The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, signed into law on July 18, is designed to move dollar-pegged tokens from a regulatory gray area into a supervised, payments-first framework. Supporters believe it offers legal clarity, consumer protections, and a path for programmable money. However, critics raise a significant question: If issuers are required to hold cash and short-term Treasurys, does this effectively make them structural buyers of US debt? This perspective is articulated by author and ideologist Shanaka Anslem Perera, who argues that under GENIUS, "Every digital dollar minted becomes a legislated purchase of US sovereign debt."
Key Provisions of the GENIUS Act
The GENIUS Act defines "payment stablecoins" as fiat-referenced tokens primarily used for payments and settlement. To serve US users at scale, only permitted payment stablecoin issuers are allowed, and they must back their tokens at a 1:1 ratio with a specific set of high-quality assets. These eligible assets include US coins and currency, Federal Reserve balances, insured bank deposits, short-maturity Treasurys, qualifying government money market funds, and tightly constrained overnight repos backed by Treasurys. All these assets must be held in segregated accounts.
Issuers are obligated to redeem tokens at par, regularly publish reserve disclosures, and provide audited financials once they exceed certain size thresholds. Their activities are restricted to those directly related to issuing and redeeming stablecoins, prohibiting broader lending or trading operations. Foreign issuers seeking to offer services to US customers through domestic platforms must either adhere to this framework or demonstrate to the Treasury that their home country's regulatory regime is "comparable" to the US standards.
Potential Regulatory Challenges with GENIUS
Despite its aims, the GENIUS Act may present implementation challenges for regulators. Analysts at Brookings have discussed several potential issues that may arise during the act's implementation. These concerns include the treatment of uninsured bank deposits, the potential role of large, publicly listed non-financial firms as stablecoin issuers, and the complexities of determining when foreign regulatory regimes are "comparable" to US standards. Additionally, questions remain about whether issuers will possess the necessary technological and procedural capacity to meet Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) sanctions and monitoring obligations.
The "Stealth Buyer" Argument: Stablecoin Issuers and US Debt
Shanaka Anslem Perera's analysis suggests that the GENIUS Act could transform payment stablecoin issuers into narrow banks. Their primary economic function, he argues, would be to channel global demand for digital dollars into consistent demand for short-term US sovereign debt. Perera contends that "The United States Treasury has executed a structural transformation of American monetary architecture that bypasses the Federal Reserve, conscripts the private sector as a forced buyer of government debt, and may have solved — temporarily — the terminal problem of deficit financing."
Because reserves are directed into central bank balances, short-dated Treasurys, government money market funds, and fixed short-term secured loans, and given that issuers are restricted from broad lending or extensive rehypothecation, their balance sheets are likely to be dominated by T-bills. In this scenario, compliant stablecoin issuers like Circle and Tether could become conduits for capital flows. Emerging market savers seeking to hedge against inflation or capital controls would purchase digital dollars, and issuers would invest these inflows into short-term US debt instruments, thereby providing the Treasury with cheaper funding.
Redemption Asymmetry and the Potential for a Backdoor CBDC
The same mechanism that creates a steady demand for Treasury bills could also lead to "redemption asymmetry" when market conditions change. While the Federal Reserve has maintained a stance against pursuing a central bank digital currency (CBDC) without Congressional authorization, Perera suggests this is a "peacetime policy." He references research from the Bank for International Settlements indicating that stablecoin outflows can increase Treasury yields significantly more than inflows decrease them. A substantial drawdown in the stablecoin market, potentially hundreds of billions of dollars, could lead to a rapid sell-off of short-dated Treasurys.
"That’s when the CBDC conversation resurfaces. A stablecoin crisis becomes the catalyzing event that shifts political calculus. The argument becomes: Why subsidize private stablecoin risk when a Fed-issued digital dollar eliminates counterparty concerns entirely?"
In such a scenario, the Fed's policy of requiring Congressional approval for a digital dollar would confront its financial stability mandate. The existing infrastructure could be utilized to stabilize a shock within the GENIUS framework, effectively demonstrating that private stablecoins operate with an implicit central bank backstop.
Balancing Innovation, Demand, and Trade-offs
The GENIUS Act holds the potential to deliver on its promise of fully reserved dollar tokens operating under clear federal standards, enabling faster and cheaper payments, and integrating on-chain settlement with the core dollar system. If Treasury Secretary Scott Bessent's objectives are realized, the stablecoin market could expand to trillions, creating a sustained source of demand for Treasury securities. However, this integration also intertwines US fiscal strategy, global demand for digital dollars, and the future of central bank money.
Ultimately, the GENIUS Act may prove to be an effective method for harnessing the potential of stablecoins, or it could represent the initial phase of a complex game with an outcome that includes a crisis-driven digital dollar and a more direct debate about control over the monetary pipeline.