The Senate Banking Committee gave an initial thumbs up to the Genius Act, which would create a regulatory framework for the cryptocurrency known as stablecoins. The bill sets up licensing guidelines, creates reserve requirements, and other ground rules for those who want to issue payment stablecoins. 

Supporters of the legislation say it will improve transaction efficiency, free up capital and drive US treasury demand. 

Sen Tim Scott, R-SC: “If we are going to have economic supremacy in the world, it requires for us to encourage, frankly, innovation before we stifle it with too much oppressive regulation.”

According to Coinbase, stablecoins are a cryptocurrency with a stable value or price because they are directly tied to an asset, like the US dollar. 

The Genius Act requires stablecoins to be backed at least one-to-one with reserves that can include the US dollar, Treasury notes or bonds, or other approved assets. Those reserves must be held in a regulated state or federal institution. 

It sets up rules and an application process for companies that want to become stablecoin issuers. 

There are also guidelines for how those issuers will be regulated – those with more than $10 billion will fall under the Federal Reserve’s framework for depository institutions and the Office of the Comptroller’s currency frame work, those with less than $10 billion will be regulated at the state level. 

The bill creates criminal penalties for misusing or misrepresenting stablecoins. 

It also clarifies that payment stablecoins are not backed by the US government, nor subject to deposit insurance from the FDIC. 

Senator Elizabeth Warren expressed opposition to the bill because she said it does not sufficiently address issues in the current crypto marketplace, like scams. 

Sen. Elizabeth Warren, D-MA: “The bill even invites scammers into the market by refusing to prohibit people convicted of fraud and money laundering from owning stable coin companies. Sam bankman Fried could buy a stable Coin Company from prison, and regulators would have no legal grounds to stop him.”

She also expressed concern that there aren’t enough national security protections. Criminal organizations like drug cartels and sanctioned nations use crypto to move money and make purchases that would otherwise be blocked by the global banking industry. 

Sen. Elizabeth Warren, D-MA: “Without changes, this bill will supercharge the financing of terrorism. It will make sanctions evasion by Iran, North Korea and Russia easier, and it will help out international gangs that are moving fentanyl into the United States.”

Republicans pushed back against Warren and said her claims do not apply to the legislation and that it does not create any loopholes. 

Sen. Bill Haggerty, R-TN: “The Genius Act has gained this bipartisan support because it presents commonsense rules that protect consumers, promote competition and foster innovation. It’s time we provide the clarity and stability that our country and its innovators so desperately need.” 

The bill will now move on to the full Senate for more debate and a vote. It also needs to be approved by the House before it can be signed by the president.