--- title: "The GENIUS Act, Explained: 18 Questions Attorneys Are Asking About Payment Stablecoins" description: Who can issue a stablecoin? Are they FDIC insured? Clear answers to the GENIUS Act questions attorneys are asking right now. image: https://blog.lawline.com/hubfs/10.22.26_blog-header.png --- [![LAWL\_logo\_fullcolor\_300px (3)](https://blog.lawline.com/hubfs/Landing%20Pages/LAWL_logo_fullcolor_300px%20(3).png)](https://www.lawline.com/) - [Start Here](https://blog.lawline.com/start-here-welcome-to-lawline) - [Browse CLE Courses](https://www.lawline.com/browse) - [Pricing](https://www.lawline.com/subscription) - [Firms & Teams](https://www.lawline.com/enterprise/pricing) - [Blog Home](https://blog.lawline.com) [Start Free Trial](https://www.lawline.com/register/trial) # The GENIUS Act, Explained: 18 Questions Attorneys Are Asking About Payment Stablecoins [![Lawline Staff Writer](https://blog.lawline.com/hs-fs/hubfs/Untitled%20design%20(6).png?width=50&height=50&name=Untitled%20design%20(6).png)](https://blog.lawline.com/author/sarah-mills) [Lawline Staff Writer](https://blog.lawline.com/author/sarah-mills) 22 October, 2026 ![](https://blog.lawline.com/hubfs/10.22.26_blog-header.png) October is National Cryptocurrency Month, and there is no bigger story in digital asset regulation right now than the GENIUS Act. Signed into law in July 2025, it is the first federal regulatory framework for payment stablecoins, and it is scheduled to take effect in January 2027. For banking, finance, fintech, and regulatory attorneys, that means new licensing tracks, strict reserve rules, a wave of agency rulemaking, and a growing number of state laws designed to fit alongside the federal regime. The questions below are drawn from [GENIUS Act Implementation and the Future of Payment Stablecoins](https://www.lawline.com/course/genius-act-implementation-and-the-future-of-payment-stablecoins), presented by [Kendra Haar](https://www.lawline.com/lawyer/kendra-haar), counsel in the fintech and payments group at Paul Hastings, whose practice has focused on crypto and digital asset companies throughout her career. *Note: Stablecoin regulation is moving quickly. This post reflects the state of the law and pending rulemaking as of the course recording in August 2026. Check current agency guidance before relying on any of it in practice.* ## What is the GENIUS Act? The GENIUS Act, short for the Guiding and Establishing National Innovation for U.S. Stablecoins Act, is the first federal regulatory framework for payment stablecoins. It was signed into law in July 2025 and is set to take effect in January 2027. The law focuses primarily on how stablecoins are issued and backed, rather than how they are traded, and it creates a new category of regulated entity called a permitted payment stablecoin issuer (PPSI). ## What is a payment stablecoin? A stablecoin is a type of cryptocurrency designed to hold a stable value, usually pegged one-to-one to the U.S. dollar. Unlike Bitcoin or Ether, whose prices can swing significantly, stablecoins are meant to function like digital dollars for payments and settlement. The GENIUS Act targets fiat-backed stablecoins, which are backed by real-world reserves such as cash and short-term Treasuries. USDC, issued by Circle, and USDT, issued by Tether, are the dominant examples. ## What are the different types of stablecoins? There are three main types of stablecoins. Fiat-backed stablecoins are supported by reserves like cash, Treasuries, and money market funds, and they are the category the GENIUS Act regulates. Crypto-backed stablecoins, such as DAI, are over-collateralized with other crypto assets and carry collateral risk, while algorithmic stablecoins have largely fallen out of use after the collapse of Terra in 2022 wiped out roughly $40 billion in value. ## How does a stablecoin actually work? A customer deposits dollars with a stablecoin issuer, and the issuer mints an equivalent number of tokens on a blockchain. Those tokens can then be sent peer-to-peer, used for payments, or traded, often settling far faster than a traditional bank wire. When a holder wants dollars back, they redeem the tokens with the issuer at par, one dollar for one dollar, and the issuer returns the funds, typically to a linked bank account. # Watch Any Course for Free Start a no-risk free trial today to watch any Lawline On Demand course for free. Choose from over 2,000 courses, including attorney well-being, ethics, professional development and 40+ practice areas. [Start Watching Courses](https://www.lawline.com/register/trial) [Learn More](https://www.lawline.com/subscription) ![1-1](https://blog.lawline.com/hubfs/1-1.png) ## Are stablecoins FDIC insured? No. Payment stablecoins are backed by reserve assets, not by a government guarantee, so the stablecoin itself is not FDIC insured, even if some of the reserves are held at insured banks. This is a critical point for consumer-facing disclosures, because many holders understand that their stablecoin represents a dollar in reserve without realizing the token itself carries no deposit insurance.   ## Who can issue a payment stablecoin under the GENIUS Act? Under the GENIUS Act, only permitted payment stablecoin issuers (PPSIs) may issue payment stablecoins. The act sets out three licensing tracks: subsidiaries of insured depository institutions such as banks and credit unions, U.S. non-bank companies, and foreign issuers. Figuring out which track applies depends on the client's charter type, the volume of stablecoins it has outstanding, and where it is domiciled. ## What is the $10 billion threshold in the GENIUS Act? The $10 billion threshold determines whether a U.S. non-bank stablecoin issuer is supervised federally or at the state level. Issuers with more than $10 billion in outstanding stablecoins fall under federal oversight by the OCC, while issuers at or below that level may opt into a state regime that has been certified as substantially similar to the federal framework. Attorneys advising fast-growing issuers should plan early for crossing the line, since federal oversight follows once an issuer exceeds it, with a transition period to come into compliance. ## Can foreign stablecoin issuers operate under the GENIUS Act? Foreign issuers can access the U.S. market only if the Treasury Department determines that their home jurisdiction's