For years, the US stablecoin market operated in a regulatory gray zone, with issuers essentially writing their own rules while Congress argued about what the rules should be. That era is over.

The GENIUS Act, signed into law on July 18, 2025, creates the first comprehensive federal framework for payment stablecoins. It passed the Senate 68-30 and the House 308-122, making it one of the most bipartisan pieces of crypto legislation in US history. And traditional banks are already sounding alarms about what comes next.

What the GENIUS Act actually does

The law allows certain nonbank fintech companies and crypto firms to issue stablecoins under federal and state regulatory oversight. In exchange, issuers must maintain 1:1 reserves backed by liquid assets like cash, short-term Treasuries, and repurchase agreements. They’re also barred from paying interest on their tokens.

The Office of the Comptroller of the Currency has already moved to implement the framework, granting conditional national trust bank charters to Circle, Paxos, and three other firms as of December 2025. The US Treasury proposed AML and sanctions compliance rules for permitted issuers in April 2026, and the FDIC is advancing its own proposals on application standards for nonbank stablecoin issuers.

Why banks are nervous

Traditional banks retain two structural advantages that stablecoin issuers don’t have: FDIC insurance and the ability to lend customer deposits. Stablecoin issuers, under the GENIUS Act, cannot lend reserves. They park them in safe assets and sit on them.

Despite lacking those two powers, stablecoin issuers compete directly for the same pool of consumer and business funds that currently sit in bank deposit accounts. Banks have estimated that up to $6.6 trillion in deposits could be at risk of outflows due to competition from nonbank stablecoin issuers.

The broader context

Before the law passed, issuers like Circle and Paxos operated under a patchwork of state money transmitter licenses and voluntary attestations about their reserves. The lack of a federal standard created uncertainty for institutional players who wanted exposure to the space but couldn’t stomach the regulatory ambiguity.

What this means for investors

The conditional charters granted to Circle, Paxos, and others could reshape competitive dynamics. Firms that secure national trust bank status gain legitimacy and access to federal payment infrastructure. Those that don’t, or can’t meet the reserve and compliance requirements, may find themselves squeezed out.

The prohibition on interest payments is the detail to watch most closely. If that restriction ever gets loosened through future legislation or regulatory reinterpretation, the competitive threat to bank deposits goes from theoretical to acute.