As international regulatory frameworks for digital assets take effect and evolve globally, the United States is now implementing similar oversight. Cryptocurrency’s widespread use, high-profile backers, and historically volatile price fluctuations have placed these assets at the forefront of controversies and discussions concerning the interplay of technology, finance, and regulation. Many historical supporters of cryptocurrencies have lauded their placement outside the boundaries of traditional finance and its regulatory schemes. However, as these assets have grown from niche experiments to trillion-dollar markets with political support and backing, the luxury of regulatory avoidance has given way to the necessity of clear rules.

As the Trump administration and U.S. Congress develop cryptocurrency legislative proposals that mirror regulatory models already established in Europe and other jurisdictions, the federal government’s first order of business is addressing stablecoins, a critical feature of the stability of the cryptocurrency ecosystem. Historically, the United States has lagged in implementing a comprehensive federal framework for digital assets, relying instead on a patchwork of state-level rules and regulation-by-enforcement tactics. With President Trump signing the GENIUS Act into law on July 18, 2025, after passing both the Senate (68-30) and the House (308-122), the U.S. has established its first comprehensive federal framework for stablecoins. It includes mandatory 1:1 reserve backing, redemption rights, and disclosure obligations, drawing clear inspiration from international standards. Senate Banking Committee Chair Tim Scott described the Act’s “common-sense rules” as a practical step toward financial stability and consumer protection, highlighting its reserve, anti-money laundering, and transparency provisions.

Cryptocurrencies like Bitcoin and Ethereum have historically struggled to gain traction as mainstream payment methods due to their high price volatility and limited merchant acceptance, making them impractical for everyday transactions or as reliable stores of value. Stablecoins emerged as a solution to this problem, mitigating volatility while preserving the benefits of crypto. Stablecoins are designed to maintain a fixed value—usually pegged 1:1 to a fiat currency like the U.S. Dollar–and offer a price-stable digital asset that retains the benefits of blockchain technology while eliminating much of the risk associated with traditional cryptocurrencies. However, as stablecoins become increasingly intertwined with the stability of digital currency markets, the quality of their reserves and the credibility and oversight of their issuers must face scrutiny.

Stablecoins now facilitate over 80% of trading volume on major centralized crypto exchanges, underscoring their role as a key liquidity source across centralized exchanges and decentralized finance platforms. Beyond trading, stablecoins are increasingly used in cross-border payments, settlement systems, and real-world commerce, including initiatives led by major firms like Visa, PayPal, and Stripe. Given stablecoins scale and systemic relevance, many financial regulators in the United States and abroad have recognized that stablecoins now represent a critical on-ramp between traditional finance and the emerging digital asset ecosystem.

The Global Perspective

To better understand the GENIUS Act’s regulatory approach, comparing it to existing frameworks in major jurisdictions is helpful. Globally, countries’ approaches to stablecoin regulation differ at least in two key ways: first, in how the reserves must be structured and maintained, and second, in who is allowed to issue stablecoins in the first place. To see how these differences manifest in practice, this section surveys the approaches of four major jurisdictions: the European Union, Japan, Singapore, and the United Kingdom. Each jurisdiction reflects distinct priorities in reserve standards and issuer eligibility.

The European Union’s Markets in Crypto-Assets (MiCA) regulation came into effect in June 2024, introducing a unified framework for digital asset oversight, including stringent reserve and transparency requirements for stablecoin issuers. For purposes of this blog post, which focuses on reserve-based regulation, MiCA’s stablecoin framework is discussed in terms of two categories based on the nature of their backing and associated risk. Asset-referenced tokens (ARTs) derive value from a broader pool of assets or rights, such as multiple currencies or commodities. E-money tokens (EMTs) are pegged to a single fiat currency. They are designed primarily for payments, making them function similarly to digital cash and most comparable to the U.S. stablecoins targeted in the GENIUS Act.

