US Stablecoin Regulations to Shape Crypto Landscape

The US Treasury Department's FinCEN and OFAC units have released a joint regulatory draft under the GENIUS Act, which is set to shape the stablecoin market and influence future cryptocurrency regulations.

Billing Hughes, an expert in law and regulation, believes that this regulation could be one of the most important steps of the year for the sector. The regulation aims to establish a clear standard for US enforcement, anti-money laundering (AML), and compliance policies regarding cryptocurrencies.

The draft makes significant distinctions between primary and secondary markets in stablecoin transactions. FinCEN has adopted a 'reasonable' approach to secondary market transactions, arguing that these should not trigger customer verification (KYC), ongoing monitoring, or suspicious transaction reporting obligations. However, this approach is in contrast to OFAC's stricter stance.

OFAC requires issuers of payment-oriented stablecoins to have the capacity to block, freeze, and reject 'prohibited' transactions in both primary and secondary markets. This includes preventing individuals on sanctions lists from interacting with stablecoin smart contracts, including peer-to-peer (P2P) transactions between self-custody wallets.

The regulation marks a new development in the crypto sector as it directly addresses the technical structure of smart contracts. However, there is uncertainty about exactly what the regulation mandates, particularly regarding proactive oversight and filtering on-chain transactions.