The GENIUS Act was drafted to cover permitted payment stablecoins, with some of the wording clearly aiming to exclude synthetic coins like Sky’s USDS and Ethena’s USDe that are not primarily backed by cash or Treasuries. The question is whether the same wording opens a wider path around regulation than intended, such as letting an unlawful foreign coin circulate simply because it is wrapped.
The distinction hinges on how redemption is defined. A payment stablecoin issuer must be obligated to redeem the coin for a fixed amount of monetary value, “not including a digital asset denominated in a fixed amount of monetary value.” In plain terms, redemption has to be for money, not for another stablecoin. Wrap USDC and let holders redeem only into USDC, and the wrapper is not a payment stablecoin. That is how USDS works, since redemption routes into USDC, so USDS is not a payment stablecoin and its issuer does not need to seek regulation.
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