The US Department of the Treasury has published a notice of proposed rulemaking (NPRM) outlining proposed rules for implementing the third section of the $GENIUS Act. The document primarily addresses who, where, and under what conditions can issue payment stablecoins in the United States, as well as when they can be offered to American users.
What Exactly is the US Treasury Proposing?
The $GENIUS Act generally prohibits the issuance of payment stablecoins in the United States without a corresponding federal or state license. The law is expected to take effect on January 18, 2027.
The Treasury is now seeking to detail what exactly will be considered issuing a stablecoin in the US.
According to the proposed rules, a stablecoin will be considered issued not when the issuer technically creates the tokens, but when their first transfer occurs. This refers to the moment when another person obtains the right to use, transfer, or redeem the asset.
It is separately stipulated that returning tokens to the issuer effectively "resets" the previous issuance. If after this the company transfers such a token to another person again, this will be considered a new issuance.
Furthermore, the proposed model ties the rules to the location of the issuer and the recipient. Issuance will be considered to have occurred in the US if, at the time of the first transfer, the issuer is located in the US or the recipient is located in the US.
For an individual, the determining factor will be their physical location, not citizenship. For example, a US citizen who is abroad will not be considered a person located in the US at the time of receiving the token under the proposed rules.
The Treasury even gives a corresponding example. If a foreign issuer, which does not meet the requirements to operate in the US, issues a stablecoin to a US citizen who is abroad, this will not be considered a US issuance.
For foreign companies, the criteria are different. It is sufficient for a company to be registered in the US or have its principal place of business there.
Foreign Issuers Will Be Able to Operate in the US
The $GENIUS Act does not close the American market to foreign stablecoins. The Treasury proposes to allow foreign issuers to operate in the US if they meet the requirements of Section 18(a).
In particular, this refers to regulation in the country of origin, which the Treasury recognizes as comparable to the American regime, as well as registration with the US Comptroller of the Currency (OCC). For foreign issuers, there is also protection from liability due to the accidental delivery of tokens to an American user.
A company will be able to prove that it did not conduct an issuance in the US if:
- it is itself located outside the US;
- it reasonably believed the recipients were located outside the US;
- it actually applied procedures to verify user location;
- it did not advertise or promote the stablecoin in the American market.
For this, data from account opening, IP address verification, device location, contractual confirmations, and transaction tracking can be used. However, the Treasury has not yet established a specific mandatory set of such measures and is asking market participants for feedback on this matter.
Exchanges and Market Makers Could Also Face Liability
One part of the document deals with the concept of participating in an unlawful issuance. The Treasury proposes not to limit liability only to the direct issuer. In certain cases, companies that:
- facilitate the redemption of a stablecoin;
- coordinate key stages of issuance;
- seek initial buyers;
- carry out token creation;
- perform market-making functions during the initial distribution;
- distribute tokens to initial buyers;
- facilitate the asset's initial entry into the secondary market.
may be deemed participants in an unlawful issuance.
For example, an exchange that, immediately after an unlawful issuance, conducts an initial offering of such a stablecoin could potentially be considered a participant in the unlawful issuance.
At the same time, ordinary trading of a token long after its issuance, according to the specific provision on participating in an unlawful issuance, generally would not fall under this rule. However, other requirements of the $GENIUS Act may apply to it.
Airdrops, Bridges, and Native Wallets
The proposed rules also address non-typical methods of stablecoin distribution.
A free airdrop may be considered an issuance. If an issuer freely creates stablecoins and transfers them to a user in the US, the Treasury proposes to consider this an issuance in the US. Selling the token is not required for this.
At the same time, the question of whether such an airdrop would also constitute an offer for sale is left open by the Treasury.
Separately, the agency is asking market participants for feedback regarding the operation of bridges and wrapped stablecoins. For now, the document does not establish that every movement of a token through a bridge automatically creates a new issuance.
Changes for Crypto Exchanges
Separate restrictions for providers of digital asset services will take effect later.
Starting July 18, 2028, such companies generally will not be able to offer or sell payment stablecoins to persons in the US if the token is not issued by a licensed issuer.
For foreign stablecoins, part of the requirements will take effect already from the expected effective date of the $GENIUS Act—January 18, 2027. A service provider will not be able to offer or make available in the US a stablecoin from a foreign issuer if that issuer lacks the technical capability to comply with lawful US requirements and does not agree to comply with them.
This refers, in particular, to the ability to execute lawful orders regarding the tokens. The Treasury separately mentions smart contract functions that allow freezing, seizing, or burning assets. However, the document does not yet establish a requirement for mandatory technical audit of such functions.
An exchange will be able to rely on statements from a foreign issuer, but must first conduct appropriate due diligence. If the company knew or had sufficient reason to believe that such a statement was false, it cannot rely on it.
Potential Updates
The agency is considering the possibility of a stricter approach, under which any issuance or sale to an American would be considered a violation regardless of whether the issuer or platform knew the user's location. In that case, the presence of proper verification procedures would primarily affect the question of criminal liability.
The Treasury is also considering an option similar to the Regulation S regime for operations outside the US. It could allow foreign companies to operate provided that transactions genuinely occur outside the country and are not accompanied by targeted promotion in the US.
Separately, the agency is soliciting opinions regarding a possible simplified regime for small operations. Among the options mentioned is a threshold of $1 million per year, but this is not a proposed rule, merely one option for discussion.
The US Treasury also asked market participants to help shape the final rules. Comments will be accepted for 60 days after the NPRM is published in the Federal Register.
Recall that earlier we reported that Tether has two years left to bring USDT into compliance with the $GENIUS Act.
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