“So now my granny can buy 1 stablecoin for 1 dollar and invest it, can’t she?” This question echoed through the crypto community following the recent passage and signing into law of the Guiding and Establishing National Innovation for U.S. Stablecoins Act, known as the GENIUS Act, by President Donald Trump. The response is both a hesitant yes and a cautious no. However, it’s crucial to consider the complexities of legality regarding USDT in the U.S. Let’s dive into the details.
Understanding the GENIUS and CLARITY Acts
On July 17, 2025, the U.S. Senate and House of Representatives passed federal legislation S.1582—the GENIUS Act. One day later, it was signed into law by President Trump. This marked a significant milestone during what was termed “Crypto Week.”
The GENIUS Act aims to bring clarity and regulation to the U.S. stablecoin market. Key provisions include requiring stablecoins to be backed by liquid, safe assets such as cash or U.S. Treasury instruments, while opening the door for banks to issue their own stablecoins.
Scheduled to take effect on January 8, 2027, the GENIUS Act can be enacted earlier if the necessary bylaws are adopted ahead of schedule.
The CLARITY Act complements the GENIUS Act by clarifying the asset class under which cryptocurrencies operate, a pressing concern for many businesses and investors.
A third legislative piece, the Anti-CBDC Surveillance State Act, is crafted to mitigate concerns that the growing integration of crypto could result in extensive surveillance of individuals and organizations. Reports indicate that such oversight could infringe on personal data privacy.
📌 How The GENIUS Act Regulates Stablecoins
Who Can Issue Stablecoins in the U.S.?
Under the bill’s provisions, it states: “It shall be unlawful for any person other than a permitted payment stablecoin issuer to issue a payment stablecoin in the United States.” (Sec. 3(a))
Additionally, “It shall be unlawful for any digital asset service provider to offer, sell, or otherwise make available in the United States a payment stablecoin issued by a foreign payment stablecoin issuer unless the foreign payment stablecoin issuer can comply with lawful orders…” (Sec. 3(b)(2)).
As a result, only registered issuers are permitted to issue stablecoins. Non-compliance could lead to penalties of up to $1 million and a prison sentence of up to five years. This may render the use of USDT issued by Tether illegal since the company is not registered in the U.S.
Reserve Requirements
“A permitted payment stablecoin issuer shall —
(A) maintain identifiable reserves backing the outstanding payment stablecoins… on at least a 1-to-1 basis, with reserves comprising —
(i) United States coins and currency (including Federal Reserve notes)…
(iii) Treasury bills, notes, or bonds —
(I) with a remaining maturity of 93 days or less;” (Sec. 4(a)(1)(A)).
This mandates that all stablecoins must be backed by identified reserves on a minimum 1:1 basis. For instance, 1 stablecoin should have an equivalent reserve in U.S. dollars or similar assets like Treasury bills.
These reserves need to be retained in their “pure” form, prohibitively preventing them from being used as collateral for other transactions. Limited temporary usage for liquidity during redemptions may occur, given prior regulatory approval.
Disclosures and Audits
“Publish the monthly composition of the issuer’s reserves on the website… including the average tenor and geographic location of custody of each category of reserve instruments.” (Sec. 4(a)(1)(C)).
Transparency is a major theme of this legislation. All issuers are mandated to disclose detailed accounts of their reserve composition monthly, certify their executives, and release results from independent audits conducted by a registered firm. Additionally, those with a market cap exceeding $50 billion will have to provide more extensive financial statements.
Issuers with turnover of up to $10 billion can be overseen at the state level, while larger entities will fall under federal jurisdiction. However, joint state and federal regulation is also an option.
Bank Secrecy Act, Taxes, and Payments
“A permitted payment stablecoin issuer shall be treated as a financial institution for purposes of the Bank Secrecy Act, and shall be subject to all Federal laws applicable… including —
(i) maintenance of an effective anti-money laundering program…
(vi) maintenance of an effective economic sanctions compliance program…” (Sec. 4(a)(5)(A)).
