TLDR
- Federal Reserve Governor Michael Barr stated that the GENIUS Act lacks robust protections for stablecoin users.
- Barr warned that the law does not entirely prevent risks during market stress and financial instability.
- He stated that some reserve assets allowed under the act could lose value and endanger user funds.
- The GENIUS Act requires stablecoins to be backed by liquid assets, including U.S. Treasury bills.
- Barr expressed concern that Bitcoin repo contracts might qualify as reserves under the current rules.
- He emphasized that stablecoins can offer faster and cheaper payments when properly regulated.
Federal Reserve Governor Michael Barr criticized the GENIUS Act for not providing strong protections for stablecoin holders. Speaking at D.C. Fintech Week 2025, he highlighted key concerns around long-term financial stability and regulatory gaps. He emphasized the need for stronger rules to support innovation without compromising consumer safety.
GENIUS Act Faces Scrutiny Over Weak Risk Controls
Michael Barr acknowledged that the GENIUS Act represents progress in regulating digital currencies, such as stablecoins, across the U.S. market. However, he noted it falls short in preventing risks that could arise during financial stress and market shifts.
“The GENIUS Act lacks robust guardrails needed to protect users and ensure long-term systemic stability,” Barr stated.
He pointed out that the act allows reserve assets that can lose value, such as uninsured deposits and specific foreign instruments. Consequently, this could damage confidence in stablecoins during turbulent financial periods or institutional failures. He added that Bitcoin-based repo contracts, if allowed as reserves, could disrupt the one-to-one asset backing requirement.
Barr stressed that while the GENIUS Act establishes some baseline protections, it still leaves key gaps in consumer safety. According to him, these missing safeguards could lead to instability, confusion, and regulatory arbitrage. He warned that bad actors might exploit the weak oversight framework allowed by the current version of the GENIUS Act.
Stablecoins Can Advance Payments with Proper Oversight
Despite the concerns, Barr acknowledged the benefits stablecoins can bring to global financial systems and domestic payment infrastructures. He explained that stablecoins enable faster, cheaper, and more accessible transactions for consumers and businesses. He also said they offer practical solutions for remittances, trade finance, and treasury management.
Barr mentioned that some states like North Dakota are already launching their own stablecoins under state-chartered rules. Still, he insisted these efforts need to align with federal regulations to avoid conflicting standards.
“Coordination is key to preventing companies from chasing the most relaxed oversight,” he explained.
He noted that the GENIUS Act offers a starting point but does not resolve the issue of fragmented state and federal regulation. Therefore, Barr urged policymakers to strengthen the rules during the law’s implementation phase. He believes only a unified framework will protect both innovation and the broader financial system.
Regulatory Coordination Must Strengthen Framework
Barr highlighted that without stronger collaboration between state and federal agencies, the GENIUS Act could lead to inconsistent enforcement. He said firms could move operations to jurisdictions with lenient standards, increasing overall risk to consumers. He pointed to SWIFT’s blockchain project as an example of needed global coordination.
He said the GENIUS Act needs improvement to avoid gaps that create confusion or systemic vulnerability in payment networks. Moreover, he emphasized that digital assets must operate within clear, enforceable rules to deliver real value. “Stablecoins can serve a positive role, but trust depends on credible oversight,” Barr explained.