Under MiCA, EMTs must be fully backed by reserves invested in secure, low-risk assets denominated in the same currency, ensuring easy redemption for consumers. Further, issuers are required to be authorized as credit institutions or electronic money institutions within the European Union and are subject to supervision by national authorities. Thus far, these new regulations have given way to stark shifts in the crypto landscape, primarily through market consolidation, as compliance costs and regulatory demands have created barriers to entry for small issuers and have led to many smaller companies choosing to merge with larger firms. While this has reduced market fragmentation and increased stability and consumer confidence, it has also raised concerns about reduced diversity and innovation. Still, these regulations allow international companies and groups to enter the fold, offering EMTs pegged to the euro. The hallmark example is Circle’s obtainment of a MiCA license to become an e-money issuer in France.

Japan, one of the first major economies to enact stablecoin-specific regulations in June of 2023, provides similar consumer protection measures through strict reserve requirements. However, its framework is even more stringent than MiCA’s in key respects. Only Japanese banks and trust companies can issue stablecoins pegged to the yen, effectively barring foreign firms from direct issuance. International issuers can participate indirectly by partnering with licensed local entities—such as Circle’s collaboration with SBI VC Trade to distribute USDC in Japan.

But Japan’s early regulatory leadership has not shielded it from pressures to adapt to the evolving stablecoin landscape. Under the Payment Services Act (PSA), which took effect in 2023, issuers must hold 100% of reserves in Japanese yen, stored as cash deposits at licensed Japanese banks. However, amendments currently under consideration would allow issuers to hold up to 50% of their reserves in low-risk, liquid instruments such as Japanese and U.S. government bonds or time deposits with early withdrawal clauses. While this proposal introduces some flexibility, Japan’s approach remains among the most conservative globally, preserving strict standards around stability and redemption integrity even as it adapts to market demands.

In contrast to the more rigorous framework established by the European Union and Japan, other countries, like Singapore, have opted for a more flexible regulatory approach. The current framework, finalized and implemented in August 2023 by the Monetary Authority of Singapore (MAS), requires issuers to maintain at least a 1:1 reserve requirement. However, MAS grants issuers access to a broader range of reserve options, including those issued by government or international organizations with a minimum credit rating of ‘AA-‘. Bonds from the World Bank, the Asian Development Bank, or even Singapore government securities are all examples of permitted reserves under Singapore regulations. And while these are highly rated, they may not be as easily redeemable or currency-aligned as the euro- or yen-denominated assets required under MiCA and Japan’s framework, potentially introducing modest risks during redemption surges or financial shocks.

For issuers, however, this increased flexibility in permitted reserves has made Singapore an appealing destination for a more diverse group of stablecoin providers. Unlike the EU and Japan—where strict licensing and reserve requirements have largely limited issuance to national banks, credit institutions, or global financial firms—Singapore has welcomed major players and smaller fintech issuers. For example, Paxos, an international institution, received MAS approval to issue a USD-backed stablecoin in Singapore. At the same time, StraitsX, a local fintech company, holds a Major Payment Institution license and issues XSGD, a stablecoin pegged to the Singapore dollar. While the relatively lax reserve requirements raise questions regarding consumer safety, proponents argue that reserve and issuer requirements are sufficiently robust to protect consumers and create a healthy market that fuels innovation.

Another developed market that is also taking a similarly flexible stance is the United Kingdom. In May 2025, the UK Financial Conduct Authority released a set of consultation papers proposing a regulatory framework for fiat-backed stablecoins. These proposals require a 1:1 reserve backing held in a statutory trust composed of high-quality, liquid assets, and grant users’ redemption rights at face value. Unlike the European Union and Japan, which limit issuance to banks or e-money institutions, the UK framework would allow a broader set of financial firms, including fintech companies, to issue stablecoins if they meet authorization, safeguarding, and reporting obligations. This inclusive approach signals the United Kingdom’s tendency to foster a competitive stablecoin market while still requiring strong reserve protections, placing it closer to Singapore than to the more restrictive EU or Japanese models.

The evolving regulatory approaches in advanced financial jurisdictions illustrate a growing international consensus around reserve standards, while approaches to issuer eligibility continue to vary significantly. International frameworks such as the European Union’s MiCA and Japan’s PSA have influenced discussions on stablecoin safety regulation in the U.S. Their approaches have informed the development of key provisions in the GENIUS Act. Like the EU and Japan’s framework, the GENIUS Act requires reserves to be fully backed and denominated in the same fiat currency as the stablecoin issued to ensure a pathway for clear and reliable redemption for consumers. Even more flexible regimes—such as Singapore’s and the UK’s—are reflected in the GENIUS Act’s 1:1 reserve mandate.

