Tomorrow, the Senate is expected to hold the first procedural vote advancing the GENIUS Act, its bill to establish the legal framework for stablecoins. But a loophole in the bill threatens to put American stablecoin issuers at a disadvantage to foreign counterparts, a loophole that the House version of this legislation (the STABLE Act) would close. The Senate should follow the House’s lead and ensure equal treatment for dollar-backed cryptocurrencies.
Stablecoins are cryptocurrencies that are pegged to another commodity or currency, such as gold or the U.S. Dollar. They help expand access to dollar reserve or precious metal assets for retail investors, who no longer need to buy the physical versions of the assets in question. Investors can also use pegged stablecoins more easily for online transactions than they can precious metals, and they enable transactions in dollars with the advantages of a cryptocurrency like Bitcoin. You get the security and anonymity of crypto with the faith and credit of the U.S. Dollar, without any need for conversion.
Establishing a legal framework for stablecoins pegged to the dollar will therefore ensure the property rights of investors interested in dollar-backed cryptocurrencies. This would make transactions easier and broaden the categories of goods and services stablecoins can pay for. It is good policy that has bipartisan support.
Unfortunately, the GENIUS Act contains a loophole for foreign-based issuers of U.S. dollar payment stablecoins. Such tokens are not subject to a vast majority of the bill’s provisions, meaning cryptocurrencies pegged to the dollar in foreign countries would not be subject to US regulatory oversight or the regulatory regime laid out in the GENIUS Act. For most cryptocurrencies this would not matter, but given the regulatory oversight the U.S. Government and the Federal Reserve exercise over the dollar, foreign issuers should not be able to skirt the light-touch regulatory framework that is necessary to protect the property rights of investors.
The House bill, by contrast, would essentially require foreign stablecoin issuers to domicile in the U.S. and be subject to an American regulatory regime if they want to use the dollar to back their token. The Senate should follow the House’s lead to ensure that American issuers are not at a competitive disadvantage to foreigners not subject to any regulation at all, which would ultimately force American issuers to flee our shores for greener, unregulated pastures. This would ultimately threaten the property rights protections and common-law restitution on offer to investors if the U.S. is able to pass a framework that encourages capital formation in this country with dollar-backed stablecoins.
With reporting that Senate Democrats plan to filibuster the bill unless certain changes are made, an opportunity presents itself: the Senate should use the floor fight next week to fix the loophole. Either way, the House’s STABLE Act has passed out of committee and, if passed by the full House, would result in a conference committee to resolve this key difference between the two approaches to stablecoin regulation.
Whether through floor amendments or in a final conference with the House, the Senate should acknowledge its mistake and fix the loophole in the GENIUS Act. Only then can Congress ensure a level playing field for stablecoin issuers and increase retail investors’ access to the global market for dollars.
