Senator Elizabeth Warren (D-Mass.) is urging the U.S. Treasury Department to strengthen oversight of the new stablecoin law signed by President Donald Trump, warning that the legislation could put consumers and the entire financial system at risk if left unchecked.

Warren Calls GENIUS Act a "Light-Touch" Framework

Warren, the top Democrat on the Senate Banking Committee, described the Guiding and Establishing Innovation for U.S. Stablecoins Act, known as the GENIUS Act -- as a "light-touch regulatory framework for crypto banks."

In a letter to Treasury Secretary Scott Bessent, she urged the department to adopt stricter enforcement measures to prevent corruption, financial instability, and conflicts of interest tied to Trump-linked ventures.

"It is critical that Treasury take steps to implement and enforce the law in a manner that limits severe risks to U.S. financial stability, consumers, taxpayers, and national security," Warren wrote.

The GENIUS Act, signed into law in July, requires stablecoins to be fully backed by U.S. dollars or equivalent liquid assets, mandates annual audits for large issuers, and introduces new standards for foreign stablecoin issuance. 

Trump-Linked Stablecoin Draws Scrutiny

Democrats have voiced particular concern over World Liberty Financial, a Trump family-backed stablecoin that has grown to become one of the world's largest, according to Bankrate. 

Warren said the Treasury must clarify how it will safeguard against political conflicts and ensure transparency in its rulemaking.

"Given the importance of addressing this glaring problem, I expect that Treasury will propose specific steps for addressing corruption in the GENIUS Act," Warren wrote.

Regulators Warn of Systemic Risk

Federal Reserve Governor Michael Barr recently echoed Warren's concerns, noting that the law leaves "several regulatory gaps" that could expose the financial system to stablecoin-linked risks. 

He called for stronger collaboration between federal and state agencies to close those gaps.

Warren cited a recent incident involving Paxos, which accidentally minted $3 trillion worth of PYUSD stablecoins due to a technical error, as a warning of what could go wrong. 

"This incident demonstrates the serious risks that operational failures can pose to market integrity and financial stability," she said.

Push for Broader Crypto Regulation

The GENIUS debate comes as lawmakers prepare to draft new legislation governing the wider cryptocurrency market. 

Separate meetings between Senate Democrats and Republicans with industry executives are scheduled this week to discuss potential frameworks.

Warren argued that the Treasury has a "unique opportunity" to shape bipartisan negotiations on digital asset regulation and urged the administration to pursue a stronger, consumer-focused approach.

As the GENIUS Act gains attention, Warren's warning -- that without stronger rules it could "blow up our entire financial system" -- highlights growing pressure on the Treasury to act decisively.

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