This integration means stablecoins will be woven into the U.S. banking framework. The market for payment stablecoins will be under the jurisdiction of the Department of the Treasury, the Federal Reserve, and regulatory bodies like the OCC and FDIC.
However, it’s important to note that stablecoins are not classified as legal tender.
“A payment stablecoin not issued by a permitted payment stablecoin issuer shall not be —
(1) treated as cash…
(2) eligible as cash…
(3) acceptable as a settlement asset…” (Sec. 3(g)).
Furthermore, profits from trading stablecoins will still necessitate tax payments.
The Three Categories of Tokens
The law delineates three categories of digital assets to clarify their respective jurisdictions under either the SEC or the CFTC.
These categories are:
Investment contract asset: Tokens classified as investment contracts under the Howey test, regulated by the SEC.
The Howey Test: Established under SEC v. Howey (1946), this test determines if an asset is an “investment contract” based on the criteria such as investment of money and expectation of profit from others’ efforts.
A digital commodity: This encompasses decentralized tokens that have matured and are no longer reliant on a central developer. The CFTC will regulate this category.
The legislation defines mature blockchain as a decentralized system that does not come under the control of a singular entity.
A restricted digital asset: These tokens are in transition to becoming fully circulated and will fall under the purview of both regulatory bodies.
Registration Requirements for Market Participants and Exchanges
The law stipulates that organizations facilitating trading in digital commodities must register with the CFTC, providing safeguards akin to those in traditional markets.
Implications for market participants include:
- Disclosure: Transparency in information provided to users.
- Recordkeeping: Maintenance of detailed transactional records.
- AML/KYC compliance: Adhering to anti-money laundering and know your customer regulations.
- Custodial duties: Safeguarding client funds effectively.
Mature Blockchain Exemption
If a token operates within an open, decentralized blockchain ecosystem, has proven to be independent of a single entity, and boasts notable market presence or trading volume, it may qualify for exemption from SEC registration and fall under the CFTC as a digital commodity.
This exemption is particularly significant for established cryptocurrencies like Ethereum (ETH) and Bitcoin (BTC), as they demonstrate characteristics of commodities rather than securities within the regulatory framework.
🪙 What About Your Granny and Her Money? And Your Money Too
The passage of these laws stems from several underlying motivations:
Firstly, it aims to ensure greater reliability and safety for crypto users, allowing transactions with stablecoins to carry less risk.
“Instead of recommending grandma use stablecoins, we emphasize her preference for government-protected dollar deposits earning interest, as stablecoins lack such protections,” stated Corey Frayer, director of Investor Protection for the Consumer Federation of America.
In the long run, it is conceivable that individuals like your grandmother could venture into crypto investments.
Nevertheless, the risks underlying unregulated financial products could echo events reminiscent of the 1929 stock market crash and the 2008 financial crisis.
As Frayer cautioned, “The reason for existing banking insurance and consumer protections is historical. A return to mostly unregulated banks issuing stablecoins threatens another financial crisis.”
Secondly, the legislation is a stride toward reinforcing U.S. financial sovereignty while enhancing the country’s role as a leader in digital finance.
Lastly, the focus on regulatory measures ensures accountability regarding taxes, transparency, and risk management.
The Bottom Line
Sweeping changes to user privacy have occurred since the law’s enactment:
- All compliant stablecoins are now fully transparent to state oversight.
- Genuine financial autonomy can now be sought only outside traditional finance—via anonymous cryptocurrencies like Monero, offshore accounts, or physical cash reserves.
Transactions involving regulated stablecoins will be traceable, with users’ financial activities subject to scrutiny or intervention by governmental entities.
Legal and Illegal Stablecoins in the U.S. (Under the New Law)
The NYDFS is regarded as the “gold standard” among U.S. crypto regulators. A stablecoin granted a license by the NYDFS (either through BitLicense or Trust Charter) indicates thorough vetting and ongoing monitoring, establishing the asset as “regulatory clean” and permissible for use in the U.S.
