US Treasury seeks public input for state-level stablecoin regulations

The US Department of the Treasury has issued a notice of proposed rulemaking (NPRM) seeking public comment on regulations for state-level stablecoin governance frameworks, as outlined by the GENIUS Act. This proposed framework, officially the “Guiding and Establishing National Innovation for US Stablecoins Act,” empowers states to regulate stablecoins with a market capitalization below $10 billion, provided their rules do not significantly diverge from federal policies.

Key Regulatory Requirements

The Treasury has specified several non-negotiable stablecoin regulations that must align with federal standards. These include maintaining a 1:1 reserve backing with cash or high-quality cash equivalents and adhering to monthly reporting requirements. Furthermore, states must ensure full compliance with federal anti-money laundering and sanctions policies. Prohibitions on token rehypothecation, where the same asset backs multiple claims, must also be upheld.

Under the proposal, states have the flexibility to implement their own rules regarding liquidity, reserves, risk management, regulatory procedures, enforcement, and administration. However, these state-specific rules must impose higher financial thresholds or be more restrictive than the federal regulations. The NPRM mandates that state-level regulatory regimes must achieve outcomes that are at least as stringent and protective as the federal framework.

Federal vs. State Jurisdiction

Public comments on the NPRM are due within 60 days of its announcement. Once a stablecoin issuer surpasses the $10 billion market cap threshold, it will automatically fall under the exclusive regulatory jurisdiction of the federal government. This means the largest stablecoin issuers will be regulated solely at the federal level.

Background on the GENIUS Act

US President Donald Trump signed the GENIUS Act into law in July, marking a significant development in cryptocurrency regulations. However, the bill has faced challenges, particularly concerning yield-bearing stablecoins and the ability of issuers to share interest with token holders. This uncertainty has reportedly stalled the CLARITY crypto market structure bill in Congress.

Proponents, including companies like Coinbase, argue that yield-bearing stablecoins offer a competitive alternative to traditional savings accounts, which often yield less than 1%. Conversely, the banking lobby has expressed concerns that these tokens could lead to deposit flight and diminish the market share of traditional banking services.