Stablecoin Regulation Under the Genius Act: States Seek Room to Govern

The Conference of State Bank Supervisors pressed the Treasury Department to recalibrate its approach to oversight of stablecoin issuers so states retain discretion to go beyond national baselines. The group argues a flexible regulatory framework is essential as payment stablecoins and broader digital asset markets evolve.

Dive Brief

• This week, the Conference of State Bank Supervisors asked Treasury to revise guidance for supervising any stablecoin issuer, preserving state discretion and flexibility to set requirements beyond federal parameters, according to a public statement.
• In a formal comment submitted Tuesday, the group urged Treasury to let states treat federal standards as a safe harbor when the statutory floor is unclear. It also sought confirmation that states may request certification for a stablecoin issuer even after the first year following the Genius Act’s rollout.
• The Conference of State Bank Supervisors further called on Treasury to reassess federal proposals that could create an unworkable national regime, pointing to the Office of the Comptroller of the Currency’s plan to let national trust charters engage in activities not authorized by the Genius Act or the National Bank Act. National trust charters are licenses that permit fiduciary operations nationwide without taking deposits or making commercial loans.

Dive Insight

The Conference of State Bank Supervisors initiative, part of a broader effort to avoid federal preemption in the rules for stablecoins, highlights growing tension between state supervisors and federal agencies over who sets the guardrails for this market.

The comment letter responds to Treasury’s request for input on how to implement regulations under the Genius Act, a law aimed at establishing a national baseline for “payment stablecoins” used primarily to make or settle payments while preserving room for state supervision. In general terms, it seeks to reduce run and consumer-harm risks by requiring clearer issuer accountability, more transparent backing practices, and more consistent oversight of entities that issue or market these tokens in the United States.

Stablecoins are regulated in the United States today, but largely through a patchwork that can vary by state and by how a token is structured or used. State banking departments and money transmitter regulators oversee many issuers as money services businesses, while federal responsibilities can attach through Treasury’s anti-money-laundering regime and, depending on facts and circumstances, through agencies such as the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.

As used in stablecoin legislation, a payment stablecoin is generally understood as a token designed to maintain a stable value relative to a reference currency and to be redeemable at par for use in everyday payments. That framing distinguishes it from stablecoins that are primarily used for trading, leverage, or on-platform settlement features that may raise different market-structure and investor-protection questions.

Stablecoins are commonly grouped into a few major types based on how they seek to hold a peg:

• Fiat-collateralized stablecoins: Backed by reserves such as cash and cash-equivalent instruments, with issuers aiming to maintain the peg by holding redeemable assets and honoring redemptions at par.
• Crypto-collateralized stablecoins: Backed by other digital assets, often with overcollateralization and automated liquidation mechanisms intended to keep backing sufficient as collateral prices move.
• Algorithmic stablecoins: Use on-chain rules and incentives to influence supply and demand, seeking to stabilize price through mint-and-burn dynamics rather than relying primarily on traditional reserves.

Key benefits often cited for stablecoins include:

• Faster payments, including near-real-time settlement across platforms and borders.
• Reduced volatility versus unpegged cryptoassets for users who want to hold value on-chain.
• Lower transaction costs in some payment and remittance use cases.
• Greater access to digital payments for users who are underserved by traditional banking.

Key risks commonly highlighted by regulators and market participants include:

• Depegging risk if backing, market confidence, or redemption capacity weakens.
• Regulatory uncertainty as federal and state roles continue to evolve.
• Operational and custody risk, including outages, hacks, and key-management failures.
• Liquidity and run risk if many holders seek redemptions at the same time.
• Governance and disclosure risk if reserve practices, controls, or reporting are inadequate.

Reserve expectations are a core point of focus in the Genius Act debate and in other policymaking efforts, generally emphasizing that payment stablecoins should be fully backed by high-quality, liquid reserves and supported by regular transparency measures such as attestations or audits. In practice, reserve approaches can vary by jurisdiction and by stablecoin design, with fiat-collateralized models typically tied to reserve composition and segregation standards, while crypto-collateralized and algorithmic designs raise different questions about how “backing” is defined and measured.

Globally, the United States approach contrasts with jurisdictions that have moved toward a single, centralized licensing and disclosure framework. For example, the European Union’s Markets in Crypto-Assets regime sets union-wide requirements for certain stablecoin issuers, while jurisdictions such as Singapore and the United Kingdom have pursued licensing and conduct regimes that more directly centralize supervision and define reserve, disclosure, and operational expectations at the national level.

Because state agencies license and supervise money transmitters—including firms that issue stablecoins—they want to maintain a direct role in shaping the regulatory framework. Federal officials, by contrast, are pushing for a uniform national approach.

The Genius Act became law last July and is slated to take effect in January 2027. Treasury guidance and supervisory transition details are still being debated, including how states can treat federal standards as a baseline and how certification processes work once the initial rollout period ends.

“Stablecoins are still evolving; locking them into a single template makes little sense,” said Brandon Milhorn, president and chief executive of the Conference of State Bank Supervisors. “Keeping room for state innovation under the Genius Act is central to the dual banking model and aligns with Congress’s framework.”

In its comments, the group emphasized that implementation details will determine whether states can keep applying tailored supervision where local statutes, market conditions, or consumer-protection priorities call for stricter rules.

Headquartered in Washington, the Conference of State Bank Supervisors represents financial regulators in:

• All 50 states.
• District of Columbia.
• United States territories.

It promotes state-level authority and resists federal preemption.

Part of the clash stems from a perception that the Office of the Comptroller of the Currency is advancing policies that could supersede state rules, according to Eric Grover, a payments industry consultant and principal at Intrepid Ventures in Minden, Nevada.

“The Trump administration has been pro-stablecoin, and some states read that as a path to federal rules friendlier to issuers,” Grover said. “States want latitude to impose tougher standards, not weaker ones—otherwise, what’s the point?”

Despite the standoff, several payments experts contend that letting states layer stricter measures atop federal policy can strengthen the regulatory landscape for stablecoins.

State-level discretion can help regulators address local risks quickly, while a national baseline provides consistency and reduces gaps that can emerge across jurisdictions.

“State flexibility is valuable because states can pilot laws and regulations that later inform national policy,” said Aaron McPherson, consultant and principal at AFM Consulting, a consulting firm in Newton, Massachusetts. “State regulators have hands-on experience with money transmitters and don’t want to cede that authority over stablecoins.”