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### Overview of MUSD
MUSD is a native, over-collateralized stablecoin developed by Riften Labs, the creators of the Cauldron DEX, and operates on the Bitcoin Cash (BCH) blockchain using the Moria Protocol. Key features of MUSD include:
- **Decentralized Design**: MUSD is built on the CashTokens system of Bitcoin Cash, aiming to provide a decentralized alternative to centralized stablecoins like USDT (Tether). Users deposit BCH as collateral to mint MUSD tokens, ensuring the stablecoin is over-collateralized to maintain stability.
- **Transparency**: Unlike some centralized stablecoins, MUSD operates with open-source code, offering a level of transparency in its operations and backing.
- **Purpose**: It is designed to facilitate stable value transactions within the BCH ecosystem, potentially enabling popular trading pairs on BCH-based DEXes like Cauldron and providing merchants with a stable asset for sales without the complexities of futures contracts or high cross-chain fees.
- **Market Traction**: Post-launch, MUSD has locked significant value, with reports indicating over $45,000 in total value locked shortly after its introduction, reflecting early interest and adoption within the BCH community.
- **Community Reception**: While MUSD is seen as a significant experiment in leveraging BCH’s capabilities for cheaper and more transparent stablecoin solutions, there is some criticism within the BCH community. Critics argue that pegging to the USD may contradict the decentralized ethos of cryptocurrencies by tying value to a government-backed currency.
### Overview of the Genius Act
The Genius Act is a bipartisan U.S. Senate bill introduced to create a federal regulatory framework for payment stablecoins—digital assets pegged to a stable value like the U.S. dollar and used for payments or settlements. Key provisions relevant to MUSD include:
- **Definition of Payment Stablecoin**: The Act defines payment stablecoins as digital assets designed for payment or settlement with a stable value relative to a fixed monetary amount (e.g., USD), where the issuer is obligated to redeem or convert at par value, and the asset is not classified as a security or commodity under federal law.
- **Licensing and Oversight**: Stablecoin issuers must become "permitted payment stablecoin issuers" (PPSIs), subject to federal or state oversight based on their size (e.g., issuers with over $10 billion in issuance face federal regulation by the Federal Reserve or Office of the Comptroller of the Currency, while smaller ones may remain under state supervision with certain conditions).
- **Reserve Requirements**: Issuers must maintain 1:1 reserves with high-quality liquid assets (e.g., U.S. dollars, Treasury securities) segregated from operational funds, undergo regular audits, and provide public disclosures to ensure transparency and financial integrity.
- **Compliance Standards**: Issuers are classified as financial institutions under the Bank Secrecy Act, requiring anti-money laundering (AML) and know-your-customer (KYC) programs, alongside other prudential standards like capital and liquidity requirements.
- **Consumer Protections**: The Act mandates transparency, fraud prevention, and redemption rights, ensuring users can redeem stablecoins at par value without delay.
- **International and Offshore Issuers**: Foreign or unlicensed stablecoin issuers face restrictions, such as prohibitions on use for interbank settlements or as cash equivalents in certain financial contexts, potentially limiting their U.S. market access unless they comply with the Act’s requirements.
- **Current Status**: As of May 18, 2025, the Genius Act has passed the Senate Banking Committee with bipartisan support (18-6 vote on March 13, 2025) and is slated for a full Senate vote by Memorial Day 2025, with indications of strong momentum for enactment under President Trump’s administration, which supports digital asset innovation.
### Potential Effects of the Genius Act on MUSD
Given the characteristics of MUSD and the provisions of the Genius Act, below is an analysis of how this legislation could impact MUSD and its operations within the U.S. market. Since MUSD is a specific stablecoin on the Bitcoin Cash blockchain and the Genius Act applies broadly to payment stablecoins, I will outline the direct and indirect effects based on the regulatory framework described in the search results.
1. **Classification as a Payment Stablecoin**:
- MUSD appears to fit the Genius Act’s definition of a payment stablecoin, as it is pegged to the USD (designed to maintain a stable value) and is used within the Cauldron DEX for transactions or trading pairs, which aligns with payment or settlement purposes. Therefore, MUSD would likely be subject to the regulatory framework outlined in the Act if it operates in or targets the U.S. market.
