U.S. Treasury requests public feedback on surveillance devices for digital currencies known as stablecoins, under the GENIUS Act.
The U.S. Treasury has opened a public comment window on tackling illicit activity involving stablecoins, as stipulated in the recently enacted GENIUS Act. The comment window will close on the 17th of October, after which the Treasury will draft proposed rules.
The GENIUS Act, signed into law on July 18, 2025, establishes the first comprehensive federal regulatory framework for payment stablecoins in the U.S. It creates a licensing system for authorized payment stablecoin issuers, imposing strict requirements on reserve backing, redemption rights, disclosures, and ongoing supervisory oversight to enhance consumer protection and reduce systemic risks.
The law takes effect on January 18, 2027, or sooner if final regulations are issued within 120 days, requiring stakeholders to prepare for compliance promptly. Notably, stablecoin issuers, such as Tether, are part of the reserve backing for their issued digital dollars and can be significant buyers of U.S. Treasury bills. In Q2, Tether ranked the 18th largest buyer of T-bills, surpassing South Korea.
However, a point of contention remains regarding enforcement and interest payments. The GENIUS Act includes a prohibition on paying interest on payment stablecoins to prevent them from competing unfairly with traditional bank deposits. However, bankers’ associations across the U.S. have urged Congress to close loopholes that currently allow brokers, dealers, exchanges, and affiliates to offer yield or rewards on payment stablecoins that may effectively act as interest payments.
These calls for stricter enforcement and reform are ongoing as of August 2025. The banking lobby, via the Bank Policy Institute (BPI), recently urged Congress to seal GENIUS Act 'loopholes' that allow payment of interest for stablecoins. They argue these incentives undermine the spirit of the law, jeopardize traditional credit supply, and call for legislative amendments to strengthen the ban and restore state regulatory authority over out-of-state financial institutions.
Scott Bessent, Treasury Secretary, stated that the implementation of the Act would be a win-win-win for stablecoin users, stablecoin issuers, and the U.S. Treasury Department. The Treasury's move aims to gauge the efficiency and cost of novel tools for monitoring illicit activities related to stablecoins. Final rules could likely be issued by mid-2026, and enforcement for those flouting the compliance could begin from 2027.
The draft rules will factor in public input and include how firms should track stablecoin activity and the associated tools that balance costs and efficiency. The GENIUS Act also includes a 'lawful order' provision that forces an issuer to seize, burn, freeze, or prevent stablecoin transfers based on a court or a regulator order. The Treasury will use public comments to inform research on the effectiveness, costs, privacy, and cybersecurity risks, and other considerations related to these tools.
It remains to be seen whether any strict rules against yield on payment stablecoins will be issued by regulators. The implementation of the GENIUS Act is crucial to ensure American 'leadership in digital assets', according to Scott Bessent.
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