March 11, 2025

The Honorable Tim Scott, Chair
The Honorable Elizabeth Warren, Ranking Member
Honorable Members
Senate Banking Committee
534 Dirksen Senate Office Building
Washington, DC 20515

Please vote NO on the GENIUS Act.

Dear Committee members,

On behalf of more than 500,000 members and supporters of Public Citizen, we offer the following comments related to the “Guiding and Establishing National Innovation for U.S. Stablecoins Act,” or  “GENIUS Act,” a bill slated for committee consideration March 13, 2025. Without major foundational amendments, we believe this bill would simply add a sheen of government legitimacy to a financial instrument that can harm investors and disrupt centuries of policy that separates banking from commerce.

Why the Senate Banking Housing and Urban Affairs Committee should accord its first legislative action under its first-time Chair to cryptocurrency defies reason. America faces important financial challenges germane to this committee’s portfolio. Housing remains unaffordable. Major banks remain undercapitalized. Climate change threatens a financial sector deeply cleaved to the oil industry. And the Consumer Financial Protection Bureau currently sits vacant of important staff under the illegal pillaging of Elon Musk, leaving vulnerable consumers exposed to the next dastardly attack by Wall Street predators.

Generally, Americans don’t care much for crypto. According to the Federal Reserve, 93 percent of Americans neither own nor use crypto. According to Pew, 88 percent of Americans who report they are familiar with crypto declare they don’t trust it. Arguably, that’s because crypto scams abound. One that deserves this Committee’s scrutiny: President Trump’s meme coin scheme. By his own estimation, this meme instrument holds no value, an observation recently affirmed by Trump’s own Securities and Exchange Commission. Public Citizen believes President Trump may be in violation of federal law that prohibits the president from soliciting gifts.

What inescapably explains this Committee’s  and Congress’ unreasonable attention to crypto is the flood of political spending by a handful of crypto financiers in the 2024 election cycle, and the threat of more in the next cycle. Lawmakers must not allow political spending by an inherently harmful sector to shape important policy.

What follows is a description of stablecoins, an outline for responsible legislation, and a critique of the GENIUS Act.

Stablecoins

Prevailing cryptocurrencies gyrate wildly in price, often in a single day. In the last five years, Bitcoin traded as high as $110,000 per token and as low as $10,000. These swings undermine the case for digital assets as a means of exchange: A customer who believed that Bitcoin would rise in value would not rationally use one for a purchase on that day since they would be over-paying. They would only use the coin if they thought the price would fall. Conversely, a vendor who believed Bitcoin would fall would not accept the coin, since it would be an underpayment, and would only accept the token if they believed the price would rise. In other words, a fluctuating  price stifles the use of Bitcoin as a vehicle of market exchange.

Stablecoins promised to answer the problem of volatility in pricing by pegging each token to a specific value, such as the U.S. dollar, held in a reserve. However, many sponsors failed to fully back these tokens with legitimate reserves. The New York Attorney General fined Tether and Bitfinex for such failures. Celsius promised high yields to those who purchased its stablecoin, but allegedly paid those yields with newer investors’ money, a basic Ponzi scheme.

In less dramatic cases, many stable coins have not been “stable” according to a review by Moodys, with many failing to hold to a $1 value per token.

Meanwhile, other stablecoins may be used in illicit finance.

Public Citizen welcomes responsible legislation that addresses these problems. We believe any stablecoin bill should contain the following assurances:

• Assets are backed on a 1-1 basis.
• The assets must be safe and highly liquid, restricted to U.S. Treasury securities.
• The sponsor must maintain capital of 5 percent. (Sponsors must maintain assets that are 5 percent greater than the value of outstanding stablecoins.)
• Sponsors must not be affiliated with any commercial firm, that is, a firm that is not a bank. (This includes firms such as Facebook or Walmart.)
• Sponsors must comply with anti-money laundering and know-your-customer laws.
• Sponsors must disclose their climate footprint.

Sponsors must register with the Securities and Exchange Commission (SEC).

Registration must include:

• A list of any criminal conviction, deferred prosecution agreement, and pending criminal proceeding in any jurisdiction against all of the following: (i) The applicant; (ii) Any executive officer of the applicant; (iii) Any responsible individual of the applicant; (iv) Any person that has control over the applicant; (v) Any person over which the applicant has control.
• A list of any litigation, arbitration, or administrative proceeding in any jurisdiction in which the applicant or an executive officer or a responsible individual of the applicant has been a party for the 10 years before the application is submitted determined to be material in accordance with generally accepted accounting principles and, to the extent the applicant would be required to disclose the litigation, arbitration, or administrative proceeding in the applicant’s audited financial statements, reports to equity owners and similar statements or reports.
• A list of any bankruptcy or receivership proceeding in any jurisdiction for the 10 years before the application is submitted in which any of the following was a debtor: (i) The applicant; (ii) An executive officer of the applicant; (iii) A responsible individual of the applicant; (iv) A person that has control over the applicant; (v) A person over which the applicant has control.
• A set of fingerprints for each executive officer and responsible individual of the applicant.