2. **Licensing and Regulatory Oversight**:
- **Requirement to Become a PPSI**: Riften Labs, as the developer of the Moria Protocol and issuer of MUSD, would likely need to apply to become a permitted payment stablecoin issuer under the Genius Act to legally issue MUSD in the U.S. This involves meeting stringent licensing criteria, which could include registering as a financial institution and choosing between federal or state oversight based on issuance size.
- **Size-Based Regulation**: Given MUSD’s early stage (with $45,000 locked post-launch as per recent reports), it is likely below the $10 billion threshold for mandatory federal oversight. This means Riften Labs could initially operate under state supervision, provided state regulations align with federal standards or a waiver is obtained. However, as MUSD grows, federal oversight by agencies like the Federal Reserve could apply, imposing stricter compliance burdens.
- **Compliance Challenges for Decentralized Models**: MUSD’s decentralized, over-collateralized design (backed by BCH rather than fiat or Treasuries) may pose challenges in meeting the Act’s requirements for 1:1 reserves with high-quality liquid assets. The Genius Act specifies reserves in U.S. dollars or equivalent securities, not cryptocurrencies like BCH, which could disqualify MUSD’s current collateral model unless adjusted or exempted.
3. **Reserve and Transparency Requirements**:
- **Reserve Backing**: The Act mandates that stablecoin reserves be 1:1 backed by fiat currency or high-quality liquid assets like U.S. Treasuries, segregated from operational funds. MUSD’s backing by BCH, a volatile cryptocurrency, does not align with this requirement. Riften Labs may need to restructure MUSD’s collateral to include fiat or Treasuries, which could undermine its decentralized ethos or require significant operational changes.
- **Audits and Disclosures**: The Genius Act requires regular audits and public disclosures of reserves. While MUSD’s open-source nature offers some transparency, formal audits by registered accounting firms (as mandated for larger issuers or potentially smaller ones under SEC rules) could impose additional costs and operational complexity on Riften Labs.
- **Risk of Non-Compliance**: If Riften Labs cannot or chooses not to comply with reserve requirements, MUSD may be classified as an unauthorized stablecoin in the U.S., restricting its use in certain financial contexts (e.g., interbank settlements, accounting as cash equivalents), which could limit its adoption by U.S.-based users or institutions.
4. **AML/KYC and Financial Institution Status**:
- Under the Genius Act, stablecoin issuers are treated as financial institutions under the Bank Secrecy Act, requiring robust AML and KYC programs to prevent illicit activities. For MUSD, operating on a decentralized protocol, implementing such programs could be challenging, as decentralized systems often prioritize pseudonymity or anonymity, which may conflict with KYC requirements.
- Riften Labs would need to establish compliance programs tailored to the size and complexity of MUSD’s operations, as mandated by FinCEN guidelines under the Act. Failure to do so could result in penalties or restrictions on U.S. market access.
5. **Consumer Protection and Redemption Rights**:
- The Genius Act emphasizes consumer protections, including the right to redeem stablecoins at par value without delay. MUSD’s over-collateralization mechanism aims to ensure stability, but market swings in BCH value could lead to under-collateralization (as noted in search results, loans become liquidatable if collateral value drops). If redemption at par value cannot be guaranteed during such events, MUSD may not fully comply with the Act’s consumer protection standards, risking regulatory scrutiny.
- Additionally, the Act prohibits misrepresentation of insurance status (e.g., claiming FDIC backing when none exists). Riften Labs must ensure clear communication about MUSD’s decentralized nature and lack of federal insurance to avoid legal issues.
6. **Impact on Market Access and Adoption**:
- **Restrictions for Non-Compliant Issuers**: If Riften Labs does not become a PPSI or meet the Act’s standards, MUSD could be restricted from certain U.S. market activities, such as being used for wholesale payments or treated as a cash equivalent in financial reporting. This could limit MUSD’s utility for U.S.-based merchants or institutions, potentially reducing its adoption compared to compliant stablecoins like USDT or USDC.
