US Treasury Seeks Public Input on State Stablecoin Rules

• The US Department of the Treasury has issued a notice of proposed rulemaking regarding state-level stablecoin governance under the GENIUS Act.
• Under the proposal, states will regulate stablecoin issuers with a market capitalization below $10 billion, while the federal government retains exclusive jurisdiction over larger issuers.
• Key requirements for issuers include 1:1 reserve backing with high-quality assets and a strict prohibition on token rehypothecation.
• The public has 60 days to submit comments on the proposed framework as the total stablecoin market approaches $300 billion.

Implementation of the GENIUS Act

The US Treasury’s recent notice marks a significant step in the application of the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act. Signed into law by President Donald Trump in July, this legislation provides a structured approach to oversight by dividing responsibilities between state and federal authorities. Specifically, states are empowered to manage stablecoin frameworks for smaller entities, provided their rules are at least as stringent as federal standards. Once an issuer exceeds a market cap of $10 billion, regulatory authority automatically shifts to the federal level.

Standards and Compliance Requirements

The proposed rules establish a baseline of non-negotiable standards to ensure financial stability. These include:

• 1:1 reserves consisting of cash or high-quality cash equivalents.
• Monthly reporting to ensure transparency and accountability.
• Full compliance with federal anti-money laundering (AML) and sanctions protocols.
• A total ban on rehypothecation, preventing the same asset from being used to back multiple claims.

While states have the flexibility to implement their own risk management and administrative procedures, the Treasury emphasized that state-level outcomes must be equally or more protective than the federal framework.

Market Context and Ongoing Debates

This regulatory push comes as the dollar-pegged stablecoin market nears a total capitalization of $300 billion. However, the industry remains divided over yield-bearing stablecoins. Companies like Coinbase argue these tokens offer a vital alternative to traditional savings accounts, which often provide interest rates below 1%. Conversely, the banking lobby has opposed these products, citing concerns over deposit flight and market share erosion. This disagreement has contributed to the stalling of the CLARITY crypto market structure bill in Congress, even as the GENIUS Act moves toward full implementation.