The recently signed GENIUS Act includes a key provision designed to prevent Big Tech and Wall Street firms from dominating the stablecoin market.
According to Circle Chief Strategy Officer Dante Disparte, a critical provision of the recently enacted GENIUS Act is designed to reduce the influence of large financial institutions and tech conglomerates in the US stablecoin market.
Disparte referred to the measure as the “Libra clause” during an appearance on the Unchained podcast, about Meta’s unsuccessful attempt to establish a global digital currency.
According to the clause, any non-bank entity that intends to issue a dollar-backed stablecoin must establish a standalone operation to navigate antitrust scrutiny and acquire clearance from a Treasury-led oversight committee with veto authority.
Banks Face Strict Rules on Stablecoin Issuance Under GENIUS Act
Traditional institutions are also subject to restrictions. Lenders must issue stablecoins through legally distinct subsidiaries.
These entities are prohibited from engaging in risk-bearing activity, lending, or leverage, resulting in a ringfenced structure that Disparte characterized as “more conservative” than deposit-token proposals proposed by JPMorgan.
“It establishes unambiguous regulations that, in my opinion, ultimately benefit US consumers, market participants, and the dollar,” Disparte stated.
The GENIUS Act, or the Guiding and Establishing National Innovation for US Stablecoins Act, was enacted by the House with bipartisan support, including the votes of over 100 Democrats.
According to Disparte, the legislation offers the long-awaited regulatory clarity that allows crypto firms to gain legitimacy and gives the dollar a regulatory advantage in the global digital currency competition.
Even though firms with assets of less than $10 billion are still permitted to operate under state money-transmitter laws, any issuer that exceeds this threshold must obtain a national trust-bank charter.
Additionally, the measure prohibits interest-bearing stablecoins and requires comprehensive asset disclosures. Criminal penalties may be imposed on issuers of unbacked tokens, thereby effectively banning the recurrence of scenarios such as TerraUSD’s collapse.
Yet, not all are celebrating. Critics contend that prohibiting stablecoins that generate yield could discourage innovation and encourage users to migrate to international platforms. Disparte argues that yield should be entrusted to decentralized finance (DeFi) after securing the foundational stablecoin layer.
The yield moratorium can potentially increase institutional interest in DeFi platforms, particularly those based on Ethereum, which currently holds the top spot regarding total value locked.
Stablecoins Edge Closer to Mainstream Adoption
Stablecoins have become an uncommon success story in the crypto industry, attracting the attention of both corporations and regulators.
The recent reports that Amazon, Walmart, and other significant companies are investigating stablecoin payments have caused a ripple effect in traditional finance, briefly causing stablecoin transaction volumes to surpass those of Visa in 2024.
Regulatory clarity, particularly Europe’s MiCA framework, has enabled the growth potential of stablecoins by removing the most significant barrier: uncertainty, according to Frank Combay of Next Generation.
He thinks that stablecoin ecosystems are becoming more appealing to both consumers and corporations, as they have the potential to reduce transaction costs by more than 90%.
Brad Garlinghouse, the CEO of Ripple, stated last week that the stablecoin sector is on the brink of explosive growth. He predicted the market could expand from its present $250 billion capitalization to as much as $2 trillion in the near future.
