GENIUS Act Revives Civil War-Era Banking Problem for States

A single word buried in the definition of “person” in the recently enacted GENIUS Act has opened what may be the most significant loophole in modern financial regulation.

The change—originally “other entity” in S. 394 and now “other business entity” in the enrolled S. 1582—appears to exempt state governments from the sweeping federal oversight that governs private stablecoin issuers under the GENIUS Act.

The implications are staggering. While private companies face a gauntlet of federal licensing requirements—100% high-quality reserve mandates, monthly attestations, and criminal penalties for issuing digital dollars—state governments can launch competing stablecoins with minimal federal oversight.

It’s a regulatory arbitrage that could reshape US monetary policy and resurrect echoes of the chaotic “Wildcat Banking” era.

Wyoming is the first to exploit this loophole. In the pre-GENIUS regulatory void, the state legislature passed the Wyoming Stable Token Act of 2023, creating the Stable Token Commission and authorizing the Wyoming Stable Token. This move was risky at the time because the absence of federal stablecoin regulation created long-term uncertainty regarding state stablecoin issuers.

But Wyoming’s Sen. Cynthia Lummis (R)—who not only now serves on the Senate Banking, Housing and Urban Affairs Committee but also introduced Lummis-Gillibrand Payment Stablecoin Act in the prior legislative session—co-sponsored GENIUS and voted “Yea” on the version that excluded states from its definition of “person.”

During a May 2025 hearing, Lummis’s general counsel, Chris Land, told commissioners that GENIUS “aim[s] to exempt the state’s stable token from federal regulation.” The commission now plans to launch WYST Aug. 20.

Other states are following suit. Nebraska has authorized Telcoin as its first “digital asset depository” to issue an “eUSD” stablecoin. Texas lawmakers are exploring oil-backed tokens alongside a strategic Bitcoin reserve. And Hawaii’s Digital Currency Innovation Lab has effectively waived state money-transmitter licensing for blockchain firms.

Initial coverage focused on the industry benefits and clarity provided by the GENIUS Act. What went largely unsaid is that state-issued tokens escaped these new rules entirely: No licensing, reserves attestations, or private anti-fraud remedies apply when a government, rather than a business, issues the coin.

The GENIUS Act creates a dual-track system: private issuers face bank-like supervision, while state issuers operate outside that framework. This resembles the era (1837–1865) when states chartered banks with minimal oversight, leading to a chaotic patchwork of banknotes and widespread failures—until the National Banking Act of 1863 imposed federal control and a uniform currency.

Today’s state stablecoin rush carries similar risks. Private stablecoins must adhere to rigorous antifraud and consumer-protection measures—matters I’ve analyzed in depth, including how narrower private rights of action shape market discipline—while state-backed tokens may lack these safeguards.

Federal regulators retain some tools. State payment stablecoin regulators must consult annually with the Federal payment stablecoin regulator, resulting in an annual Financial Stability Oversight Council report.

The FSOC can designate systemically important financial market utilities under Dodd-Frank, and the Treasury wields sanctions authority. But any move to rein in state monetary programs could spark fierce federalism disputes.

A single-word change has created space for the most significant monetary experiment since the Civil War. States now have a path to issue digital dollars unfettered by federal licensing.

And it’s unclear whether such an experiment will lead to responsible innovation or monetary fragmentation—and whether federal law can adapt.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Seth Oranburg is a professor at the University of New Hampshire Franklin Pierce School of Law and director of the Program on Organizations, Business, and Markets at NYU Law’s Classical Liberal Institute.

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