To date, much of the policy focus on stablecoins has been on the potential effect of their growth on deposits, monetary policy and the role of the dollar. Leaving those issues aside, this note focuses on a problem of equal or greater concern: how the legal and operational structure of stablecoins presents severe consumer protection and financial stability risks.[1] In short, the emerging U.S. framework for stablecoins under the GENIUS Act suffers from four fundamental flaws that have not yet received proper policymaker or market attention: (i) operational and illicit finance risks that can undermine both the solvency of issuers and confidence in stablecoins more broadly; (ii) redemption mechanics that are likely to make destabilizing runs more likely, not less; (iii) serious uncertainty about the legal rights of stablecoin holders and other stakeholders that are likely to lead to protracted disputes when issuers fail; and (iv) a deeply flawed resolution and bankruptcy framework that exacerbates all of the foregoing. And these concerns will intensify if issuers are permitted to market stablecoins as “deposits” and pay interest or its equivalent on those deposits.[2]
None of these fundamental problems is isolated or discrete. Rather, these problems are mutually reinforcing, compounding in a way that is likely to give rise to future failures of the payment stablecoin market that are as damaging to consumers and the financial system as they are predictable. As we detail below, a plausible scenario by which these harms will unfold is not hard to imagine. To kick things off, an operational failure – bad code, a hack, a serious service disruption – will call into question the stablecoin issuer’s solvency, its ability to support transactions involving its stablecoins or holders’ ability to redeem them.
Such a failure is likely to trigger a run. Stablecoin holders will then fight for first-mover status by requesting redemption as quickly as possible, triggering a multi-day period in which all redemptions are halted, which in turn will likely trigger even more redemption requests. Differences in redemption rights between those holders with a direct relationship with the issuer and those who hold their stablecoins indirectly through exchanges will act as a further incentive for holders to race to redeem. The issuer would then be forced into a fire sale of assets and rapid withdrawal of deposited reserves. Other holders of other stablecoins will similarly begin to head for the exits, not wanting to wait around to learn whether the problem is limited or contagious, commencing the same downward cycle at other issuers.
When stablecoin holders and market participants begin to read their stablecoin agreements and terms of service, things will go from bad to worse. And at best, it will end in an insolvency proceeding where a bankruptcy judge or receiver must decide between funding an orderly administration of the issuer and making stablecoin holders whole; at worst, it will end in a district court parsing the 19th century common law of receivers while stablecoin holders wait weeks, if not months, to finally get some or all of their cash back. Such a perfect storm for consumer harm and financial instability is not far-fetched; it is the natural result of an emerging U.S. stablecoin framework that is deeply flawed.
The First Fundamental Flaw: Serious and Existential Operational Risks
Core Operational Risks
Even in its current state, the stablecoin ecosystem has shown itself prone to operational failures that can quickly lead to so-called de-pegging – that is, a dip in market value below the instrument’s promised stable value. Stablecoins are almost entirely dependent on rapidly evolving technology, and many of the inherent operational risks of stablecoin issuance tend to involve existential threats, not just recoverable operational losses. These include dependence on third-party custodians of reserve assets (some of which may not be subject to robust oversight), disruption or delays to redemption processes, problems with cross-chain bridges (often reliant on third-party technology) and hacking or disruption of cryptographic key infrastructure. Also, despite their label and purported purpose, “payment stablecoins” are often used for anything but payments – and instead most commonly serve as a trading asset for investment-related purposes on exchanges and decentralized finance (or DeFi) protocols, a combination that introduces substantial market and other risks not contemplated by a statute designed to regulate a payment instrument.[3]