            While global standards show increasing alignment on reserve quality, particularly around 1:1 backing and currency denomination, there is far less consensus regarding who should be allowed to issue stablecoins. As previously discussed, MiCA restricts the issuance of e-money tokens to licensed credit and electronic money institutions. At the same time, Japan takes an even more restrictive approach by limiting yen-backed issuance to domestic banks and trust companies. Singapore’s more inclusive model, by contrast, permits a broader array of issuers, including non-bank fintech firms, so long as they meet the licensing requirements set by the MAS. Notably, while early drafts of the GENIUS Act lacked issuer restrictions, the final version introduces a tiered licensing framework. It permits three classes of issuers: (1) subsidiaries of FDIC-insured banks; (2) federally qualified non-bank issuers or OCC-charted institutions; and (3) state-chartered issuers capped at $10 billion in outstanding stablecoin issuance before requiring federal oversight.

These three categories ultimately fit into a two‑tier oversight model. In theory, the GENIUS Act is designed to calibrate regulatory scrutiny to the scale and risk of each issuer: larger issuers—regardless of whether they are bank‑affiliated or federally chartered—fall under direct federal supervision, while smaller state‑chartered issuers may operate under state‑level oversight. However, this state oversight is only permitted if the state’s framework is certified as “substantially similar” to the federal standard, a determination made by the newly created Stablecoin Certification Review Committee (SCRC). Composed of the Treasury Department (as chair), the Federal Reserve, and the FDIC, the SCRC must unanimously approve or deny a state’s application within 30 days. States that receive this certification can authorize issuers under the $10 billion threshold, while uncertified states cannot—an attempt to preserve baseline alignment between state and federal regimes.

While this system is intended to balance innovation with oversight, its effectiveness will hinge on how rigorously state frameworks are certified and monitored. Critics worry that state standards may diverge from the federal baseline, inviting regulatory arbitrage and allowing issuers to gravitate toward more lenient jurisdictions, particularly those operating below the $10 billion threshold. This tension underscores why the Act’s reserve requirements, particularly the 1:1 reserve ratio, are increasingly central in maintaining stability.

The 1:1 Reserve Ratio—and the Two Players Holding the Line (For Now)

While previously discussed in an international context, the 1:1 reserve ratio remains a defining feature of the U.S. stablecoin debate and serves as the cornerstone of the GENIUS Act’s reserve framework. The Act’s tiered oversight system amplifies its importance: with smaller issuers potentially operating under varying state regimes, the 1:1 standard becomes the primary safeguard for maintaining stability and consumer confidence. In the absence of comprehensive federal regulation, the stability of U.S. stablecoins has thus far largely depended on how the market’s leading issuers—Tether and Circle—chose to manage their reserves. Tether issues USDT, the most widely traded stablecoin globally, while Circle issues USD Coin (USDC), which has gained traction among institutional players due to its market perception as a more transparent, attested stablecoin.

The experiences of these two issuers provide a compelling case study illustrating why the 1:1 ratio, on its own, is not a silver bullet. By itself, a 1:1 reserve ratio simply means issuers must hold reserve assets equal in value to the total number of coins in circulation. The effectiveness of the reserve and the reserve ratio’s ability to protect consumers depends on what those reserves actually consist of. The importance of this point is underscored by stipulations found even in the more flexible global regulations previously discussed. The GENIUS Act is no exception: it clarifies that a qualifying 1:1 reserve must not only match the total coins in circulation but also be composed of specific, highly liquid assets—chosen for the ease and speed they can be accessed in case of simultaneous redemption requests during periods of financial stress.

USDC and USDT, for instance, illustrate how stablecoins can be “fully backed” on paper yet still vulnerable. In March 2023, during Silicon Valley Bank’s (SVB) collapse, USDC de-pegged sharply, dropping to as low as $0.87. Circle later confirmed that it had $3.3 billion—about 8% of USDC’s total reserves at the time—parked at SVB.  Although Circle recovered the funds, and USDC returned to its peg, the incident exposed a key vulnerability: a lack of immediate liquidity. While the reserves were technically present, they were temporarily inaccessible due to SVB’s collapse and the FDIC takeover. This delay in accessing those funds sparked panic in the market, snowballing into a short-term crisis of confidence, even though the stablecoin was adequately backed on paper.

