On July 18, President Donald Trump signed the GENIUS Act, the first major piece of American legislation aimed at regulating cryptocurrency. The law, boosted by a bipartisan group of legislators, targets stablecoins, a kind of digital currency whose value is pegged to a fiat currency, most commonly the U.S. dollar.
While stablecoins have been praised for their ability to move money quickly and efficiently, they can also pose risks for consumers and the broader economy, says Professor Howell Jackson ’82 of Harvard Law School. The goal of the new regulatory structure, he adds, is to make the U.S. a leader in digital currencies while protecting the public and preventing illegal activity.
With the GENIUS Act, Jackson says, the U.S. “jumps into the lead” in regulating this increasingly popular type of asset, which currently has over $250 billion of tokens in circulation.
“Stablecoins could revolutionize [our payment system] and save consumers billions of dollars,” says Jackson, the James S. Reid, Jr., Professor of Law, and an expert in financial and securities regulation and a former adviser to the Biden White House on digital asset policy.
Jackson, who has previously written about the regulation of cryptocurrency and stablecoins, says that while the text of the original GENIUS Act had some serious flaws — including a broad exemption for foreign stablecoin issuers like the hugely popular Tether — these problems were mostly fixed by the time the bill hit the president’s desk.
“I think that Senate Democrats and Republicans were attentive to a number of issues that were raised in committee hearings and did an admirable job making improvements on several dimensions,” he says of the final bill.
In an interview with Harvard Law Today, Jackson explains what stablecoins are and why lawmakers are taking an interest in them, along with the future of crypto regulation.
Harvard Law Today: What are stablecoins, and what makes them different from other types of cryptocurrency?
Howell Jackson: Stablecoins are a unique part of the cryptocurrency ecosystem in that their value, at least under the regulatory structure adopted in the GENIUS Act, are derived from a specific pool of safe assets that have been defined and need to be held in segregated accounts and custodied in a prescribed way. The new law requires that stablecoin issuers have reserves on hand to back 100% of the value of stablecoins in circulating. That’s very different from, say, Bitcoin or Ether, whose value depends entirely on market sentiment — there’s no underlying asset to Bitcoin.
Stablecoins are really more like narrow banks. They were initially introduced to allow people trading in other digital currencies to have a payment instrument that would have a stable value. If you were speculating in Bitcoin, you wanted to have a dollar substitute to move in and out of Bitcoin quickly and efficiently. It has been hard to move back and forth between the digital world to a regular bank, but easy to move from stablecoins to Bitcoin and back again.
HLT: What else are stablecoins used for?
Jackson: Stablecoins are also money substitutes that can be used in cross-border transactions, for example for someone who wants to send money back to the Philippines without the expense and delay of using commercial banks. Also, if you’re in a country like Turkey or Venezuela with a depreciating local currency, stablecoins offer a way to preserve value. We are seeing around the world that in certain jurisdictions, people are holding stablecoins because they don’t have confidence in their home currency.
From my perspective, one of the most interesting things about stablecoins is they could be used in a wide range of consumer and business-to-business transactions for moving value, instead of a checking account from a bank, a credit card charge, or a Venmo transaction. They have the potential advantage of providing payment services quickly and at a low cost. When you send a check into the bank, the money sits in the bank for a couple of days as it moves around. When you use your credit card, the member banks skim off around 3% of the cost. What we currently have in the United States is a very expensive and slow payment system. Stablecoin could really revolutionize that and save consumers billions of dollars. And if you look at what’s going on, the Visas of the world, the PayPals of the world, Stripe and other payment processers are very interested in stablecoins and have been making investments. Even big banks like JP Morgan are looking hard at developing their own stablecoins.
HLT: Why did the U.S. move to regulate stablecoins before other types of crypto?
Jackson: I think there are a number of reasons, several of which predate the second Trump administration. Around 2021, stablecoins were identified as the part of the cryptocurrency world that was most bank-like and therefore most susceptible to bank runs. In 2022, there were failures of a few stablecoins with unusual designs. In the aftermath, the Biden administration issued a series of reports recommending that stablecoins should be regulated in a bank-like way. This attention led to a series of congressional hearings and draft legislation introduced in the House Financial Services Committee in 2023 and 2024 that in many respects lay the foundations for the GENIUS Act’s adoption this year. The bipartisan consensus that stablecoins should be a top legislative priority was actually several years in the making.
The GENIUS Act also came first because the other issues related cryptocurrencies are much harder. In particular, the question how the United States should devise an appropriate market structure for the trading of other kinds of digital assets is challenging. Resolving jurisdictional disputes between the Securities and Exchange Commission and the Commodity Futures Trading Commission, for example, is complicated and controversial. Whether Congress should also place controls over decentralized finance is also hotly contested. By contrast, imposing a slimmed down version of banking regulation on stablecoins was fairly straightforward and thus a logical first step.
HLT: In April, you and your colleagues called attention to a few flaws in the original version of the GENIUS Act you thought could prevent it from being effective. The biggest problem you identified was that, at that time, the bill did not regulate offshore issuers of stablecoins, which would have exempted Tether. Are you satisfied with Congress’ changes and the final bill?
