The U.S. House of Representatives has passed a new law called the GENIUS Act. This law brings strong rules for companies that want to issue stablecoins, cryptocurrencies that are tied to the U.S. dollar. The goal is to stop big tech firms and large banks from taking over the stablecoin market and to protect users.
What Is the GENIUS Act?
The name of the law is Guiding and Establishing National Innovation on US Stablecoins in full. Both democrats and Republicans supported it. Managed to get support of more than 100 democrats, which is a demonstration of its popularity.
The law has one of its main sections, which people are referring to as the Libra clause. This is in the memory of the collapsed stablecoin project of Meta (Facebook) called Libra. This project brought about a lot of questions regarding the excessive control of digital money by one tech company.
Stablecoin Issuer New Rules
According to the GENIUS Act, non-bank companies will have to form a new one in case they want to issue stablecoins. Such a new company will have to be approved by a committee whose head is the U.S. Treasury. The committee can reject the proposal in case it can lead to the unfair competition.
Banks can also issue stablecoins, but only through a separate legal company. These bank-owned companies will not be allowed to lend money, borrow funds, or take risky bets with the money. Experts say this is even stricter than what banks like JPMorgan have proposed in the past.
Dante Disparte, an executive at Circle (a major stablecoin company), said this law is a step in the right direction. “It gives clear rules and helps protect people and the U.S. dollar,” he said during an interview on the Unchained podcast.
No Interest-Paying Stablecoins Allowed
The other restriction in the law is that there is no permission to interest-bearing stablecoins. These are coins that provide profit or interest, such as a bank savings account. There is a concern that such a ban will be a blow to innovation and may drive individuals to foreign or decentralised platforms.
Disparte does not agree with this, though. To begin with, he believes that stablecoins have to be able to be credible and simple. His recommendation to the users is that they should deposit their money in the DeFi platforms like the ones developed on Ethereum so that they may get some interest on the money. First, we are able to build a nice foundation. Under such circumstances, yield may be delegated to DeFi, he described.
The regulation has the potential to give decentralised finance (DeFi) a kick start, as more people resort to using platforms with smart contracts to earn interest on them instead of centralised firms.
Is This Important?
The GENIUS Act is even being praised by most within the crypto industry, even with the limitations. It offers businesses a strict set of rules and regulations, which most of the businesses have long looked forward to. It would help the U.S. to be on the frontline of securitized and well-managed virtual money.
Amazon and Walmart, such unwieldy corporations, have already started to carry out powerful payment experiments by actively using stablecoins. Even temporarily, by 2024, the quantity of stablecoin transactions surpassed that of Visa by the time.
Next Generation Frank Combay states that the new legislation will enable the stablecoins to get the most out of them. They help them cut the expenses by more than 90%. It will change the game of companies and end users a lot, he said.
Ripple CEO Brad Garlinghouse believes the stablecoin market could grow from $250 billion to $2 trillion. With this new law in place, that future might be closer than we think.
