U.S. Treasury Unveils Draft GENIUS Act Rules for Stablecoin Issuance

The U.S. Treasury Department has released a notice of proposed rulemaking outlining how it plans to implement Title III of the GENIUS Act, setting out who may issue payment stablecoins in the United States, when they may be made available to U.S. users, and what activity could trigger liability. The GENIUS Act generally bars the issuance of payment stablecoins in the U.S. without an appropriate federal or state license. The law is expected to take effect on January 18, 2027. Issuance defined by first transfer, not minting Treasury's proposal would treat a stablecoin as "issued" in the U.S. at the moment of its first transfer to a user, rather than when tokens are technically created. The key event is when another person gains the right to use, transfer, or redeem the asset. The draft also introduces a "reset" concept: if a token is returned to the issuer, the prior issuance is effectively wiped. If the issuer later transfers that same token to another person, Treasury would treat the transfer as a new issuance. Location tests for U.S. issuance Under the proposed framework, an issuance is considered to occur in the U.S. if, at the time of the first transfer, either the issuer is located in the U.S. or the recipient is located in the U.S. For individuals, the determining factor is physical location, not citizenship. Treasury provides an example in which a U.S. citizen abroad receiving a stablecoin from a foreign issuer that is not authorized to operate in the U.S. would not, under the proposal, be treated as a U.S. issuance. For companies, the proposal looks to whether the entity is registered in the U.S. or has its principal place of business there. Pathway for foreign stablecoin issuers Treasury stresses that the GENIUS Act does not close the U.S. market to foreign stablecoins. The draft would allow foreign issuers to operate in the U.S. if they meet the requirements of Section 18(a), including oversight in their home jurisdiction that Treasury deems comparable to the U.S. regime and registration with the U.S. Office of the Comptroller of the Currency (OCC). The proposal also sketches a potential safe harbor for foreign issuers when a token reaches a U.S. user unintentionally. A company could argue it did not issue in the U.S. if it can show it: - is located outside the U.S. - reasonably believed recipients were outside the U.S. - used procedures to verify user location - did not advertise or promote the stablecoin in the U.S. market Treasury cites possible tools such as account-opening data, IP address checks, device location signals, contractual representations, and transaction monitoring. It does not prescribe a mandatory set of measures yet and invites industry input. Expanded liability for exchanges and market makers Another section addresses "participation in an unlawful issuance." Treasury proposes that liability not be limited to the direct issuer in all cases. Depending on the facts, firms involved in activities such as facilitating redemption, coordinating key issuance steps, sourcing first buyers, minting tokens, market making during initial distribution, distributing to initial buyers, or enabling entry into secondary markets could be deemed participants. Treasury notes that an exchange running an initial placement immediately after an unlawful issuance could be viewed as participating. By contrast, routine trading long after issuance would generally fall outside this specific participation provision, although other GENIUS Act requirements could still apply. Airdrops, bridges, and self-custody wallets The draft also addresses nontraditional distribution methods. Treasury indicates a free airdrop may constitute an issuance if stablecoins are created and transferred at no cost to a user in the U.S., even without a token sale. The agency leaves open whether such an airdrop would also be treated as an offer to sell. Treasury is also seeking comments on the mechanics of bridges and wrapped stablecoins. The document does not currently state that every bridge transfer automatically results in a new issuance. Compliance timelines for crypto service providers Some restrictions on digital asset service providers would come later. Beginning July 18, 2028, these firms generally would be prohibited from offering or selling payment stablecoins to persons in the U.S. if the token is not issued by a licensed issuer. For foreign stablecoins, certain requirements would begin as early as January 18, 2027. Service providers would be barred from offering or making available in the U.S. a foreign-issued stablecoin if they lack the technical capability to comply with lawful U.S. requirements and do not agree to comply. Treasury specifically highlights smart contract capabilities that can freeze, seize, or burn tokens. The proposal does not impose a mandatory technical audit at this stage. Exchanges could rely on representations from a foreign issuer, but only after conducting due diligence. If a platform knew, or had sufficient grounds to believe, that such representations were false, it would not be able to rely on them. Potential tougher approaches under consideration Treasury signals it is considering stricter alternatives, including a regime under which any issuance or sale to a U.S. person would be treated as a violation regardless of whether the issuer or platform knew the user's location. In that scenario, verification procedures would primarily affect criminal liability. The agency is also weighing an approach similar to Regulation S for offshore transactions, which could permit foreign activity where transactions genuinely occur outside the U.S. and are not paired with targeted U.S. marketing. Treasury is additionally soliciting feedback on a simplified framework for small transactions. One option mentioned is a $1 million per year threshold, described as a discussion point rather than a formal proposal. Public comments will be accepted for 60 days after the NPRM is published in the Federal Register.