Tether, meanwhile, has also faced scrutiny over its reserve management. In 2021, following an investigation by the Office of the Attorney General that found Tether made false statements about the backing of its stablecoin, Tether was required to begin reporting core business functions quarterly. Despite this, in a 2024 report, JPMorgan stated that while USDT’s market dominance has solidified over the past two years, Tether’s “lack of regulatory compliance and transparency” poses an increasing risk to the market. Recent disclosures have revealed that Tether holds approximately $100 billion in U.S. Treasury securities, over 82,000 Bitcoin (valued at about $5.5 billion), and 48 metric tons of gold. However, the company still faces criticism for its lack of independent third-party audits and historical opacity. In March 2025, Tether CEO Paolo Ardoino announced the company was working to engage a Big Four accounting firm to fully audit its reserves to restore transparency and trust.

While these incidents have placed Tether and Circle under heightened regulatory and market scrutiny—with Tether having faced enforcement action for misleading disclosures about its reserves and Circle encountering liquidity pressure during the SVB collapse—the larger question now becomes whether the GENIUS Act’s reserve requirements will be sufficient to ensure that issuers operate responsibly. Even though Circle and Tether currently dominate the U.S. stablecoin market share, the passage of the GENIUS Act is likely to attract a broader array of participants—from fintech startups and regional banks to tech firms and major retailers.

These new stablecoins are unlikely to operate solely as a payment method like USDC. According to the CEO of Aryze, a Danish fintech company focused on digital asset infrastructure, branded stablecoins can help businesses “manage their finances and engage with customers, [while] offering unparalleled efficiency and trust.” In this sense, branded stablecoins may evolve into tools for customer loyalty, financial automation, and even cross-border payments while operating like traditional, redeemable fiat-backed stablecoins.

The GENIUS Act adds issuer requirements compared to earlier drafts. However, those requirements are still flexible enough that most of the heavy lifting to protect consumers falls on prudential guardrails like high-quality backing, transparency, and redemption rights. The cases of USDC and Tether show why that matters: both were fully backed on paper yet still ran into problems when reserves weren’t immediately accessible or fully disclosed. The Act’s 1:1 rule addresses part of that risk, but what really counts is what those reserves comprise. By leaning on these prudential safeguards rather than imposing strict limits on who can issue stablecoins, the Act signals confidence that robust reserves will be enough to maintain stability—an assumption that will be tested as new issuers, particularly those under the $10 billion state-level threshold, enter the market.

The GENIUS Act’s Regulatory Gamble

The GENIUS Act’s approach rests heavily on the assumption that its permitted reserve requirements—while composed of traditionally safe assets—cannot be irresponsibly used in ways that still put consumers at risk. Because the Act is less stringent about who can issue stablecoins, particularly for state-chartered issuers under the $10 billion threshold, understanding how these reserve provisions operate is critical to evaluating whether the framework can maintain stability across different regulatory regimes.

The GENIUS Act permits six types of reserve assets (1) physical U.S. coins and Federal Reserve notes; (2) demand deposits at insured depository institutions, including regulated foreign banks; (3) Treasury bills, notes, or bonds with remaining maturities of 93 days or less; (4) repurchase and reverse repurchase agreements backed by such Treasury securities; (5) money market funds invested solely in those same underlying assets; and (6) central bank reserve deposits. Each category offers a different balance of safety, liquidity, and profitability.

The most effective method to ensure the stablecoins remain pegged to their currencies would be to require all issuers to back their coins with only physical and paper currency. These assets are immune to market volatility and are instantly liquid, offering consumers maximum protection even in the event of a mass redemption. But this level of security comes at a cost—literal, in this case—because physical cash does not earn interest. The business model behind stablecoins relies on the ability to generate returns from reserve holdings. For instance, if a user purchases one USDC for $1, that dollar is not locked in a vault. Instead, it is commonly placed in short-term Treasury securities or other instruments yielding 4–5% annually. That interest becomes profit for the issuer.

