By Mr. Young, Chairman of the Federal Money Services Business Association (FedMSB)
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Author’s Note: This commentary is written for policymakers, regulators, and legal practitioners concerned with the long-term implications of the GENIUS Act’s approach to payment stablecoins. It explores the intersection of statutory construction, financial law, and constitutional doctrine with a view toward legal consistency, enforceability, and systemic integrity.
I. Introduction: Function Without Identity
The GENIUS Act represents Congress’s most detailed attempt yet to regulate payment stablecoins. However, its legislative architecture introduces a novel and deeply problematic construct: the creation of a digital asset that functions as a payment medium, clearing instrument, and collateral unit—without being formally recognized as money, deposit, security, or negotiable instrument.
This is not simply a regulatory innovation. It is a legal abstraction with systemic consequences. It creates an asset class that acquires monetary functionality without monetary identity—inviting constitutional scrutiny and interpretive uncertainty.
II. Legal Characterization: The Triangular Design of the GENIUS Act
A. Positive Identity: A “Digital Asset”
Under § 2(22), the GENIUS Act defines a payment stablecoin as a “digital asset” designed for use in payment or settlement, and redeemable for a fixed monetary amount. However, “digital asset” is not anchored to any legacy legal category. It is a technological descriptor, not a legal one—leaving courts and regulators with no statutory analog for enforcement.
B. Negative Construction: Triple Exclusion
The Act explicitly declares that a payment stablecoin is not:
– National currency;
– Deposit (as defined by the FDIA);
– Security (as defined under the Securities Acts of 1933, 1934, or 1940).
Yet it does not exclude:
– Commodities (as under the CEA);
– Negotiable instruments (under UCC § 3);
– General property (under state commercial law).
This selective exclusion removes stablecoins from well-defined regulatory silos without placing them into a coherent legal framework. It creates a vacuum of classification—what we may call a hollow legal core.
C. Functional Parity: Monetary Powers Without Legal Money
Despite this ambiguity, § 3(g) grants GENIUS-compliant stablecoins treatment as:
– Cash or cash equivalents for accounting purposes;
– Acceptable collateral for regulated intermediaries;
– Settlement assets in interbank infrastructure.
In other words, these stablecoins behave like money in every institutional sense—except that the law refuses to call them such. This disjunction between use and identity is both deliberate and destabilizing.
III. Legal Analogies: What Payment Stablecoins Resemble—But Are Not
A. Money Orders and Negotiable Instruments
GENIUS-compliant stablecoins resemble money orders (e.g., Western Union), which are fixed-value, redeemable, privately issued instruments recognized under UCC Article 3 as negotiable instruments. But unlike money orders:
– Stablecoins are not issued in physical bearer form;
– They are not declared negotiable by statute;
– No UCC protections apply to holders.
This undermines transferability, legal finality, and commercial enforceability.
B. Stored Value and Prepaid Instruments
Prepaid debit cards, mobile wallet balances, and other contract-based instruments function through platform redemption rights. GENIUS stablecoins mimic this architecture—but then leap into systemic infrastructure. This hybrid positioning creates legal asymmetry: contractual form with monetary function.
IV. Constitutional Fault Lines: Delegated Currency by Private License
A. Article I, Section 8, Clause 5 — Coining by Contract
The Constitution grants Congress the exclusive power to “coin Money” and “regulate the Value thereof.” GENIUS stablecoins are not legal tender—but they fulfill similar roles in regulated finance, such as settlement and collateral. Congress, in authorizing private entities to issue functionally monetary instruments, may have created a form of outsourced monetary authority without constitutional anchoring.
B. Article I, Section 10, Clause 1 — Tender by Proxy
States are constitutionally barred from making anything but gold and silver coin a tender in payment of debts. While the GENIUS Act avoids declaring stablecoins as legal tender, it permits them to function as de facto tender in institutional settings. The question arises: Can Congress permit states and private actors to use non-currency instruments as currency in all but name?
This is not merely a constitutional formality—it concerns the sovereign integrity of the monetary system.
V. Legal Consequences and Judicial Triggers
The GENIUS Act’s refusal to settle the legal character of stablecoins will generate interpretive disputes. Key legal uncertainties include:
– Are GENIUS-compliant stablecoins negotiable instruments under UCC § 3?
– Can they be transferred as bearer assets with finality?
– Are redemption claims enforceable as debt, contract, or property?
– In bankruptcy, do stablecoin holders possess secured, unsecured, or no claims?
– Are regulators constitutionally permitted to confer monetary function without conferring monetary form?
Strategic litigation is likely. Courts may be compelled to impose legal identity where Congress has abstained—forcing a judicial choice among property, commodity, or negotiable instrument.
VI. Conclusion: Defining the Undefined
The GENIUS Act attempts to regulate without defining. It confers function without form, privilege without identity. In doing so, it avoids political friction—but invites legal confusion.
If stablecoins are to serve as core infrastructure in a lawful financial system, they must be legally defined, not merely functionally permitted. Congress must decide:
Are these instruments simply programmable assets—or are they the next generation of privately issued monetary media?
Because if they behave like money, clear like money, and redeem like money—then the law must eventually say what they are.
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