Nazar Pyrih
Choose us on Google
- The US Treasury Department has published draft rules regarding Title III of the GENIUS Act to regulate stablecoins.
- The regulator proposes treating a stablecoin as issued in the US not at the moment the tokens are technically created, but at the moment of their first transfer to a user.
- Foreign issuers will be able to operate in the US market if they meet certain conditions.
- Exchanges and market makers could face liability if they knowingly help with the illegal initial distribution of stablecoins.
The US Treasury Department has published a notice of proposed rulemaking (NPRM) that sets out the proposed rules for implementing Title III of the GENIUS Act. The document primarily addresses who, where, and under what conditions may issue payment stablecoins in the US, as well as when they may be offered to US users.
What Exactly Is the US Treasury Proposing?
The GENIUS Act generally prohibits issuing payment stablecoins in the US without the appropriate federal or state license. The law is expected to take effect on January 18, 2027.
The Treasury is now trying to spell out what exactly will be considered the issuance of a stablecoin in the US.
Under the proposed rules, a stablecoin would be considered issued not when the issuer technically created the tokens, but when their first transfer occurs. This refers to the moment another person obtains the right to use, transfer, or redeem the asset.
Separately, the proposal provides that returning a token to the issuer effectively “resets” the prior issuance. If the company then transfers such a token to another person again, it would be treated as a new issuance.
In addition, the proposed framework ties the rules to the location of the issuer and the recipient. An issuance would 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 would be physical location, not citizenship. For example, a US citizen who is abroad would not, under the proposed rules, be considered a person located in the US at the moment they receive the token.
The Treasury even provides a relevant example. If a foreign issuer that does not meet the requirements to operate in the US issues a stablecoin to a US citizen who is abroad, that would not be a US issuance.
For foreign companies, the criteria are different. It is enough for the company to be registered in the US or to have its principal place of business there.
Foreign issuers will be able to operate in the US
The GENIUS Act does not shut the US market to foreign stablecoins. The Treasury Department proposes allowing 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 that the Treasury Department recognizes as comparable to the US regime, as well as registration with the US Office of the Comptroller of the Currency (OCC). For foreign issuers, the proposal also includes liability protection if a token ends up with a US user by accident.
A company will be able to prove that it did not issue in the US if it:
- is itself located outside the US
- reasonably believed the recipients were located outside the US
- actually applied procedures to verify users’ location
- did not advertise or promote the stablecoin in the US market
This can involve data collected at account opening, IP address checks, device location, contractual representations, and transaction monitoring. At the same time, the Treasury Department has not yet set a specific mandatory set of such measures and is asking market participants to weigh in on the issue.
Exchanges and market makers could also face liability
One part of the document addresses the concept of participation in an unlawful issuance. The Treasury Department proposes not limiting liability to the direct issuer alone. In certain cases, companies that do the following could be deemed participants in an unlawful issuance:
- provide stablecoin redemption
- coordinate key stages of the issuance
- source the first buyers
- mint tokens
- act as a market maker during the initial distribution
- distribute tokens to the first buyers
- enable the asset’s initial entry into the secondary market
For example, an exchange that conducts an initial placement of such a stablecoin immediately after an unlawful issuance could potentially be considered a participant in the unlawful issuance.
At the same time, ordinary trading in a token long after its issuance, under the specific provision on participation in unlawful issuance, generally would not fall under this rule. However, other GENIUS Act requirements may apply to it.
Airdrops, bridges, and self-custody wallets
The proposed rules also cover non-standard ways of distributing stablecoins.
A free airdrop may be treated as an issuance. If an issuer creates stablecoins for free and transfers them to a user in the US, the Treasury proposes to treat this as an issuance in the US. A token sale is not required for this.
At the same time, the Treasury left open the question of whether such an airdrop would also constitute an offer to sell.
Separately, the agency is asking market participants to comment on how bridges and wrapped stablecoins work. For now, the document does not establish that every token transfer through a bridge automatically creates a new issuance.
Changes for crypto exchanges
Some restrictions for digital asset service providers 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, some requirements will start to apply as early as 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 of a foreign issuer if it does not have the technical capability to comply with lawful US requirements and does not agree to comply with them.
This includes, in particular, the ability to comply with lawful orders relating to tokens. The Treasury specifically mentions smart contract functions that allow assets to be frozen, seized, or burned. At the same time, the document does not yet establish a requirement for a mandatory technical audit of such functions.
An exchange will be able to rely on statements by a foreign issuer, but it must first conduct due diligence. If the company knew or had sufficient grounds to believe that such a statement was false, it will not be able to rely on it.
Possible updates
The agency is considering a tougher approach under which any issuance or sale to a US person would be treated as a violation regardless of whether the issuer or platform knew the user’s location. In that case, having adequate verification procedures would primarily affect the question of criminal liability.
The Finance Ministry is also considering an option similar to the Regulation S regime for transactions outside the US. It could allow foreign companies to operate provided that the transactions genuinely take place outside the country and are not accompanied by targeted marketing in the US.
Separately, the agency is seeking feedback on a possible simplified regime for small transactions. Options mentioned include a $1 million per year threshold, but this is not a proposed rule, just one of the options up for discussion.
The US Finance Ministry 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.
As a reminder, we previously reported that Tether has two years left to bring USDT into compliance with the GENIUS Act.