If the law forced issuers to hold all reserves in cash, the coins would effectively become loss-generating products, threatening the long-term sustainability of the entire model. This is why it is reasonable to expect issuers to use other reserve forms that generate yield while complying with liquidity requirements. But that also introduces risk and complexity. Most consumers cannot assess the differences between a Treasury-backed reverse repo and an insured deposit at a foreign bank. This lack of clarity makes it difficult for the average user to evaluate whether a stablecoin is truly “stable.”

Understanding these six reserve categories—and the tradeoffs each carries—is crucial because under the GENIUS Act, issuers will have broad discretion in how they compose their reserves. While all six forms are considered relatively, if not extremely safe, some introduce more risk than others, particularly in periods of stress. With no guardrails on who can issue stablecoins, the Act effectively bets that these reserve forms, even in the hands of new or inexperienced issuers, cannot be mismanaged in ways that harm consumers. That is a potentially dangerous assumption that makes understanding the six different reserve possibilities all the more essential for consumers.

The Six Reserve Asset Categories:

Physical Coins and Currency

While lacking any interest-generating capability, physical U.S. coins and Federal Reserve notes offer the most secure and liquid reserve form in a practical, day-to-day sense. Their appeal lies in the fact that they are immune to market volatility and credit risk, and can be accessed instantly without relying on any financial institution. During periods of market stress or a sudden surge in redemption requests, physical currency can be distributed without delay or the need to liquidate other assets. However, holding large portions of reserves in cash is economically inefficient for issuers. Because it generates no yield, issuers gain no financial utility from it. As such, physical currency is best used in limited proportions—as a liquidity buffer—alongside other permitted reserve forms that offer better returns while maintaining acceptable levels of safety.

Insured Deposits Held at Banks and Credit Unions, Including Foreign Banks

Under the GENIUS Act, reserves may also be held in demand deposits or similar accounts at FDIC- or NCUA-insured banks and regulated foreign depository institutions. These accounts offer more utility to issuers than physical currency as they generate modest interest while still providing high liquidity and deposit insurance protections. However, the limitations are significant. Federal insurance only covers up to $250,000 per depositor per institution. As a result, issuers maintaining large reserve balances must spread funds across dozens or even hundreds of accounts, dramatically increasing administrative overhead and complexity. Moreover, some institutions may impose withdrawal limits or delays during stress periods, potentially restricting access when liquidity is needed most.

Short-Dated Treasury Bills, Notes, and Bonds

Treasury bills, notes, and bonds with 93 days or less maturity represent one of the most desirable reserve categories under the Act. These securities are backed by the U.S. government and are sold at a discount, with full redemption at face value upon maturity. They are considered virtually risk-free and offer stable, predictable returns. Because of their short duration, they are highly liquid and resilient to interest rate fluctuations. This makes them an ideal fit for stablecoin issuers seeking yield without sacrificing liquidity or security. Notably, both Circle and Tether now rely heavily on short-term U.S. Treasuries to back their stablecoins, citing the assets’ safety and compliance with emerging global regulations.

Repurchase Agreements (Repos) and Reverse Repurchase Agreements Backed by Treasury Securities

Repurchase agreements (“repos”) and reverse repos are short-term lending arrangements in which one party sells securities to another with an agreement to repurchase them at a slightly higher price after a set period—typically overnight or within a few days. The GENIUS Act only permits repurchase agreements with maturities of seven days or less, provided they are backed by treasury bills with maturities of 90 days or less. Reverse repurchase agreements must have maturities of seven days or less, be collateralized by Treasury notes, bills, or bonds on an overnight basis, subject to over-collateralization in line with standard market terms and can be conducted under one of three structures: tri-party, centrally cleared through a clearinghouse, or bilateral with a counterparty that the issuer has determined to be adequately creditworthy even in times of severe market stress.

The GENIUS Act only permits repos backed by Treasury bills with maturities of 90 days or less and with terms no longer than seven days. Reverse repos must be collateralized by Treasury bills, notes, or bonds, require overnight overcollateralization, and be conducted through tri-party agreements, central clearinghouses, or thoroughly vetted counterparties.

Repos attract issuers because they provide near-instant liquidity while generating short-term yield. These agreements are well-collateralized, meaning the lender retains safe government securities in the event of default. However, repos require active cash management and introduce a slight counterparty risk. If the borrowing party fails to repurchase the securities, the issuer may need to liquidate the collateral, which takes time and incurs costs.

