The GENIUS Act Marked A Watershed Moment For Stablecoins

Opinion by: Zachary Kelman, attorney 

In 2021, Crypto-America was in the doldrums. Senator Elizabeth Warren and her loyal SEC enforcer, Gary Gensler, unleashed a blitzkrieg against crypto, bombarding platforms with lawsuits and pushing legislation so heavy-handed that many feared it would cripple America’s burgeoning crypto industry.

The pièce de résistance of regulatory absurdity arrived as a poison pill in the 2021 Infrastructure Investment and Jobs Act (IIJA) — the notorious “DeFi Broker Rule.” Under this provision, protocols and node operators were given the Kafkaesque requirement of collecting the names and addresses of every wallet holder on their blockchains. 

Senate debates openly acknowledge the impossibility of compliance, and it’s difficult to chalk the rule up to typical congressional technophobia or geriatric malaise. With Gensler’s quixotic crusade at full tilt, the American crypto community felt sucker-punched, with many looking abroad for refuge from what seemed less like incompetence and more like deliberate sabotage.

The GENIUS Act

The DeFi Broker Rule, like Gensler’s broader crusade, died on the vine earlier this year, even after its scope was belatedly narrowed to entities “capable” of identifying wallet holders in a last-ditch face-saving effort.

Its demise rendered moot the painstaking efforts node operators worldwide undoubtedly undertook, scrambling to collect the names and addresses of millions of wallet holders, instantly transforming the newly minted IRS Form 1099-DA into an accounting enthusiast’s collector’s item destined never to be filed.

Yet Warren and her fellow institutionalists marched onward, unfazed, eyes fixed firmly on their next target — the GENIUS Act.

Warren, the former banking law professor and senior member of the Senate Banking Committee responsible for drafting the act, deployed virtually every regulatory scare tactic imaginable to halt the bill through 72 separate amendments.

One failed effort stood out with particular menace, eerily echoing the logic of the DeFi Broker Rule. This amendment sought to saddle stablecoin issuers with the Sisyphean duty of monitoring and reporting every illicit transaction occurring downstream — forever.

On the surface, such a demand might appear merely complex, unlike the impossible demands of the original IIJA DeFi Broker Rule. But complexity isn’t the real issue here; absurdity is. Expecting banks to identify customers or flag suspicious activity is one thing. It’s quite another to burden currency issuers with permanent accountability for every future crime involving their tokens. Imagine holding the US Treasury responsible for tracking every drug deal paid for in cash.

Stablecoin showdown

Had Warren simply insisted, as the original Bank Secrecy Act does, that stablecoin issuers identify third parties receiving initial blocks of stablecoins rather than policing all future use, her proposal might have been palatable to the bipartisan Senate Banking Committee and included in the Genius Act.

Recent: US Senate passes GENIUS stablecoin bill in 68-30 vote

Such a measured approach would have been easily achievable by dominant stablecoin issuers like Tether and Circle. Indeed, Tether was prominently named last week in a DOJ case celebrated by Warren, involving Russian nationals using the stablecoin to evade sanctions — a development highlighted by outlets like The Wall Street Journal as bolstering Warren’s position.

While Warren correctly noted that sanctions enforcement through traditional banking and international wire monitoring is stronger than through stablecoins, her position overlooked the inevitability of technological change. Fellow Democrat Kirsten Gillibrand recognized this reality and rejected Warren’s amendments, instead prioritizing the dollar hegemony promoted by the GENIUS Act. Gillibrand notably argued that the crypto ecosystem should have run on dollar-denominated stablecoins rather than yuan or renminbi.

Who stood to gain the most from Warren’s overreach? Big banks like Bank of America, which recently announced its own stablecoin, following JPMorgan’s lukewarm JPM Coin and Citigroup’s internal 2015 “CitiCoin” experiment. Armed with legions of compliance lawyers, these lumbering financial giants thrive precisely when smaller, agile crypto-native competitors suffocate under regulatory overhead. Despite casting herself as David battling banking Goliaths, Warren often ends up arming them with regulatory weapons or convenient talking points, particularly regarding crypto.

Warren’s efforts weren’t entirely in vain, as she partially succeeded with an amendment to mitigate executive branch corruption risks associated with stablecoins. She specifically spotlighted a $2 billion USD1 stablecoin deal struck in Abu Dhabi, in which Emirati-backed MGX used a Trump family-associated stablecoin to invest in Binance.

Although other senators prevented Warren’s amendment from explicitly including the president and vice president, arguing existing ethics laws already covered them, Warren’s linkage of President Donald Trump’s acceptance of a $400 million Boeing 747 from Qatar to the MGX transaction telegraphs future campaign narratives, lawfare or congressional investigations if Democrats regain power.

The American crypto community should note that Warren’s heavy-handed regulations aren’t random technophobic acts; they’re deliberate institutional maneuvers aimed at controlling the narrative and preserving power. Instead of killing the stablecoin bill, the institutionalists exposed their hand and inadvertently cleared the bases for crypto’s next big inning.

Opinion by: Zachary Kelman, attorney.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.