GENIUS legislation implemented! FDIC to announce application framework by the end of the year, USDT and USDC face major challenges.

Travis Hill, acting chairman of the Federal Deposit Insurance Corporation (FDIC), testified at a House hearing that the agency is prepared to propose stablecoin application rules by the end of December, with a proposed rule expected to be released later in December to establish an application framework, and a proposed rule to implement prudential requirements for federally regulated payment stablecoin issuers to be released early next year.

GENIUS Act Framework: Federal and State Dual Regulatory System

(Source: U.S. House of Representatives website)

The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) envisions the participation of a series of federal and state-level agencies in the regulation of the stablecoin industry. After establishing the application process, the FDIC, responsible for regulating deposit insurance and overseeing thousands of banks, must set capital requirement rules for regulated banks wishing to issue stablecoins. The FDIC is also responsible for liquidity standards and supervising the quality of reserves held by issuing entities.

This dual-track regulatory framework is the core design of the GENIUS Act. Federal-level regulation ensures that large stablecoin issuers (such as Circle and Paxos) meet unified high standards, including capital adequacy ratios, reserve transparency, and regular audits. State-level regulation allows smaller regional stablecoin issuers to operate under the supervision of state governments, providing more flexible entry thresholds.

GENIUS Regulatory Division of Labor

FDIC (Federal Deposit Insurance Corporation): Approval application framework, capital requirements, liquidity standards, reserve quality regulation.

Federal Reserve: Capital, liquidity, and diversification regulatory requirements

Ministry of Finance: Overall coordination and policy formulation

State-level Regulatory Authority: Admission and supervision of regional issuers

Federal agencies responsible for formulating such rules must submit proposals and publicly solicit public opinions, usually lasting for several months. After reviewing public comments, the regulatory agency can issue the final version, and the new system typically takes effect gradually over a longer period. This procedural regulatory process ensures transparency and public participation, but it also means that the GENIUS Act may take 1-2 years from proposal to full implementation.

Other agencies, including the Department of the Treasury, have also been fulfilling their responsibilities under the GENIUS Act. The role of the Department of the Treasury is to coordinate the actions of various regulatory bodies and ensure consistency in the regulatory framework. Additionally, the Department of the Treasury is responsible for coordinating with international regulatory bodies, as the cross-border nature of stablecoins necessitates global regulatory cooperation.

December Proposal Details: Two-Stage Application Framework and Prudential Requirements

According to the testimony prepared by Hill, “the FDIC has begun to formulate rules for the implementation of the GENIUS Act; we expect to publish a proposed rule later this month to establish our application framework, and to release a proposed rule early next year to implement the prudential requirements of the GENIUS Act for federally regulated payment stablecoin issuance institutions.”

This statement reveals the FDIC's two-phase implementation strategy. The first phase involves establishing an application framework, which is expected to be announced by the end of December. This framework will outline what types of entities are eligible to apply to become federally regulated stablecoin issuers, what documents and information need to be submitted, how long the approval process will take, and the basic entry standards.

The second phase is the formulation of prudential requirements, which is expected to be announced in early 2026. Prudential requirements include capital adequacy ratio (how much own funds issuers need to hold as a buffer), liquidity ratio (how much of the reserves must be in cash or short-term assets), reserve composition (which assets can be held as support), and periodic reporting and auditing requirements.

This phased implementation strategy reflects both the prudence of regulation and the determination to advance as quickly as possible. Announcing the application framework first allows interested institutions to begin preparing materials, while the detailed prudential requirements will require more time to formulate and seek feedback.

Hill also discussed other regulatory focal points in his testimony. He indicated that the FDIC “is currently developing guidelines to further clarify the regulatory status of tokenized deposits,” in light of recommendations from a report released earlier this year by the President's Working Group on Digital Asset Markets. Tokenized deposits refer to banks recording traditional deposits on the blockchain, allowing them to be transferred like cryptocurrencies. This innovation could change the way the banking industry operates, but it also presents new regulatory challenges.

The House hearing on Tuesday will also hear testimony from other banking and credit union regulatory agencies, including the Federal Reserve. In recent years, whenever congressional committees have heard testimony from financial regulatory agencies, cryptocurrency has been a common topic of discussion. This hearing will focus on the implementation details of the GENIUS Act, including how agencies coordinate with each other, whether regulatory standards are too strict or lenient, and the impact on innovation.

Federal Reserve Coordinated Action: Diversifying Capital Liquidity Through Triple Approaches

Michelle Bowman, the Vice Chair responsible for oversight at the Federal Reserve, stated in her prepared testimony that the Federal Reserve is “developing capital, liquidity, and diversification regulatory requirements for stablecoin issuers in accordance with the provisions of the GENIUS Act.” This statement indicates that the Federal Reserve and the FDIC are advancing the implementation of the GENIUS Act in sync, forming a regulatory synergy.

The regulatory focus of the Federal Reserve is slightly different but complementary to that of the FDIC. In terms of capital requirements, the Federal Reserve will establish how much capital issuers must hold to absorb potential losses. Liquidity requirements ensure that issuers can respond to large-scale redemption requests in a short time, avoiding situations similar to bank runs. Diversification requirements refer to the need for reserves not to be overly concentrated in a single asset or a single custodian to spread risk.

This kind of multi-agency collaborative supervision is not uncommon in the history of financial regulation in the United States. The banking industry itself is subject to cross-regulation by multiple agencies such as the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (OCC). The GENIUS Act applies this mature regulatory framework to the stablecoin sector, ensuring comprehensive regulation while avoiding excessive power concentrated in a single agency.

From the timeline, the FDIC is expected to announce the application framework by the end of December and the prudential requirements in early 2026. The timeline for the Federal Reserve may be slightly different, but generally synchronized. This means that by the second quarter of 2026, a complete regulatory framework for the GENIUS Act may have taken shape, and stablecoin issuers will face clear compliance pathways and requirements.

Impact of Stablecoin Market: Trillion-Dollar Scale Welcomes Regulatory Year

The implementation of the GENIUS Act will have a profound impact on the stablecoin market. Currently, the global stablecoin market capitalization is approximately $200 billion, with USDT and USDC holding the vast majority of the market share. These stablecoins are mostly issued offshore, lacking federal oversight in the United States. The GENIUS Act will change this landscape.

For stablecoin issuers already operating in the United States, such as Circle (issuer of USDC) and Paxos, the GENIUS Act offers an opportunity to obtain a federal license. A federal license not only enhances compliance and credibility but, more importantly, may provide the protection of FDIC deposit insurance. This would give federally regulated stablecoins a significant advantage in market competition.

For Tether (the issuer of USDT), the situation is more complex. Tether is headquartered in the British Virgin Islands and has long been criticized for its transparency issues. To apply for U.S. federal regulation, Tether needs to significantly improve its transparency and governance structure, which may touch on the core of its business model. Whether Tether is willing to accept such strict regulation or choose to continue operating offshore will be a focal point of market attention.

For newcomers, the GENIUS Act provides a clear pathway for entry. Traditional financial institutions such as banks and payment companies now have a clear regulatory framework to follow if they wish to issue stablecoins. This could trigger a massive entry of traditional financial institutions into the stablecoin market, as they have a natural advantage in compliance and risk management.

From a market size perspective, if the United States establishes a sound regulatory framework for stablecoins, it could attract more businesses and individuals to use stablecoins for payments and settlements. Currently, stablecoins are primarily used for cryptocurrency trading, but their potential payment and remittance market size far exceeds this. If regulation is in place and user confidence is enhanced, the stablecoin market could expand from its current size of $200 billion to a trillion-dollar scale.