Money Market Funds Invested in Certain Permitted Assets

Money market funds (“MMFs”) are mutual funds that invest in highly liquid, low-risk assets. Under the GENIUS Act, only MMFs invested solely in permitted reserve assets—such as cash, insured deposits, Treasuries, and eligible repos—are allowed. These funds offer issuers professional management, diversification, and simplified operations. MMFs are also typically very liquid, with same-day settlement for redemptions.

However, MMFs are not insured by the FDIC, and during periods of extreme market stress, they can experience redemption delays or “breaking the buck,” where the fund’s value drops below $1 per share. While rare, these scenarios represent a meaningful risk for issuers that rely too heavily on MMFs for core reserves. They can also temporarily limit withdrawals or delay redemptions, posing liquidity risks for issuers.

Central Bank Reserve Deposits

Central bank reserve deposits are often considered the most secure institutional reserve option. These are cash balances held by qualified financial institutions at the central bank—such as the Federal Reserve—and are entirely insulated from credit risk, market fluctuations, or counterparty failure. Like physical cash, they are highly liquid and can be accessed on demand, but with the added benefit of being managed digitally and integrated into modern financial systems. However, central bank deposits typically offer little or no interest and are generally restricted to regulated depository institutions. As such, only institutions already eligible to access Federal Reserve services can utilize this reserve channel. The GENIUS Act does not extend Federal Reserve master account access to non-bank issuers, leaving them reliant on intermediary custodial banks to utilize this reserve form.

Conclusion

While all six forms of permitted reserves under the GENIUS Act are relatively low-risk and liquid, they vary significantly in the level of protection they provide to stablecoin holders. Issuers will now need to balance liquidity, yield, and risk carefully across these categories, since the Act makes reserve quality—not issuer type—the central safeguard for consumer protection.

Unlike international frameworks such as the European Union’s MiCA or Japan’s PSA—which restrict issuance largely to banks or licensed payment providers—the GENIUS Act introduces issuer requirements but keeps them comparatively flexible. Its three-tier structure permits participation from bank subsidiaries, federally chartered non-banks, and state-chartered issuers under a $10 billion threshold, provided their state regimes are certified as “substantially similar” by the new SCRC. This approach reflects a distinctly American reliance on federalism: rather than one centralized licensing system, the Act combines broad issuer eligibility with prudential guardrails around reserves, transparency, and redemption rights. As a result, how issuers compose and manage reserves remains the key lens for evaluating stability across the system.

Most issuers, like Tether and Circle, will likely diversify reserves across multiple permitted asset classes to reduce concentration risk and generate revenue. While diversification can mitigate certain risks, it also introduces complexity: poorly managed portfolios or aggressive yield strategies could leave issuers with insufficient liquidity during market stress. And because the Act does not impose a minimal liquidity threshold, issuers retain broad discretion over reserve mix, placing heightened responsibility on them to prioritize stability over profit.

Still, the Act’s model reflects a characteristically American approach to regulation: pairing strict federal oversight of the largest issuers with room for states to experiment in supervising smaller ones. This dual system has the potential to foster innovation: states may act as regulatory laboratories, experimenting with reserve and disclosure standards that, if successful, could influence future federal policy.

However, there is still uncertainty, especially around how rigorously the SCRC will vet state regulatory regimes. Certification could vary widely without clear criteria or enforcement guidelines, potentially enabling entities to seek the most permissive oversight structure. Legal analysts and consumer advocates have warned that the Act lacks sufficient tools to consistently enforce consumer protections across states.

Regardless of whether an issuer operates under federal or state oversight, the GENIUS Act’s effectiveness hinges on whether the reserve requirements are robust enough to protect consumers. The varied tiers of oversight make reserve composition, transparency, and liquidity the only consistent standard across the board. Regulators, market participants, and consumers must scrutinize how reserves are held and managed because good intentions mean little if poorly structured reserves fail under stress. The success or failure of this uniquely American regulatory experiment will depend not just on who is allowed to issue stablecoins, but on the strength and transparency of these reserves; an issue that could determine not just stablecoin stability, but the broader crypto market’s credibility and path to mainstream adoption in the U.S.