Stablecoin Legislation Clashes with Federal Policy Poses Challenges for Ethereum
The GENIUS Act, signed into law on July 18, 2025, establishes a clear federal framework for stablecoin issuers in the U.S., legalising and protecting stablecoin issuance on open blockchains like Ethereum [1][3][5]. This law marks a major federal endorsement for the permissionless blockchain model dominant in the stablecoin market, with Ethereum representing nearly half of the $271.1 billion stablecoin ecosystem [2].
In contrast, the Federal Reserve's Policy Statement 9(13), issued in January 2023 and still actively referenced, warns state member banks against activities involving open, permissionless blockchains such as Ethereum, deeming stablecoin issuance on these networks “highly likely to be inconsistent with safe and sound banking practices” [2].
This regulatory tension creates a challenging landscape for the stablecoin industry. The GENIUS Act legalises and protects stablecoin issuance on open blockchains, promoting innovation and inclusivity, and allowing issuers to comply via federal or state paths that meet strict standards [2]. On the other hand, the Federal Reserve maintains a cautious stance, discouraging banks from engaging in such activities, citing operational, risk management, and safety concerns related to the transparency and security challenges of public blockchain infrastructure [2][4].
Industry responses are emerging to bridge this gap, including the development of compliance-focused “hybrid” blockchains that combine permissioned (restricted) access with permissionless elements, seeking a middle ground to satisfy both the GENIUS Act's innovation goals and the Fed's risk mitigations [2].
Notable developments include Circle's announcement to launch Arc, an EVM-compatible layer-one blockchain designed for regulated stablecoin finance, on August 12, 2025 [6]. Stripe is also reportedly building a blockchain called Tempo in partnership with Paradigm, though the company has not officially confirmed the project [7].
As regulators finalise implementing rules concerning applications, capital requirements, and anti-money laundering controls under the GENIUS Act, and it takes effect fully either 18 months after enactment or after regulatory rulemaking completes [1][3], the current status is that the GENIUS Act provides a strong new legislative framework supporting stablecoins on public blockchains, but the Federal Reserve’s conservative policy remains in place [1][2][4].
This live regulatory conflict is being navigated by market participants with mixed strategies and awaiting further regulatory details [1][2][4]. The key question is whether future bank-issued stablecoins will launch directly on Ethereum under revised Fed guidance or whether the two-step model of permissioned issuance followed by public network bridging will become the standard approach for regulated institutions.
References:
- CoinDesk
- Federal Reserve Press Release
- The Hill
- Bloomberg
- Cointelegraph
- Circle Blog
- The Block
1) In the dynamic world of business and technology, Circle, a notable player, announced the launch of Arc, an EVM-compatible blockchain for regulated stablecoin finance on Ethereum, amidst the ongoing regulatory tension between the GENIUS Act and the Federal Reserve's Policy Statement.
2) The GENIUS Act, a crucial piece of policy-and-legislation enacted in 2025, has sparked innovation in the stablecoin industry by legalizing and protecting stablecoin issuance on open blockchains like Ethereum, while the Federal Reserve maintains a conservative stance, discouraging banks from engaging in such activities.
3) As general-news outlets continue to monitor the regulatory landscape, striking a balance between innovation and risk mitigation appears to be the focus for the stablecoin industry, with developing solutions like Stripe's Tempo blockchain project poised to potentially bridge the gap between the GENIUS Act and the Federal Reserve's concerns.
