President Donald Trump signed the GENIUS Act into American law on July 18, 2025, prompting financial institutions, both traditional and crypto-based, to redefine their services. In accordance with his promise to make the United States the ‘crypto capital of the world,’ President Trump believes the GENIUS Act is a key step in embracing digital assets to drive economic growth and maintain the leading world power in financial technology.
The Act details the federal rules and regulations for cryptocurrency tokens pegged to the U.S. dollar, known as stablecoins. For the U.S. government, the act presents a strategic way to regulate stablecoins as well as boost demand for the U.S. dollar. For financial institutions, the Act is set to change the scope of payment processing. But for crypto traders, deciphering how the GENIUS Act shapes the market’s trading outlook can be challenging without a full understanding of the key provisions and their impact on crypto trading.
Understanding the GENIUS Act: Key Provisions for Stablecoins and Traders
According to a comprehensive fact sheet from the White House, the GENIUS Act, which is the “Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025,” has four core missions. It includes prioritizing consumer protections, boosting the U.S. dollar’s reserve currency status, strengthening national security, and positioning America as the unchallenged leader in digital assets.
Prior to the enactment of the GENIUS Act, a federal regulatory system for stablecoins was nonexistent. As such, some stablecoins were not 100% backed by non-crypto reserves, jeopardizing crypto users. A popular real-life scenario that puts the level of consumer risk when there is a lack of stablecoin backing in a clear perspective is the Luna Foundation’s TerraUSD (USTC) collapse.
Due to insufficient collateral backing and an unreliable algorithm system, the USTC stablecoin depegged from the US dollar, dropping to mere cents within hours. Insufficient reserves create a liquidity problem, as it means buyers and sellers cannot redeem their tokens at a 1:1 ratio with the dollar. To ensure consumers are not caught up in the midst of liquidity gaps on a crypto trading platform, the GENIUS Act requires 100% reserve backing with liquid assets like U.S. dollars or short-term Treasuries.
The Act also requires stablecoin issuers, such as Circle and Tether, to disclose their reserve composition on a monthly basis. Issuers must also be free from any misleading claims that amount to deceit, such as stating that a particular stablecoin is backed by the U.S. government, is insured by the Federal Reserve, or can be used as legal tender. While stablecoins cannot be used as legal tender, the law recognizes them as cash equivalents, and they can be used as payment instruments similar to prepaid cards. Crypto traders under the new act are required to follow all anti-money laundering (AML) policies implemented by exchanges offering stablecoin trading.