• Sponsors must publicly disclose monthly their assets, liabilities, capital, income, and expenses of the licensee, and secure and publish an independent audit of this financial data quarterly.
• Sponsors shall maintain a surety bond or trust account in United States dollars in a form and amount as determined by the SEC for the protection of those who engage in digital financial asset business activity with the registrant.
• Banks that hold stablecoins must post 1250 percent risk capital, as described by the Basel Committee.
• Penalties for infraction of any of these terms shall be one percent of the outstanding value of the stablecoin on the first infraction, and termination of the stablecoin on the second.
• Legislation should include a resolution framework in the case of failure as standard bankruptcy proceedings typically take years before customers can recover funds.

The GENIUS Act

The GENIUS Act focuses on essentially one element of what’s necessary to govern stablecoins: namely the integrity of their reserves. It requires that the sponsor buy safe securities, such as U.S. treasuries. Even here, however, the GENIUS Act falls short because  it also allows the sponsor to include uninsured demand deposits. While cash might seem safe, if held in a bank, accounts beyond $250,000 would not enjoy FDIC coverage. The episode of Silicon Valley Bank’s failure demonstrated this vulnerability. Further, the bill relies on sponsor certification (or attestation) as to the components of the reserve. Instead, responsible legislation should require an audit by a firm overseen by the Public Company Accounting Oversight Board (PCAOB). (Some stablecoins have sought audits from firms outside this recognized regime.)

Generally, the GENIUS Act includes several foundational flaws. First, it invites major commercial firms such as Amazon, Walmart, Twitter/X and/or Facebook/Meta to enter the banking sector because it lacks provisions under the Banking Holding Company Act that otherwise prohibit non-financial firms from entering the banking business. The nation’s centuries old policy separating banking and commerce stems from concerns about concentration in power. Creditors should not face the moral hazard of competing with the borrower. Viability of a credit facility should not hinge on the viability of a commercial venture. For example, an automobile manufacturer that also sponsored a stablecoin might raid the reserve should car sales begin to falter. Or a major online aggregating retailer might disfavor a subcontractor if it failed to use the aggregator’s stablecoin. History illustrates that when banks have entered commerce, such as financiers did in the late 19^th century during the construction of railroads, manipulations led to frequent economic shocks. Any stablecoin legislation should obligate issuers to abide by robust Bank Holding Company Act provisions that guard against these harms by restricting sponsorship to existing banks.

Second, the GENIUS Act provides a dual oversight structure, permitting stablecoins under a certain value ($10 billion) to register under individual states. This allows a race to the bottom, where unscrupulous sponsors would seek the state with most convenient rules. The bill calls on the states to establish safety standards, but these will inevitably be worked out between industry and lawmakers with little consumer protection given the scant interest by average Americans in this sector.  Further, a bad actor could game the $10 billion limit by organizing multiple funds, beginning a new one once the last one reaches this figure.

The bill also fails to establish clear safeguards for those stablecoins that seek federal oversight, with the same vague injunctions to regulators. As implementation of the 2010 Wall Street Reform Act demonstrates, regulators were slow to implement rules and those rules reflected intense Wall Street lobbying. With the U.S. Supreme Court decision eliminating Chevron deference, rules that industry finds inconvenient now may perish at the whim of cherry-picked courts.

Third, the bill fails to provide speedy resolution for customers in case of failure of a stablecoin. Bankruptcy does not suit a firm that custodies savings that should be available within days of a failure, as is the case with banks that are resolved by the Federal Deposit Insurance Corp. Section 9 of the GENIUS Act references sections of Chapter 11 of the Bankruptcy Code, affording holders of payment stablecoins “priority.” But bankruptcy triggers an automatic stay on payments that could take years before the relief of funds, according to Georgetown Prof. Arthur Wilmarth, which renders “priority” little relief in actuality.  Related to this, the bill includes adequate custodial rules. The GENIUS Act declares that stablecoins are property of the investor and must be segregated from sponsor funds. But this doesn’t direct the bankruptcy court to pay the investor immediately.

Lastly, the bill lacks a fair redemption regime. It simply requires the stablecoin sponsor to establish a policy. It fails to prohibit a firm from establishing exorbitant fees, or setting an unreasonable time to honor a redemption, or favoring some customers over others. A sponsor could establish long waiting periods; a sponsor could even change policies, such as advertising a low fee one month, then raising it the next, and setting different fees for different customers. In a money market mutual fund, all customers receive the same prevailing interest rate and enjoy equal redemption rules.

Conclusion

Without major amendment to the GENIUS Act, this legislation awards government legitimacy to a dubious product and therein increase acceptance by a population that should otherwise be wary.

Price manipulations, coin failures, and use of these products in illicit finance will increase. And none of the policies that should command this committee’s attention will advance. Stablecoins won’t increase affordable housing. Banks won’t be safer. Climate change will worsen. Trump’s corruptions with his meme coin scam will swell.

We ask the committee to reject this ill-conceived, incomplete and threatening legislation.

For questions, please contract Bartlett Naylor at bnaylor@citizen.org

Sincerely,

Public Citizen