Cryptocurrency has developed into a community bank reality in less than a decade

It’s been a wild year in Washington, to put it mildly. In the mix, the U.S. crafted some important rules around the use and creation of cryptocurrency. Often, the subject is eyerolling, but recently signed legislation is a big deal in the world of crypto, and it will be the guide to any community bank thinking about issuing a coin. .The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) was signed into law by President Trump on July 18. It passed the House after passing the Senate with a bipartisan vote of 68–30. This bill is the first major crypto legislation in the United States. The Act establishes a regulatory framework for stablecoins, otherwise known as cryptocurrency, which are digital assets that an issuer must redeem for a fixed monetary value. The Act includes rules for how one can use stablecoins for payments and, finally, creates licensing requirements for stablecoin issuers. Is the bill any good? That depends on your perspective. Supporters say it gives a "Good Housekeeping seal of approval” to the stablecoin industry and that the bill provides regulatory clarity that the crypto industry has long sought. Naysayers say the new regulatory framework will stifle innovation through overly restrictive requirements and that some important questions remain about implementation and enforcement.The true impact will depend on how it's implemented in practice, although major bank industry groups have released statements largely in support of the bill. “On behalf of the nation’s community bankers, the Independent Community Bankers of America appreciates the work by the Senate to address concerns raised by ICBA with the GENIUS Act … in order to provide regulatory clarity while protecting against the negative economic consequences that would result from community bank disintermediation,” the group announced when the bill passed the Senate. “The ICBA understands the importance of having a clear regulatory framework for stablecoins and has worked closely with the Senate to incorporate critical guardrails to protect consumers and our payments system.”The bill gives community banks a specific road map to issuing their own branded stablecoins, but it comes with significant challenges, the least of which is eligibility. Stablecoin issuers are limited to insured depository institutions, subsidiaries of banks and nonbank financial institutions that receive approval from the Federal Reserve. Therefore, all community banks are technically eligible. But as most community bankers will tell you, their organizations are already working with limited resources and probably lack the infrastructure to meet the compliance thresholds. The Act imposes strict reserve, audit, and reporting requirements; yet another costly challenge a lot of banks aren’t going to be interested in taking on in a new industry.One requirement that stands out is that a bank must hold one-to-one reserves for any stablecoins issued. These reserves can be physical currency, U.S. Treasury bills, repurchase agreements and other low-risk assets approved by regulators. That’s a pretty big ask. In researching this piece, I only found two community banks issuing stablecoins, and they are doing so in a partnership. Vantage Bank, San Antonio, Texas, struck a deal with Custodia Bank, Cheyenne, Wyo., in March, even prior to the new legislation, to start rolling out their own coin, called Avit. Vantage took on the fiat reserves and traditional banking services side while Custodia handles the blockchain functions including issuance, custody and reconciliation. Yes, it’s complicated. In fact, in forging the relationship, Custodia claims to now hold patents that could potentially challenge other big banks entering the stablecoin field. “We broke ground on the legal/regulatory front, proving that U.S. banks can collaborate to tokenize demand deposits on a permissionless blockchain in a regulatorily-compliant manner,” Caitlin Long, CEO of Custodia Bank, said at the time of the coin’s launch. “Custodia looks forward to the reversal of U.S. regulatory obstacles that have stymied stablecoin innovation in recent years, so that American consumers can benefit from the substantial network effects and global reach of permissionless blockchain technologies.”“This event marks a pivotal moment in reshaping the financial landscape, demonstrating how blockchain and stablecoins can revolutionize payments,” said Jeff Sinnott, president and CEO of Vantage Bank. Statements like this probably create more questions than answers in the mind of a community banker, or anyone else for that matter. But within a decade, cryptocurrency has gone from a novel fantasy to being a currency option an FDIC-insured financial institution can offer. Wow, right? These changes are headspinning, but the fact is banks no longer have to just talk about the regulatory framework surrounding stablecoins. It’s here.