On August 18, the U.S. Department of the Treasury (Treasury) published a notice of proposed rulemaking in the Federal Register to implement § 3 of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act or Act) — the first comprehensive federal regulatory framework for payment stablecoins in the U.S., enacted on July 18, 2025. A payment stablecoin is a digital asset that is, or is designed to be, used as a means of payment or settlement, and whose issuer is obligated to convert, redeem, or repurchase it for a fixed amount of monetary value while maintaining a stable value relative to that amount. The GENIUS Act expressly excludes national currencies, bank deposits, and securities from the definition of payment stablecoins.

Section 3 of the GENIUS Act forms the cornerstone of the new framework. It prescribes who may lawfully issue, offer, sell, or otherwise make available payment stablecoins in the U.S., and clarifies how foreign issuers may offer payment stablecoins to U.S. customers — or avoid the federal regulatory framework.

Core Prohibitions

The proposed rule implements two fundamental prohibitions rooted in § 3 of the GENIUS Act:

Unlawful Issuance. Under § 3(a), it is unlawful for any person other than a “permitted payment stablecoin issuer” (PPSI) to issue a payment stablecoin in the U.S. A PPSI is a U.S.-formed entity that is either a subsidiary of an insured depository institution approved under the Act, a federal qualified payment stablecoin issuer, or a state qualified payment stablecoin issuer. Knowing participation in a violation of this prohibition carries serious consequences — a fine of up to $1 million per violation, imprisonment of up to five years, or both.

The proposed rule also defines when issuance occurs: a stablecoin is deemed “issued” at the moment of the first transfer of a newly minted token to an outside party for circulation or redemption. Tokens that are minted but not yet transferred to an outside party would not count as “issued” under this framework.

Restrictions on Digital Asset Service Providers (DASPs). Section 3(b) imposes a two-tiered prohibition on DASPs — entities that, for compensation or profit, engage in exchanging, transferring, or custodying digital assets or participating in digital asset issuance-related financial services.

  • Tier 1 (Effective July 18, 2028): It will be unlawful for any DASP to offer or sell a payment stablecoin to a person in the U.S. unless the stablecoin is issued by a PPSI.
  • Tier 2 (Effective January 18, 2027 — the Act’s effective date): It is unlawful for any DASP to offer, sell, or otherwise make available in the U.S. a payment stablecoin issued by a foreign payment stablecoin issuer unless that foreign issuer has the technological capability to comply, and will comply, with any lawful order and any reciprocal arrangement under § 18 of the Act. Notably, the proposed rule would permit DASPs to rely on a foreign issuer’s representation that it can and will comply, but only after conducting “reasonable due diligence” to verify the accuracy of that representation.

Key Exemptions and Safe Harbors

The GENIUS Act and Treasury’s proposed rule carve out several important exemptions from the general prohibitions:

  • Peer-to-peer transfers: Direct transfers of digital assets between two individuals acting on their own behalf and for their own lawful purposes, without the involvement of an intermediary, are exempt.
  • Same-parent interaccount transactions: Transactions involving the receipt of digital assets by an individual between an account owned by that individual in the U.S. and an account owned by the same individual abroad, where both accounts are offered by the same parent company, are exempt.
  • Self-custody wallets: Transactions facilitated by a software or hardware wallet through which an individual maintains their own custody of digital assets are exempt.
  • Comparable foreign regime: The prohibitions do not apply to a foreign payment stablecoin issuer if it is subject to a foreign regulatory regime that Treasury determines is comparable to the GENIUS Act framework and the issuer is registered with the Office of the Comptroller of the Currency.
  • Transition waiver: Primary federal payment stablecoin regulators may waive compliance requirements for up to 12 months from the Act’s effective date for subsidiaries of insured depository institutions and federal qualified payment stablecoin issuers with a pending application on that date.
  • De minimis and exigent circumstances safe harbors: Treasury is authorized to issue regulations providing safe harbors for a de minimis volume of transactions consistent with the Act’s purposes, and certain other limited safe harbors in unusual and exigent circumstances. Treasury is soliciting public comment on whether additional safe harbors should be created.
  • The proposed rule also includes a “reasonable belief” safe harbor for foreign issuers: A foreign issuer would not be deemed to have issued a stablecoin in the U.S. market if it reasonably believes its customers are located outside the U.S., maintains controls designed to avoid serving U.S. residents, and refrains from advertising that targets the U.S. market. This safe harbor is intended to protect foreign issuers from inadvertently triggering U.S. registration and compliance requirements simply because a token happens to reach a U.S. person.

Treasury’s Deliberate Departure from Securities Law Frameworks

One of the most significant policy choices reflected in this proposed rule is Treasury’s decision not to use existing securities or commodities regulatory frameworks (such as Regulation S under the Securities Act of 1933) as the template for implementing § 3 of the GENIUS Act. While several commenters to the Advance Notice of Proposed Rulemaking published in September 2025 suggested that the federal securities laws should serve as a reference point, Treasury declined to adopt that approach for several reasons.

Most fundamentally, the GENIUS Act itself draws a clear line: payment stablecoins are expressly not securities and not commodities under federal law. Instead, payment stablecoins are designed to function as a means of payment and settlement, not as investment instruments, and are expected to maintain a stable value. Treasury concluded that applying traditional investment-focused rules to payment stablecoins could frustrate this core purpose and that certain operational mechanics of stablecoins, such as minting and redemption, may differ from traditional securities in ways that existing frameworks do not adequately address. Treasury has nonetheless invited public comment on whether its approach is appropriate or whether a framework more similar to existing securities or commodities regimes would be preferable.