- **Competitive Dynamics**: The Genius Act may favor larger, centralized stablecoin issuers who can afford compliance costs, potentially creating market consolidation. As a smaller, decentralized player, MUSD might face competitive disadvantages unless it adapts to the regulatory environment or operates primarily outside the U.S. market.
- **Innovation vs. Regulation Tension**: While the Act aims to foster innovation, its strict requirements could stifle decentralized projects like MUSD that prioritize autonomy over centralized control. However, compliance could also enhance MUSD’s credibility and attract institutional users if Riften Labs navigates the regulatory landscape successfully.
7. **International and Offshore Considerations**:
- The Genius Act imposes strict requirements on foreign stablecoin issuers and limits the use of unauthorized stablecoins in the U.S. If Riften Labs operates outside the U.S. or does not seek PPSI status, MUSD’s access to the U.S. market could be curtailed, affecting its growth among American users.
- The Act also encourages international coordination on stablecoin rules. If global regulators align with U.S. standards, MUSD could face similar compliance pressures in other jurisdictions, further complicating its decentralized model.
8. **Community and Philosophical Concerns**:
- Within the BCH community, there is already debate about USD-pegged stablecoins like MUSD, with some viewing them as contrary to cryptocurrency’s decentralized ethos. The Genius Act’s focus on USD dominance and federal oversight may exacerbate these concerns, potentially alienating a portion of MUSD’s user base who value its independence from government-backed systems.
- However, regulatory clarity could also legitimize MUSD in the eyes of risk-averse merchants or users (as noted in Reddit discussions), provided Riften Labs can balance compliance with decentralization.
### Conclusion
The Genius Act, if enacted, would likely have significant implications for MUSD due to its classification as a payment stablecoin and its operation within the U.S. regulatory sphere. The Act’s requirements for licensing, 1:1 fiat or Treasury-backed reserves, AML/KYC compliance, and consumer protections could challenge MUSD’s current decentralized, BCH-collateralized model. Riften Labs would need to adapt by either restructuring MUSD’s backing and operations to meet federal standards, seeking PPSI status, or focusing on markets outside U.S. jurisdiction where regulations may be less stringent. Non-compliance could restrict MUSD’s use in the U.S., limiting its adoption by American users or institutions, while compliance could enhance credibility but at the cost of operational complexity and potential loss of decentralization.
The exact impact will depend on the final text of the Genius Act (pending Senate vote by Memorial Day 2025), Riften Labs’ strategic decisions, and whether MUSD’s scale remains below federal oversight thresholds. As the legislation progresses, Riften Labs may need to engage with regulators or seek legal counsel to navigate this evolving landscape.
### Relevant References
- https://cryptodamus.io/en/articles/news/usdt-killer-new-bch-stablecoin-moria-locks-25k-in-hours
- https://bitcoincashpodcast.com/faqs/Tech/what-is-musd
- https://news.bitcoinprotocol.org/bitcoin-cash-stablecoin-moria-challenges-usdt-dominance-with-over-45k-locked-in-post-launch/
- https://www.reddit.com/r/btc/comments/1988hk6/cauldron_team_developing_a_bchcollateralized/
- https://www.cryptopolitan.com/usdt-killer-over-25k-locked-moria/
- https://caldwelllaw.com/news/genius-act-stablecoin-regulation-2025/
- https://coinpedia.org/news/stablecoin-regulation-in-the-u-s-moves-forward-with-genius-act-approval/
- https://alphapoint.com/blog/stablecoin-bill
- https://cointelegraph.com/learn/articles/genius-act-how-it-could-reshape-us-stablecoin-regulation
- https://www.jonesday.com/en/insights/2025/03/updates-on-proposed-stablecoin-legislation-genius-act-and-stable-act
- https://beincrypto.com/stable-act-genius-act-minimal-differences/
- https://www.bankingexchange.com/news-feed/item/10304-the-genius-of-the-genius-act
- https://www.ccn.com/education/crypto/genius-act-us-senate-stablecoin-legislation/
- https://www.ledgerinsights.com/senate-banking-committee-passes-bill-for-non-interest-bearing-stablecoins-2/
- https://www.forbes.com/sites/tonyaevans/2025/03/13/genius-act-clears-senate-banking-committee-what-it-means-for-stablecoins/

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