regulatory regime is comparable to the GENIUS Act. As of the course recording, no jurisdiction had received that determination, including the EU, Singapore, and El Salvador, where Tether is incorporated. That makes reciprocity a significant market access question for foreign issuers and their counsel. ## What reserves does the GENIUS Act require? The GENIUS Act requires every payment stablecoin to be backed at least one-to-one by high-quality liquid assets. Permitted reserve assets include U.S. currency, Federal Reserve deposits, demand deposits at insured depository institutions, Treasury bills, notes, or bonds with 93 days or less remaining to maturity, qualifying overnight repurchase agreements backed by Treasuries, and government money market funds under SEC Rule 2a-7. These requirements are more prescriptive than most state money transmitter permissible investment rules, and the 93-day maturity cap in particular is a meaningful departure. ## What happens to stablecoin holders if an issuer becomes insolvent? Under the GENIUS Act, stablecoin holders receive a statutory super priority over all other creditors if an issuer becomes insolvent. Reserves must also be kept segregated from company assets and generally may not be rehypothecated, with a limited exception for repo margin. For attorneys advising lenders or other creditors of a stablecoin issuer, this super priority significantly changes the recovery analysis. ## Can stablecoin issuers pay interest or yield to holders? As currently written, the GENIUS Act prohibits permitted payment stablecoin issuers from paying interest or yield to stablecoin holders. Issuer activities are also limited to issuing and redeeming stablecoins, managing reserves, custody, and related supporting activities. How some of these limits will be applied in practice was still being worked out at the time of the course recording. ## Are payment stablecoins securities or commodities? No. The GENIUS Act explicitly excludes qualifying payment stablecoins from classification as securities or commodities. That removes the jurisdictional ambiguity between the SEC and CFTC that has surrounded these tokens for years and gives the industry a clearer picture of who regulates what. ## What AML and sanctions obligations apply to stablecoin issuers? FinCEN and OFAC have proposed treating permitted payment stablecoin issuers as financial institutions under the Bank Secrecy Act. That would subject them to anti-money laundering, know-your-customer, and sanctions compliance obligations similar to those of banks, trust companies, and money transmitters. The GENIUS Act also requires issuers to maintain the technical ability to block, freeze, or reject transactions that may violate the law. ## What are the penalties for violating the GENIUS Act? Knowing violations of the GENIUS Act can result in fines of up to $1 million per violation, up to five years of imprisonment, or both. Because the consequences are this serious, many stablecoin issuers are reassessing whether and how to continue issuing and what compliance programs they need in place before the act takes effect. ## Does the GENIUS Act preempt state stablecoin and money transmission laws? No. The GENIUS Act is additive rather than preemptive, so states keep their licensing, examination, and enforcement authority. Exchanges and other money transmitters that do not issue stablecoins will generally continue to be regulated by the states, though they will need to make sure the stablecoins they offer are GENIUS-compliant and that they follow the act's marketing requirements. ## Which states are building GENIUS-compatible stablecoin frameworks? Several states have moved to position themselves for substantially similar certification, although no state had been certified as of the course recording. Georgia, Florida, Delaware, Alabama, and Maryland have all enacted stablecoin legislation, with Delaware's law notable for tracking federal law dynamically as it changes. Wyoming, which launched a state-issued stablecoin in 2025 and has a special purpose depository institution charter referenced in the act, and New York, whose NYDFS has issued stablecoin guidance since 2022, are also widely seen as strong candidates. ## Where does federal rulemaking under the GENIUS Act stand? Multiple federal agencies are writing GENIUS Act rules on different timelines. The OCC published a 376-page proposed rule in February 2026 and was aiming to finalize it by November 2026, the FDIC and NCUA have issued their own proposals, and Treasury has proposed rules on state certification and on key statutory definitions such as what it means to issue or offer a stablecoin in the United States. Because the FDIC and OCC proposals differ on how reserves must be diversified across institutions, issuers regulated by both, or choosing between them, need to track the distinction closely. ## How should attorneys prepare clients for the GENIUS Act? Because many rules are not yet final, attorneys cannot yet give issuer clients a definitive compliance roadmap, so preparing for both the federal and state pathways at once is the most practical approach. Clients should run state-by-state gap assessments, start building compliance programs now against the January 2027 effective date, and monitor Federal Register notices from each relevant agency. Submitting comments on open proposals is also worthwhile, since regulators do make adjustments to details like timing and thresholds in response. ---   ## Watch Any Course for Free The GENIUS Act is reshaping how stablecoins are issued, backed, and supervised, and the rules around it are still taking shape. For the full picture, including the licensing tracks, reserve requirements, agency timelines, and state developments covered above, watch [GENIUS Act Implementation and the Future of Payment Stablecoins](https://www.lawline.com/course/genius-act-implementation-and-the-future-of-payment-stablecoins), and explore more in Lawline's [Cryptocurrency CLE catalog](https://www.lawline.com/cle/topics/cryptocurrency?topic=Cryptocurrency). [Start a no-risk free trial today](https://www.lawline.com/register/trial) to watch any Lawline On Demand course for free. Choose from over 2,000 courses, including cryptocurrency and digital assets, banking and finance, ethics, and 40+ practice areas. 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