GENIUS Act to Supercharge Stablecoins
VeradiVerdict - Issue #330
The GENIUS Act couldn’t be more genius!
On the 19th of May, the US Senate voted to invoke cloture on the motion to proceed to the consideration of the GENIUS Act. This procedural vote passed by a margin of 66-32, with more than 15 Democratic senators joining Republicans to clear the 60-vote threshold required to overcome a filibuster. This prevents senators from blocking the act by prolonging debate. As a result, the Senate can now formally begin debate on the GENIUS act at a maximum of 30 additional hours. After this period, the Senate must proceed to a final vote on the GENIUS act. If the Senate approves the GENIUS act, it will then move to the House of Representatives for further consideration.
As mentioned in our last newsletter, stablecoins stands at a market capitalization of $230 billion, and Pantera Capital has been at the forefront of this trend with early investments in Circle, Ethena, M^0, Ondo, and Figure Markets. Now let’s breakdown the GENIUS Act and why it’s significant.
The GENIUS Act Explained
The GENIUS Act, short for the Guiding And Establishing National Innovation for U.S. Stablecoins (GENIUS) Act of 2025 is the first comprehensive federal framework for regulating payment stablecoins in the United States. Introduced by Senator Bill Hagerty (R-TN) and co-sponsored by bipartisan legislators, the bill aims to provide clarity on what a stablecoin is and who can issue stablecoins.
In the Act, Payment Stablecoin is a digital asset that is designed to be used for payments and settlements. Its issuer must be obliged to convert it for a fixed amount of monetary value and maintain a stable value relative to the fixed amount of monetary value. This definition includes the two main features of stablecoins – it must be pegged to a fixed monetary amount and be stable relative to the fixed monetary amount.
The section on requirements for stablecoin issuers is where it gets interesting. Permitted Payment Stablecoin Issuer must be either a subsidiary of an insured depository institution, a federal qualified nonbank payment stablecoin issuer or a state qualified payment stablecoin issuer. Issuers with a market capitalisation under 10 billion USD may also opt for state regulation. Under this definition, the privilege of issuing stablecoins isn’t confined only to FDIC insured banks. We believe more institutional issuers and smaller state based issuers are getting into the space in the near future.
Payment Stablecoin issuers shall maintain a reserve backing with at least a 1 to 1 basis. The reserve comprises United States dollars, demand deposits or insured shares at insured depository institutions, treasury bills with a maturity of 93 days or less, money market funds and Central Bank reserve deposits. This section is a gold mine as it outlines precisely what assets are eligible to be in stablecoin reserves. It is worth noting that all the sub 93 day bonds and money market funds have a low yield relative to other financial assets.
Consumer protection protocols such as monthly composition value of the issuer’s reserve and the outstanding stablecoins the issuer issued must be published on the issuers website are also put in place to foster transparency and consumer trust in the space.
There is clear bipartisan support for the dollar to remain the dominant global currency through stablecoins. The 66 supporting senators believe that without a comprehensive legislative structure, the dollar will be threatened by foreign stablecoins. However, a main concern of the bill or crypto in general is the Trump family’s use of crypto technologies to evade oversight. The leading opposition voice, Senator Elizabeth Warren (D-MA), published a 2-paged report outlining how the “current draft paves the way for more Trump crypto corruption; expands giant national security loophole for Tether; permits Big Tech companies to issue their own stablecoins; and fails to address several other fundamental flaws”.
Several Senate Democrats have introduced bills targeting Trump’s crypto ventures to prevent the president from potentially profiting. Senator Michael Bennet plans to propose the STABLE Act, preventing elected officials or federal candidates from issuing or endorsing digital assets.
The industry views the GENIUS Act as a positive step towards regulation certainty, as JPMorgan, Bank of America, Wells Fargo, Citigroup and other major US banks announced plans in creating a joint crypto stablecoin.
Looking ahead
Last year, we published a comprehensive thesis on stablecoins. With recent updates in mind, let’s dive deeper on how we think the GENIUS Act will transform the stablecoin space.
Stablecoins is poised to become a means of transfer, not a store of value
As mentioned in the previous section,we believe the low yield nature of stablecoin reserves will drive consumers to treat stablecoins as a means of transfer, not a store of value. In other words, although stablecoins make transactions faster and cheaper, why should I hold stablecoins for a 4% yield when I can get a higher return in equities or crypto? As a result, consumers would swap in and out of stablecoins pre and post transaction.
