Democratic Rift Puts Future of U.S. Stablecoin Regulation in Jeopardy
Nine Pro-Crypto Democrats Withdraw Support from GENIUS Act Over Security Concerns
In a dramatic turn just days before a potential Senate vote, nine Democratic lawmakers known for supporting digital assets have announced their withdrawal of support for the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, a bill that could create the first nationwide regulatory framework for stablecoins.
The bill, introduced by Republican Senator Bill Hagerty, had previously passed through the Senate Banking Committee in March with bipartisan backing. But in a May 3 statement obtained by Politico, the group of Democrats voiced serious reservations, claiming the current version of the bill “still has numerous issues that must be addressed.”
Concerns Over National Security and AML Protections
Among the dissenting Democrats are Ruben Gallego, Mark Warner, Lisa Blunt Rochester, and Andy Kim, all of whom had earlier supported the legislation. Their abrupt shift could derail or delay the bill’s advancement, particularly as the Senate prepares for floor consideration in the coming days.
The lawmakers said the revised bill lacks adequate safeguards around anti-money laundering (AML), national security, and foreign issuers, and called for tougher accountability measures for noncompliant players in the crypto space.
“We won’t support a procedural vote unless meaningful changes are made,” the statement read.
The letter was also signed by Senators Raphael Warnock, Catherine Cortez Masto, Ben Ray Luján, John Hickenlooper, and Adam Schiff.
Crypto Industry Watches as Stablecoin Bill Falters
The GENIUS Act has been heavily promoted by the crypto industry as a milestone toward regulatory clarity in the $160 billion stablecoin market. Many see a federal framework as essential for legitimizing and scaling U.S.-based stablecoins in the face of growing global competition.
Notably absent from the list of Democratic dissenters were Senator Kirsten Gillibrand and Senator Angela Alsobrooks, both of whom co-sponsored the bill with Hagerty.
Despite their opposition, the group of Democrats emphasized they are not abandoning crypto regulation altogether, stating they remain “eager to continue working with our colleagues to address these issues.”
Fed’s Stance Under Fire as Industry Pushes for Legal Certainty
The tension comes amid ongoing criticism of the U.S. Federal Reserve’s crypto policies. On April 27, Custodia Bank CEO Caitlin Long accused the Fed of preserving an anti-crypto policy that favors stablecoins issued by major banks while blocking permissionless blockchain involvement.
Long pointed to a Jan. 27, 2023 statement still in effect that prevents banks from directly issuing stablecoins, despite the Fed having recently rescinded four earlier crypto-related guidelines.
“Congress should hurry up,” Long urged, noting that a federal stablecoin law would have the power to override the Fed’s position.
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