Jackson: Many of the things we focused on in that piece were addressed, and there were improvements on several other dimensions. First, there was attention to the foreign issuers. Tether is such a major player in the market, and there is now authority under the act to for the U.S. to exert jurisdiction over Tether and make sure that if its tokens are sold into the United States or distributed into the United States, there should be regulatory oversight comparable to what’s required of domestic stablecoin issuers, like Circle. Of course, regulatory must be vigilant and muscular with respect to foreign issuers, but there’s now potential under the act to exert that control.
I think that there were also some helpful improvements in the AML/CFT [anti-money laundering and countering the financing of terrorism] provisions, both in establishing jurisdiction over stablecoin issuers, but also in authorizing the Treasury Department to go for new technologies and new ways of ensuring compliance. There were also important bankruptcy provisions, heavily influenced, I think, by the contributions of my co-author, Professor Dan Awrey of Cornell Law School. Hopefully, the resolution of failed stablecoins will be handled in a better way than would otherwise have been the case.
To be sure, the GENIUS Act is not perfect. I would have preferred strong consumer protections in various places and there are technical aspects of the bill that will likely require corrections down the road. But given the challenges of getting any substantive legislative through Congress nowadays, I would rate the final version of the GENIUS Act as about as good as one could hope for.
HLT: Are there arguments against regulating stablecoins in this way?
Jackson: There are reasonable concerns that the GENIUS Act legitimizes and encourages the use of cryptocurrencies. If you don’t think they’re a good idea or that there are any valuable use cases, you may not want to do that. The counterargument is that stablecoins already out there — hundreds of billions of dollars’ worth. Is it better to have them unregulated?
“It’s not like we have a perfect system for traditional banking and an imperfect system for stable coins. They’re both imperfect.”
There are also concerns about illicit finance. One of the points that we stressed in our article was the need for Congress to focus more on AML/CFT issues. Some work was done there, and there’s more to be done to clarify government authority, particularly for offshore activity. Still, it’s important to bear in mind that illicit financing is also a problem in traditional banking and, according to most experts, more illicit financing takes place in the traditional banking sector than occurs with cryptocurrencies. So it’s not like we have a perfect system for traditional banking and an imperfect system for stable coins. They’re both imperfect. And weirdly, there’s some reason to think that in the long run, it might actually be easier to trace funds with stablecoins.
HLT: There was also opposition to the GENIUS Act by a few members of Congress, such as Rep. Marjorie Taylor Greene, who felt that the bill should have contained a provision to prohibit a central bank digital currency. What are congressional opponents worried about?
Jackson: There are some people who are deeply concerned about the Federal Reserve developing a retail central bank digital currency, kind of a public stablecoin. Five years ago, there was a push from progressive legal scholars and some Democrats to create a retail central bank digital currency (CBDC) that might get the Federal Reserve Bank into retail banking and might get the government more extensively involved in personal financial decisions. Historically, Americans have been skeptical about excessive government involvement in banking markets, and so this concern is, I think, legitimate. But from my perspective, the threat is not credible. The Fed itself said on several occasions it would not pursue a retail digital currency absent clear support from the political branches, that is from the president and Congress. The concerns that Representative Greene is expressing are genuine, but they are more rhetorical than real now, because we’re just not moving forward with a retail CBDC.
I also think that stablecoins will actually reduce the likelihood of a retail CBDC in the United States. What the GENIUS Act may do is create a huge constituency of firms with private stablecoins who will be adamantly opposed to competition from the Fed in the form of a public digital currency.
HLT: What does the legal landscape look like for stablecoin regulation around the world? Is the U.S. at the forefront of regulation or is it lagging behind?
Jackson: We’re definitely no longer at the back of the pack. The European Union has a directive for regulation called MiCA, which creates a regulatory structure for stablecoins, which builds on earlier directives for e-money. But I would say the United States jumps into the lead by passing the GENIUS Act.
The law has reciprocity provisions that will encourage foreign jurisdictions to adopt stablecoin regulations substantially similar to the GENIUS Act in order to get their stablecoins into the United States. As the U.S. market is very big, many foreign stablecoin issuers — like Tether — will want to get access to our market and therefore will encourage their home jurisdictions to meet U.S. standards. In addition, as many offshore stablecoins are pegged to the U.S. dollar, their issuers are likely to want to comply with U.S. regulatory standards to meet market demands even if they do not target U.S. customers.
HLT: What should we be thinking about as we move forward in regulating cryptocurrency?
Jackson: The big lacuna which exists now is oversight of the spot market for Bitcoin and the regular trading of digital assets. The industry under the Biden administration was living in this difficult world where the Securities and Exchange Commission was taking the position that these were securities and should be subject to SEC regulation. But there wasn’t a clear path to how the SEC would regulate those instruments. Now, I think there is a desire while the iron is hot to strike some sort of compromise on spot market regulation for cryptocurrencies like Bitcoin and Ether and others. Tim Massad [’84, director of the Kennedy School ‘s Digital Asset Project] and I have another article about how this should be done that we wrote a couple of years ago.
Finally, there will be a huge amount of work, as a regulatory matter, in rolling out the GENIUS Act. The law had many different flavors of how you could organize your stablecoins under state law, under federal law, as the subsidiaries of a bank, as a separate federal charter from the Office of the Comptroller of the Currency. It’s going to be interesting to watch it all unfold.
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