The GENIUS Act will decrease the volume of stationary stablecoins, while increasing the volume of moving stablecoins. Once regulation clarity is established, we believe stablecoins will slowly eat into ACH payment and remittance methods, capturing a market worth 1.8 trillion dollars.
Source: Artemis Analytics
M0 is uniquely positioned to ride the wave of the increase in number of issuers
Since the GENIUS Act opens up the door to three distinct parties to issue stablecoins, we believe the number of issuers in the space will drastically increase in the near future.
As an early supporter of M0, we believe M0 will lead the wave of onboarding new stablecoin issuers. M0 democratizes access to the generation and management of programmable, digital cash instruments. With M0, any of the three eligible issuing parties in the GENIUS Act can easily and quickly issue stablecoins that are compliant with the bill.
Minting Compliant Stablecoins with M0
The M0 protocol lowers the barrier of entry for stablecoin issuers. Let’s break down who are the key players in the M0 model and how does it work:
Minters: Minters are institutions that connect to the protocol to generate and manage the supply of $M, the stablecoin building block on the M0 protocol. Under the GENIUS Act, minters can be either a subsidiary of an insured depository institution, a federal qualified nonbank payment stablecoin issuer or a state qualified payment stablecoin issuer.
Validators: An independent entity that provides timely information about the off-chain collateral being used to generate $M. Conventional validators would be independent auditors such as KPMG or Deloitte.
Earners: A group of entities that are eligible to receive an interest rate from the protocol. This enables the M0 platform to customize yield distribution.
With the definitions of minters and validators in mind, let’s go through how does one mint compliant stablecoins with M0:
The minters, validators and earners get permissioned by governance. Governance’s permissioning is essential as malicious minters may mint $M without sufficient backing, resulting in $M value dilution.
Minters publish their proof of collateral to their validator. Under the GENIUS Act, eligible collateral includes United States dollars, demand deposits or insured shares at insured depository institutions, treasury bills with a maturity of 93 days or less, money market funds and Central Bank reserve deposits.
The validator will value the collateral and publish the value as the minter's on chain collateral.
The minter can mint as much $M as the on chain collateral. With on-chain collateral being the upper limit of the value of $M the minter can mint, M0 keeps the minted stablecoin compliant by guaranteeing minted stablecoins to have at least a 1 to 1 backing.
If the minter wants to pull a certain amount of collateral out of the protocol, the minter would have to first burn an equal amount of $M to maintain the 1 to 1 backing of the remaining minted $M.
Developing your edge with M0
Minting stablecoins on M0 has numerous advantages including but not limited to:
Shared liquidity: All stablecoins minted on M0 are part of a unified liquidity pool. If Platform A mints “A-Dollar” and Platform B mints “B-Dollar” on M0, users can swap A-Dollar for B-Dollar instantly and at par, with no price discovery, and both can be used in DeFi apps, exchanges, or wallets that support M0.
Decentralised Issuance: M0 allows multiple, independent institutions (called “Minters”) to issue stablecoins, rather than relying on a single centralized company. This reduces single points of failure and increases system resilience. Such built in features couldn’t be more relevant today as big banks such as JP Morgan and Citi group just announced plans on exploring the joint issuance of stablecoins.
Complaint collateral backing: Stablecoins on M0 must have a 1:1 backing, which is compliant with the GENIUS Act
Rapid deployment: M0 provides SDKs and infrastructure that let builders launch new, feature-rich stablecoins quickly, without needing to develop complex custody, compliance, or minting systems from scratch.
Cross-chain support: M0 operates on multiple blockchains (like Ethereum and Solana) and supports cross-chain transfers, making stablecoins usable in a wide range of wallets, DeFi protocols, and payment networks.
Monetization: Builders and platforms can earn a share of the yield generated by the underlying collateral (like U.S. Treasuries) through specifying the group of earners on the protocol level, creating new revenue streams beyond simple transaction fees.
Pantera Capital has been a long time supporter of the stablecoin industry with anchor investments on M0 and others. We are excited to see more stablecoin innovation with the regulation certainty provided by the GENIUS Act.
- Paul Veradittakit
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ABOUT ME
Hi, I’m Paul Veradittakit, a Managing Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early-stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.
If you have any projects that need funding, feel free to DM me on twitter.