On July 1, 2025, New York Attorney General Letitia James issued a stark warning to Congress, voicing her concerns about the U.S. Senate’s recently passed stablecoin legislation, the GENIUS Act of 2025. In a detailed eight-page letter, James cautioned that the bill, in its current form, lacks essential protections for American investors and the integrity of the financial system.
A Cry for Caution
James’s missive urged lawmakers to hit the brakes on the GENIUS Act, arguing that the bill falls short on several fronts. According to James, the legislation leaves room for foreign entities to dominate the U.S. stablecoin market—a scenario she describes as the “Tether loophole.” This loophole, she suggests, could potentially allow foreign issuers of dollar-pegged stablecoins to wield undue influence over American markets, a prospect she finds troubling given the growing systemic importance of stablecoins in U.S. Treasury markets. “The U.S. must maintain control over dollar-pegged stablecoin issuers,” James wrote, emphasizing the need for these issuers to be regulated as banks and domiciled within the United States.
Unpacking the Legislative Landscape
The GENIUS Act, named for its ambition to foster innovation in U.S. stablecoins, sailed through the Senate earlier this June. However, its journey is far from over. The bill now awaits consideration by the House of Representatives, where it faces a potentially rocky path. The House has its version, the STABLE Act, which diverges significantly from the Senate’s approach. Chair of the House Financial Services Committee, Rep. French Hill, has noted these key differences, but as of now, the House’s next move remains a mystery. As stablecoin legislation progresses, the Senate is already shifting focus to broader market structure, as detailed in our recent article.
James’s concerns echo her previous communications to Congress. Back in April, she penned a letter stressing the importance of “common sense principles” in any digital asset legislation, such as ensuring stablecoins are based within U.S. borders and restricting their inclusion in retirement accounts. Her fears were reiterated in June when she criticized the Digital Asset Market Clarity Act (CLARITY) for insufficiently safeguarding American interests and securities.
The Quest for Digital Identity
One of James’s most pressing recommendations is the requirement for stablecoin issuers to implement digital identity credentials for their holders. She argues that without such measures, law enforcement’s ability to combat activities like sanctions evasion and money laundering would be severely impeded. “Without digital identity, enforcement against illicit financing and fraud becomes nearly impossible,” James asserted. This call for digital identity underscores the balancing act between innovation and regulation—a tightrope the GENIUS Act must walk. For a deeper dive into the evolving regulatory landscape, see our coverage of the new crypto market structure framework.
Looking Ahead
The path forward for the GENIUS Act is fraught with potential pitfalls. As James’s letter highlights, the stakes are high and the implications for both the U.S. financial system and global markets are significant. The House must now grapple with these issues, deciding whether to adopt the Senate’s version or push for a more cautious, regulated approach as advocated by James.
While the GENIUS Act aims to position the U.S. as a leader in stablecoin innovation, the concerns raised by James—and echoed by a growing chorus of skeptics—suggest a need for more rigorous safeguards. As the House deliberates, the crypto community will be watching closely, wondering whether the final legislation will strike the right balance between fostering innovation and ensuring robust investor protections. The future of stablecoin regulation in the U.S. hangs in the balance, promising to be a defining chapter in the ongoing saga of digital asset regulation.
Source
This article is based on: GENIUS Act Lacks ‘Necessary Guardrails’ For Investor Protection, NYAG Letitia James Tells Congress
Further Reading
Deepen your understanding with these related articles:
- Senate Banking Committee Sets Out Plan For Crypto Market Rules
- SoFi to Launch Blockchain Remittances With Stablecoins as Crypto Returns to Platform
- Market Cap of Euro Stablecoins Surges to Nearly $500M as EUR/USD Rivals Bitcoin’s H1 Gains
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
