Federal Reserve Governor Michael Barr has praised the newly enacted GENIUS stablecoin law as an important step toward financial stability—but cautioned that key regulatory gaps still need to be addressed.
Speaking Thursday at DC Fintech Week, Barr said the Guiding and Establishing Innovation for U.S. Stablecoins Act (GENIUS)—signed into law by President Donald Trump over the summer—represents a “meaningful improvement” in the effort to regulate digital dollar-pegged tokens. However, he warned that without close coordination between federal and state regulators, the framework could unintentionally invite risk and confusion into the financial system.
A Strong Foundation, But Missing Pieces
The GENIUS Act establishes a federal framework requiring stablecoins to be fully backed by U.S. dollars or highly liquid assets, and mandates annual audits for issuers with a market capitalization exceeding $50 billion. It also includes provisions for foreign-issued stablecoins, setting the stage for international compliance standards.
Still, Barr noted that the law leaves “significant gaps” that must be filled through additional regulation and cooperation among federal banking agencies and state authorities.
“The law could encourage regulatory arbitrage,” Barr cautioned. “Unless agencies carefully coordinate, some regulators may allow activities that expose stablecoin issuers to greater risk.”
He warned that some issuers might interpret the law broadly enough to engage in risky behaviors reminiscent of the now-defunct crypto exchange FTX, provided they meet the minimum representation and accounting requirements outlined in the Act.
Protecting Consumers and Market Integrity
Another concern, Barr said, is that the GENIUS Act doesn’t cover all digital assets marketed as “stablecoins,” potentially creating confusion among consumers.
“This risks leading users to rely on payment instruments they believe are regulated, but that offer no prudential protections whatsoever,” he said.
Despite the concerns, Barr acknowledged that stablecoins have significant potential to improve the financial system—particularly in reducing remittance costs and speeding up global trade. But, he stressed, their reliability is key.
“Stablecoins will only be stable if they can be reliably and promptly redeemed at par across a wide range of market conditions,” Barr said, highlighting the need for safeguards that hold up during times of financial stress.
A Balancing Act for Regulators
Before GENIUS was passed, Barr had repeatedly urged for stronger oversight of the stablecoin sector, arguing that the Federal Reserve “has a strong interest in ensuring that any stablecoin offerings operate within an appropriate federal prudential framework.”
Barr, who previously served as the Fed’s Vice Chair for Supervision under former President Joe Biden, continues to play a key role in shaping the central bank’s approach to digital assets.
As federal agencies move to implement GENIUS, Barr’s comments underscore the ongoing balancing act between encouraging financial innovation and maintaining market stability—a challenge that remains at the heart of the global digital finance debate.
