On June 17, 2025, the United States Senate passed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act with strong bipartisan support in a 68–30 vote, becoming the first stablecoin-related legislation approved by either chamber of Congress.[1] Sponsored by Senator Bill Hagerty, the GENIUS Act seeks to create a clear and uniform regulatory framework for stablecoins, with the goal of providing legal clarity, consumer protection, and educational resources for the digital asset industry.[2] Following its Senate approval, the GENIUS Act was passed by the House of Representative on July 17, 2025, and signed into law by President Donald J. Trump on July 18, 2025, as part of his broader initiative to position the United States as the global leader in cryptocurrency.
Stablecoins are cryptocurrencies whose value is pegged, or tied, to that of another currency, commodity, or financial instrument. Stablecoins aim to provide an alternative to the high volatility of the most popular cryptocurrencies, including Bitcoin (BTC), which has made crypto investments less suitable for everyday transactions. For example, The most popular and largest stablecoin by market capitalization is Tether (USDT). It is pegged to the U.S. dollar at a 1:1 ratio and backed by reserves. However, other stablecoins are commodity-backed stablecoins which are pegged to the market value of commodities such as gold, silver, or oil. These stablecoins generally hold the commodity using third-party custodians or by investing in instruments that hold them.
The current U.S. Bankruptcy Code was enacted in 1978 through the Bankruptcy Reform Act. Since then, it has been amended several times. However, the most significant overhaul occurred with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Since 2005, major amendments have been infrequent, making the changes proposed in the GENIUS Act particularly noteworthy. The GENIUS Act introduces notable modifications to bankruptcy law, particularly concerning the treatment of stablecoins in insolvency proceedings.
Section 11 of the GENIUS Act addresses the treatment of payment stablecoin holders in the event that a permitted issuer becomes insolvent or files for bankruptcy. It establishes a special priority rule favoring those who hold payment stablecoins, integrating this protection into Section 507 the U.S. Bankruptcy Code. In practical terms, holders of payment stablecoins will have priority—on a ratable basis with other stablecoin holders—over all other creditors, including administrative expenses, employee wages, taxes, and both secured and unsecured claims.[3] Simply put, if a stablecoin issuer collapses, holders of those digital assets will be first in line to claim any remaining assets. However, this priority only applies to claims arising directly from the holding of payment stablecoins.[4]
The GENIUS Act also amends Section 362 of Title 11, which governs the automatic stay—a legal mechanism that immediately halts most creditor collection efforts once a bankruptcy petition is filed, without the need for a court order.[5] The automatic stay typically freezes all redemptions, lawsuits, wage garnishments, and foreclosure actions to protect the debtor’s estate. However, under the GENIUS Act, an exemption to the automatic stay is introduced, allowing the redemption of stablecoins from reserves during bankruptcy proceedings—if those reserves are available and the court approves the redemption within 14 days of the required hearing.[6] This amendment seeks to ensure that stablecoin holders maintain access to their assets while preserving court oversight. Additionally, Section 507 is further amended to clarify that if a stablecoin holder is unable to fully redeem all outstanding claims from the required reserves maintained by the permitted payment issuer, the remaining unpaid portion will still be treated as a claim against the bankruptcy estate and retain first-priority status over all other claims.[1] This provision reinforces the enhanced protection for holders even when reserves are insufficient to meet all redemption demands.
Section 541(b) is also modified to exclude required stablecoin reserves from the bankruptcy estate, meaning those funds cannot be used to satisfy general creditor claims.[2] However, these reserves remain subject to the automatic stay, meaning they are protected but not entirely exempt from court-approved redemptions.[3] In short, stablecoin reserves are shielded from most uses, but may still be accessed for redemptions under judicial supervision.
Finally, Section 11(h) of the GENIUS ACT directs federal payment stablecoin regulators to conduct a comprehensive study examining key issues such as potential gaps in current bankruptcy laws, the feasibility of timely payouts to stablecoin holders, and whether a specialized insolvency regime is necessary.[4] This report must be submitted to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services within three years of the GENIUS Act’s enactment.[5]
The GENIUS Act is a significant step toward integrating digital assets into the existing legal and financial framework. By prioritizing stablecoin holders in bankruptcy proceedings and providing clearer legal pathways for redemptions, the GENIUS Act strengthens protection for participants in the digital asset ecosystem and lays the groundwork for future regulatory developments.
[1] See GENIUS Act, S. 1582, 119th Cong. (2025), https://www.congress.gov/bill/119th-congress/senate-bill/1582/text.
[2] Id.
[3] See GENIUS Act, S. 1582, 119th Cong. § 11(a)(2) (2025), https://www.congress.gov/bill/119th-congress/senate-bill/1582/text.
[4] Id.
[5] See 11 U.S.C. §362(a).
[6] See GENIUS Act, S. 1582, 119th Cong. § 11(c)(2) (2025), https://www.congress.gov/bill/119th-congress/senate-bill/1582/text.
[7] See GENIUS Act, S. 1582, 119th Cong. § 11(d) (2025), https://www.congress.gov/bill/119th-congress/senate-bill/1582/text.
[8] See GENIUS Act, S. 1582, 119th Cong. § 11(e) (2025), https://www.congress.gov/bill/119th-congress/senate-bill/1582/text.
[9] Id.
[10] See GENIUS Act, S. 1582, 119th Cong. § 11(h) (2025), https://www.congress.gov/bill/119th-congress/senate-bill/1582/text.
[11] Id.
This document has been prepared for information purposes only and is not intended as, and should not be relied upon as legal advice. If you have any questions or comments about the matters discussed in this notice, wish to obtain more information related thereto, or about its possible effect(s) on policy or operational matters, please contact us.
By: Sonia E. Colón, Gustavo A. Chico Barris, Tomás F. Blanco Pérez, Gabriel A. Garcia Delgado