Treasury Proposes Framework for State Stablecoin Laws—Should You Issue Under a State Regime?

With its recent notice of proposed rulemaking (NPRM), the Department of the Treasury (Treasury) opened the door for state-regulated stablecoins by defining when state regimes may substitute for federal oversight. 

For background, the Guiding and Establishing National Innovation for US Stablecoins Act (the GENIUS Act or the Act) authorizes certain entities to issue stablecoins in the United States, including a federal qualified payment stablecoin issuer (FQPSI) and a state qualified payment stablecoin issuer (SQPSI). However, SQPSIs must generally transition to the federal framework if they surpass an outstanding issuance of US$10 billion stablecoins (but they may seek a waiver). Treasury’s recent NPRM outlined the basic requirements to issue payment stablecoins as an SQPSI and answers a question in the back of many issuers’ minds: 

Why choose a state stablecoin framework if one would eventually have to transition to the federal framework anyway?

The NPRM both outlines the principles required to issue under a state framework and reveals two key strategic reasons for the state path, which have been largely overlooked.

See also our previous publications following the GENIUS Act (here for regulatory implementation considerations and here for stablecoin licensing implications).

Becoming a State Qualified Payment Stablecoin Issuer

In general, the NPRM specifies the “broad-based principles” for determining when a state regulatory regime is “substantially similar” to the federal framework, thereby allowing SQPSIs to issue stablecoins under a state law. The bifurcated state and federal frameworks for stablecoins resemble the current dual banking system, where a bank may opt for either a state or federal charter.

The NPRM establishes five sets of principles under which a state must certify its stablecoin law as “substantially similar” to the GENIUS Act, generally summarized below: 

Overall Broad-Based Principles

The state law must “meet or exceed” the requirements under Section 4(a) of the GENIUS Act (i.e., general issuer requirements) but may deviate for “nonsubstantive matters.” 

Broad-Based Principles for Uniform Requirements Under Section 4(a) of the Act

The state law must be consistent with the federal framework “in all substantive respects” with respect to certain “Uniform requirements” (listed in the table below). These requirements set the GENIUS Act standards as a baseline, including reserve requirements, anti-money laundering, and sanctions program requirements.

Broad-Based Principles for State-Calibrated Requirements Under Section 4(a) of the Act

The state may exercise some discretion to deviate from the Act with certain “State-calibrated requirements” (listed in the table below). Treasury, however, expects these discretionary areas to be “at least as stringent and protective as the Federal regulatory framework.” Indeed, the State-calibrated requirements are largely constrained by the GENIUS Act or are nonsubstantive. However, one very significant provision is nested in proposed section 1521.4(h)(2)(i)(B), concerning digital asset service providers (discussed below).

Broad-Based Principles for Other Provisions of the GENIUS Act

States have discretion in implementing other miscellaneous or nonsubstantive provisions, including: transitioning to federal oversight; applications and licensing; and supervision and enforcement. Such other provisions, however, must generally follow the federal framework.

Why Issue Stablecoins Under State Law? 

As written, a state’s stablecoin regime certified under the NPRM might effectively serve as an on-ramp to eventual federal supervision. Indeed, by the time they must transition to the federal framework, an SQPSI will have already complied with the substantive requirements governing all permitted payment stablecoin issuers. There are, however, two strategic reasons why an issuer might initially choose a state regime.

Digital Asset Service Provider Activities

Many states, including California and New York, have developed bespoke laws governing digital asset service providers (DASPs) that extend well beyond stablecoins, to cover broader activities around any virtual currency, including exchange, custody, and transmission. Critically, while the GENIUS Act generally preempts the current stablecoin provisions within DASP laws, it does not displace the broader digital asset provisions. An issuer engaged in non-stablecoin digital asset activities would likely still require a license under these related state DASP laws.

DASPs, therefore, have the opportunity to leverage their current state licenses as GENIUS Act-compliant licenses to issue stablecoins (provided that the state law is first certified as “substantially similar,” as discussed above). This creates a meaningful advantage over a purely federal pathway, where stablecoin issuance may be federally supervised (e.g., under the Comptroller of the Currency), but related digital asset activities could still require separate state-by-state licensing in states that require such licensing.

In practice, the SQPSI model may allow a vertically integrated virtual currency platform to consolidate regulatory oversight and decrease compliance burdens, rather than navigating parallel and potentially duplicative federal and state regimes for different components of the same business. However, that is not to say that these state-specific DASP laws may also be passported; SQPSIs must continue to weigh the applicability of these laws in each state. The state framework option, therefore, could be viewed as reducing the need for DASPs to obtain a separate federal authorization (provided that such state laws are first properly certified as “substantially similar” to the GENIUS Act). 

Streamlined, Effective, and Well-Developed State Regime

Similar to Delaware being the most common state of incorporation for businesses (due to its efficient and well-maintained corporate framework), states may create well-administered stablecoin regimes in terms of faster licensing, cleaner applications, and responsiveness or accessibility of regulators. A state’s regime or regulator may also better accommodate more innovative business models, particularly at earlier stages, thereby reducing regulatory frictions around emerging technologies.

A state stablecoin regime incentivizes creating an efficient and well-maintained state framework since one state’s stablecoin law is generally passported to the other states. Unlike money transmission laws, where licenses are obtained in every state in which a company is doing business, SQPSIs may operate across state lines with respect to stablecoin issuance activities, without needing separate state-by-state stablecoin licensure (but note that state DASP laws will still require licensing to engage in digital asset activities, as discussed above).

Conclusion

There are important strategic considerations for issuers evaluating whether to issue under a state stablecoin regime. While Treasury’s NPRM makes clear that state frameworks will largely converge with the federal baseline, the state pathway could have meaningful advantages. In particular, issuers could see tangible benefits in the ability to leverage a more efficient and well-maintained state licensing process and, most critically, engage in DASP activities under a state framework. 

The NPRM reinforces that state regimes do not replace the substantive requirements of the GENIUS Act—but rather offer an alternate route that may, if pursued strategically, provide issuers with meaningful advantages (read the NPRM here).

Appendix A to the NPRM: Mapping of GENIUS Act Sections to Part 1521 Principles