation and financial stability. Over the next three years, as federal agencies issue implementing rules, the GENIUS Act is expected to reshape how stablecoins are issued, managed, and trusted both in the United States and globally.

Michele Cea is a founding member of the firm. Mr. Cea graduated from Catholic University School of Law in Milan, Italy (J.D., 2009, with honors), and Fordham University School of Law in New York (LL.M., 2011, Cum Laude).

Prior to completing his LL.M at Fordham Law School in 2011, Mr. Cea worked in a boutique Italian corporate law firm, where he was primarily dealing with shareholder agreements and various business transactions. In New York, Mr. Cea collaborated as a foreign attorney with a preeminent white-collar law firm in matters related to financial frauds, securities regulation and corporate compliance, among others. Mr. Cea was also employed as an Associate in the New York office of an International law firm, where he represented European clients operating in the U.S. In this position, he gained a valuable experience in the business law and real estate practice area, including corporate formation and dissolution, commercial transactions, residential and commercial real estate, trademark registration and business immigration.

Mr. Cea founded his own practice focused on representing foreign nationals and companies operating in the United States. He has extensive experience with international corporate matters, real estate transactions and non-immigrant visa petitions, such as extraordinary ability and investor visas.

Mr. Cea is licensed to practice in New York (2013) and in Italy (2012). Mr. Cea is fluent in Italian and conversational in Spanish. Mr. Cea is a member of the New York City Bar Association, the New York State Bar Association.

Learn more at https://cealegal.com/.

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