State Stablecoin Legislation

Overview

Stablecoins, which are digital assets pegged to fiat currency or other assets, play a crucial role in crypto markets, offering price stability and facilitating transactions. Despite their growing significance, there is no comprehensive prudential federal regulatory framework governing stablecoins or their issuers. Instead, state regulators oversee their issuance, custody and exchange under money transmission laws.

While there have been past attempts at federal legislation, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, introduced on February 4, 2025, enjoys bipartisan sponsorship and could gain real traction in the Senate. This legislation, introduced by Senators Bill Hagerty (R-TN), a member of the Senate Banking Committee, Tim Scott (R-SC), chairman of the Senate Banking Committee, Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY), may reshape the stablecoin regulatory landscape. More to come in next week’s tracker.

State Frameworks for Stablecoin Regulation Vary Widely

In the absence of a federal regulatory framework, stablecoin issuers and custodians must navigate a complex regulatory landscape that varies by state. Some states regulate stablecoins as either (i) a form of virtual currency or (ii) monetary value distinct from other types of virtual currency.

Texas: Stablecoins as Monetary Value

Texas became the first state to include stablecoins within its definition of “money or monetary value” under its money transmission statute. In 2019, Texas released guidance stating that stablecoins were considered “money or monetary value” so long as they were (i) backed by fiat currency and (ii) issued with a redemption right to convert the stablecoin into fiat currency. Prior to that time, certain money transmitter licensees in various states reported the issuance of stablecoins as the issuance of stored value, with the implicit or explicit approval of state regulators. 

In 2023, Texas adopted the Money Services Modernization Act, which closely aligned with the Money Transmission Modernization Act promulgated by the Conference of State Bank Supervisors. However, legislators added a unique provision defining “money” or “monetary value” to include stablecoins that are (i) pegged to a fiat currency, (ii) fully backed by assets held in reserve and (iii) grant the holder a redemption right for fiat currency from the issuer. Notably, the Money Services Modernization Act does not define “monetary value” to include other types of non-stable cryptocurrency. As a result, crypto exchanges and custodians without a fiat wallet or on-ramp may still require licensure in Texas if they support the transmission of fiat-backed stablecoins. 

New York: Stablecoins as Virtual Currency

New York applies its existing virtual currency regulations to stablecoins rather than treating them as a separate asset class. The New York State Department of Financial Services (the NY DFS) regulates the transmission and custody of cryptocurrency under its Bitlicense regime. This requires any entity engaging in virtual currency business activity involving New York or its residents to obtain a BitLicense or a limited purpose trust charter.

The Bitlicense regulations do not specifically reference stablecoins, but the “FAQs” section of NY DFS’s website for Bitlicensees and applicants notes that “[m]any coins that are commonly referred to as ‘stablecoins’ are considered to be Virtual Currencies under 23 NYCRR Part 200, and therefore their use would require licensure and self-certification, Greenlisting, or specific DFS approval with respect to any Virtual Currency Business Activity.” The NY DFS authorized certain regulated entities to begin issuing stablecoins in September 2018.

In June 2022, the NY DFS published guidance directed to issuers of U.S. dollar-backed stablecoins regulated by NY DFS. The requirements were intended to address issues such as the appropriateness of asset reserves backing stablecoins and the ability of holders to redeem stablecoins for U.S. dollars. Accordingly, the guidance provided specific requirements related to (i) redeemability, (ii) the asset reserves and (iii) attestations concerning the backing by the asset reserves. 

California: A New Licensing Regime for Stablecoins

On October 13, 2023, Governor Newsom signed into law Assembly Bill 39 and Senate Bill 401, together called the Digital Financial Assets Law (the DFAL). Later, on September 29, 2024, Governor Newsom signed AB 1934, which extended the date of licensure under DFAL from July 1, 2025 to July 1, 2026.

Beginning July 1, 2026, companies must be licensed by the California Department of Financial Protection and Innovation (the DFPI) or have applied for a license with the DFPI to operate in California. The DFAL prohibits an entity from engaging in digital financial asset business activity unless the entity holds a license from the DFPI. Digital financial business activity includes activities such as exchanging, storing or transferring a digital financial asset, such as a crypto asset.

Licensees can only exchange, custody or transfer stablecoins if the issuer is licensed under the act, or is a bank, a California-licensed trust company or a national association authorized under federal law to engage in a trust banking business. The stablecoin must be fully reserved and such reserves are limited to those “eligible securities” listed in the California Money Transmission Act. One unique provision of the act is that stablecoin issuers may not represent that the stablecoin is as safe as a bank credit or stored value product.

Why It Matters

With federal stablecoin legislation still pending, state-level regulatory divergence presents significant operational challenges for stablecoin issuers and exchanges. This patchwork of state regulations makes compliance complex for multistate stablecoin issuers, increasing legal uncertainty and costs. The GENIUS Act could introduce federal clarity, but until then, issuers must navigate state-by-state compliance. Until a federal framework emerges, stablecoin issuers must carefully evaluate state-specific regulations to ensure compliance across jurisdictions.