USA Law and Practice Contributed by: Gregory Strong, Sarah W. Chen, Brian Farber and Amil Sumaiya Malik, Cahill Gordon & Reindel LLP
The GENIUS Act reflects a statutory distinction between fiat-backed (or “payment”) stablecoins and other types of digital assets, and algorithmic and endogenously collateralised stablecoins remain out- side the Act’s core regulatory framework (see 6.2.2 Stablecoin Regulation and 6.2.3 Backing Assets for the Act’s requirements). The Act mandates a Treasury- led interagency study of non-payment stablecoins, including algorithmic stablecoins, within one year of enactment. In the interim, because such stablecoins do not benefit from the Act’s express exclusions from securities and commodities law, they may continue to be assessed under existing federal securities, commodities and consumer protection frameworks depending on their specific features and risk profiles. 6.2.2 Stablecoin Regulation In July 2025 Congress enacted and the President signed the GENIUS Act, establishing a federal frame- work for the issuance of payment stablecoins. The Act introduces requirements relating to reserve com- position, redemption rights, prudential supervision, and the licensing or approval of issuers, and contem- plates a dual federal–state regulatory regime. It further reinforces the treatment of certain fully reserved, fiat- backed stablecoins as payment instruments rather than securities, while subjecting issuers to bank-like oversight and compliance obligations. 6.2.3 Backing Assets Under the GENIUS Act, permitted payment stable- coins must be backed on at least a 1:1 basis by high-quality, liquid reserve assets. The statute limits reserves to cash and cash equivalents and specifies the categories of permissible assets, including: • US currency; • demand deposits at insured depository institutions (including foreign branches) or approved foreign institutions; • US Treasury bills, notes or bonds with a remaining maturity of 93 days or less; • overnight repurchase and reverse repurchase agreements backed by such Treasury securities; • securities issued by registered government money market funds; and • other similarly liquid, government-issued assets approved by the relevant federal regulator.
The Act also permits certain reserve assets to be held in tokenised form, provided they comply with appli- cable law. In addition, reserves must be segregated from the issuer’s operational funds and may not be commin- gled, and issuers are prohibited from rehypothecat- ing reserve assets. The Act also prohibits permitted stablecoin issuers from paying interest or yield to sta- blecoin holders. As to custody, reserves may be held as demand deposits at insured depository institutions (including foreign branches) or at foreign institutions approved by the relevant regulator. Foreign issuers accessing US markets must maintain sufficient reserves in a US financial institution to meet the liquidity demands of US customers. Finally, the GENIUS Act directs federal and state regulators to impose additional capital and liquid- ity requirements through rulemaking, tailored to the issuer’s business model and risk profile. 6.2.4 Special Considerations Outside the GENIUS Act, there is no dedicated frame- work addressing systemic stablecoin risk. However, US regulators do have tools to oversee systemi- cally important arrangements and subject them to enhanced supervision. For instance, the Financial Stability Oversight Council (FSOC) is a federal intera- gency body established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to identify and respond to risks to US financial stabil- ity. It is composed of the heads of key federal financial regulators – including the Treasury, Federal Reserve, SEC, CFTC, FDIC and OCC – along with other federal and state financial regulatory representatives. FSOC monitors systemic risks to the US financial systems and has flagged stablecoins as potential systemic risks if not properly regulated. 7. Tokenisation and Real-World Assets 7.1 Treatment As noted in 2.4 Token Issuance , the SEC released guidance regarding tokenisation in early 2026. The
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