Treasury Proposes Principles for State Regulation of Stablecoins

The Treasury Department proposed rules for determining when a state-level regulatory regime is "substantially similar" to the federal regulatory framework under the Guiding and Establishing National Innovation for U.S. Stablecoins ("GENIUS") Act.

In a rulemaking to implement Section 4(c) ("State-level Regulatory Regimes") of the GENIUS Act, Treasury defined a federal baseline allowing states to design their own tailored regulatory regimes while ensuring national consistency on core prudential standards. The framework addresses the uncertainty states and market participants would otherwise face, which could stifle digital asset innovation, cause states to incur trial-and-error costs, and force issuers to seek federal licenses instead. 

The framework categorized federal standards into "uniform requirements" and "State-calibrated requirements." Treasury explained that the uniform requirements, such as reserve asset composition and anti-money laundering compliance, must be adopted and enforced by states without substantive deviation to prevent regulatory arbitrage. State-calibrated requirements would allow state regulators discretion to design their own rules for capital, liquidity, and risk management, provided the "regulatory outcomes are at least as stringent and protective" as the federal baseline.

Treasury clarified that state regimes must include viable frameworks for licensing, supervision, enforcement, custody, and insolvency. While states are not required to mirror federal procedures or forms exactly, they must grant state regulators sufficient authority to oversee issuers and protect consumers. The proposal also provides for states to impose additional restrictions, provided they do not conflict with federal law or fundamentally alter the substantial similarity of the state regime.

Treasury clarified that under the GENIUS Act, state qualified payment stablecoin issuers may only "opt for State regulation" if their "consolidated total outstanding issuance of payment stablecoins [is] no more than $10 billion." If an issuer exceeds this threshold, it must either "transition to federal oversight"—administered jointly by the state regulator and the Office of the Comptroller of the Currency - or "cease issuing new payment stablecoins" until its outstanding issuance falls back below the limit, unless a primary federal regulator grants a waiver.