The U.S. Department of the Treasury has opened a 60-day public comment period on a proposed rulemaking that will define how individual states can regulate stablecoins under the federal GENIUS Act. This notice of proposed rulemaking (NPRM), published on Wednesday, outlines the specific guardrails within which state-level regulatory frameworks must operate, aiming to create a cohesive national standard while allowing for state-level innovation and oversight for smaller stablecoin issuers.
State-Level Regulation Aligned with Federal Baseline
Enacted in July, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act establishes a dual-track regulatory system. It grants states the authority to create and enforce their own licensing and supervision regimes for stablecoins with a market capitalization below $10 billion. However, this state authority is not without strict limits. Any state framework must achieve regulatory outcomes that are “at least as stringent and protective as the Federal regulatory framework,” as the Treasury’s proposal emphasizes.
The NPRM mandates several non-negotiable federal standards that all state regimes must incorporate. Foremost is the requirement for a 1:1 reserve backing, where each stablecoin token must be supported by cash or high-quality cash equivalents. Issuers must also adhere to monthly reporting requirements, providing transparency on their reserve assets. Furthermore, states must fully enforce federal anti-money laundering (AML) and sanctions compliance measures. A critical prohibition is against rehypothecation—the practice of using the same underlying asset to back multiple stablecoin claims—which is explicitly banned to prevent systemic risk.
Room for Stricter State Rules
While states cannot weaken federal protections, the proposal explicitly allows them to impose more restrictive rules. States may enact their own, stricter requirements concerning liquidity, risk management, administrative procedures, and enforcement actions, provided these rules set higher financial thresholds or are otherwise more rigorous than the federal floor. This structure is designed to let states like New York, with its existing BitLicense framework, potentially maintain or develop more demanding standards for the issuers they supervise.
Once a stablecoin issuer’s market cap surpasses the $10 billion threshold, federal authority—specifically from federal banking regulators—automatically takes exclusive jurisdiction. This “cap and transfer” mechanism ensures that the largest and most systemically important stablecoins, such as Tether (USDT) and USD Coin (USDC), which far exceed this cap, will be regulated under a single, uniform federal regime.
Uncertainty Looms Over Yield-Bearing Tokens
Despite the clarity brought by the GENIUS Act’s passage, a significant debate over yield-bearing stablecoins has stalled related legislation, notably the CLARITY crypto market structure bill in Congress. These are stablecoins designed to automatically generate interest or yield for holders, often by
