The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, signed into law in July 2025, establishes the first federal framework for payment stablecoins and sets the stage for material shifts in U.S. bank funding and global reserve currency dynamics, according to a Galaxy report titled "GENIUS Act Stablecoins: Bank Deposits & Dollar Dominance."

What does the law require of issuers?

The statute compels stablecoin issuers to maintain 1:1 reserves in cash, short-dated U.S. Treasuries, or equivalent liquid assets, and to publish monthly attestations. Issuers above a defined circulation threshold fall under primary federal supervision, with a state pathway available for smaller operators through a framework certified by the Treasury Secretary.

The Act bars yield-bearing stablecoins, prohibits issuers from paying interest to holders, and excludes non-permitted foreign stablecoins from the U.S. market. Custodial arrangements, redemption rights at par, and bankruptcy-remoteness provisions are codified at the federal level for the first time.

How might bank deposits respond?

The question of whether stablecoin reserves substitute for or complement traditional bank deposits sits at the center of the Galaxy analysis. With more than $300 billion in stablecoin circulation entering 2026 and a multi-trillion-dollar addressable market, the redirection of reserve holdings into short-dated Treasuries could reshape money-market fund flows and Treasury bill demand.

Galaxy frames the deposit question as a function of trust rails. Domestic-licensed stablecoin issuers operating under the federal regime will hold reserves at large U.S. banks or directly at the Federal Reserve, depending on account access. State-licensed issuers follow state money transmitter regimes, with periodic federal review. Foreign issuers face a registration regime administered by the Office of the Comptroller of the Currency.

The shift in stablecoin reserve composition has direct implications for bank funding costs. If a meaningful share of stablecoin reserves migrates into Treasury bills and away from uninsured bank deposits, the net effect on the largest U.S. banks may be modest but concentrated in regional and community institutions historically dependent on corporate treasury balances.

What does the framework mean for dollar dominance?

The Act's market-structure provisions position the U.S. dollar as the unit of account for compliant stablecoins, with non-dollar-denominated payment stablecoins excluded from the federal regime. Foreign issuers seeking U.S. distribution must meet the same reserve, redemption, and disclosure standards as domestic players.

By establishing a regulatory floor that requires dollar redemption, on-chain dollar liquidity, and U.S. Treasury backing at scale, the law institutionalizes dollar settlement on public blockchains. Tether (USDT) and Circle (USDC), the two largest stablecoins by circulation, both fall within scope and together account for the bulk of the market.

Galaxy's analysis suggests that as compliant stablecoins absorb on-chain transaction volume previously denominated in non-dollar assets, the network effects of dollar settlement extend into decentralized finance, cross-border remittance, and tokenized real-world asset markets.

What enforcement milestones are next?

The Act establishes staggered compliance dates beginning in 2026 for federal-chartered issuers, with a transition window for state-licensed entities running into 2027. The Treasury Secretary must issue implementing rules on foreign stablecoin admission within 180 days, and the OCC, Federal Reserve, and FDIC must publish examination guidance for bank custody of reserves within one year.

The first federal enforcement actions against non-compliant issuers are expected within 18 months of the law's effective date, setting the practical perimeter for the market.