Whatever the root causes of operational failure, stablecoin history already supplies several case studies. In October 2018, amid concerns about whether USDT was fully backed, processing-system delays at the exchange affiliated with Tether (Bitfinex) and reports that Tether had lost a bank partner (Noble Bank of Puerto Rico) led to a run on USDT and a depeg to roughly $0.90.[4] In March 2023, USDC traded as low as $0.87 over a single weekend after Circle disclosed that approximately $3 billion of its reserves were held at the failing Silicon Valley Bank[5] – funds that would have been at risk but for the Biden Administration’s decision to bail out Circle and SVB’s other uninsured depositors at the expense of America’s largest banks.[6] Neither of these events involved the kinds of traditional declines in market values that the GENIUS Act framework seeks to limit through restrictions on what assets stablecoin reserves may be invested in, but instead reflected basic operational and management failures – in the first case, basic redemption operations, and in the second, management and monitoring of banks where stablecoin reserves had been deposited. And each involved the stablecoin sector’s largest players; together, these two stablecoins account for more than 80 percent of all stablecoins outstanding by market capitalization.[7]
Neither the GENIUS Act nor its proposed implementing rules allay concerns about similar operational failures occurring in the future. The principal operational protection – an “operational backstop” the OCC and FDIC have proposed under their respective implementing rules – would require issuers to hold liquid assets equal to 12 months of total expenses, calibrated on backward-looking metrics.[8] As we have observed elsewhere, that calibration creates perverse incentives for issuers to minimize compliance and risk-management expenses, and fails to capture forward-looking risk arising from changes in scale, business model or technological exposure.[9] And there are no assurances that stablecoin issuers would have capital sufficient to absorb operational losses as they occur – under the OCC and FDIC proposals, stablecoin issuers would not be subject to any standardized risk-based capital requirement of any kind, let alone a specific capital charge for operational risks.[10]
The significance of these operational risks is by no means mitigated by the fact that, under the GENIUS Act framework, stablecoins must be backed by “reserves” composed of assets that are generally highly liquid and pose little credit or interest rate risk. While stablecoin proponents often like to claim that the so-called “fully reserved” nature of payment stablecoins under GENIUS absolves their holders of all risk of loss, these “reserves” do nothing to reduce the operational risks of the stablecoin model, such as a breakdown in the basic functioning of the blockchain or the issuer’s redemption processes, or some other operational failure that precipitates large losses. Similarly, they do not address the risk that either a third-party custodian holding eligible reserve assets (e.g., Treasury bills) or a bank at which an issuer places reserves on deposit (an eligible reserve asset) will fail, exposing the issuer and underlying stablecoin holders to losses.[11]
BSA/AML Risks
In addition to the types of operational failures that have led to de-pegging at USDT and USDC, another serious vector of operational risk to stablecoin issuers is the instrument’s appeal to bad actors, both as a means of money laundering and as a hacking target. As we have detailed elsewhere, stablecoins now account for approximately 84 percent of all illicit cryptocurrency transaction volume, having displaced Bitcoin as the asset of choice for money launderers and sanctioned actors.[12] Chainalysis’s 2026 report documents $154 billion in illicit crypto flows in 2025 – a 162 percent increase year over year – driven primarily by a 694 percent increase in volume received by sanctioned entities.[13] And stablecoins are a frequent target of hacks by bad actors. In 2025 alone, North Korean state hackers stole roughly $2 billion, the Islamic Revolutionary Guard Corps’ on-chain activity exceeded $3 billion and Chinese underground banking networks processed over $103 billion.[14]
There is little reason to believe that the GENIUS Act will dampen current enthusiasm for stablecoins as an ideal tool for money laundering and sanctions evasion. It does not apply extraterritorially, and its reach is generally confined to issuers themselves. The broader ecosystem in which illicit funds actually move – foreign issuers, exchanges, unhosted wallets, mixers, cross-chain bridges, over-the-counter trading desks and the digital asset service providers through which most retail users interact with stablecoins – operates largely outside the Act’s perimeter. As we have argued at greater length, law enforcement and national security agencies cannot see inside these exchanges because they are not subject to bank-like reporting and examination.[15]
These BSA/AML risks are a major public policy problem outside the scope of this note; for present purposes, they should be seen as a severe operational risk. Public revelations about the theft of digital assets by hackers or their widespread use in a criminal scheme can undermine confidence in the asset entirely. Indeed, a recent example of this dynamic occurred just last month at Aave, the crypto sector’s largest DeFi lender. Suspected North Korea-linked crypto hackers stole $280 million from Aave and other platforms, tricking a crypto intermediary – a cross-chain bridge – into minting unbacked cryptocurrency, sending it to a wallet that had been created just 10 hours prior, and using that fake crypto as collateral to borrow cash from a range of counterparties through Aave. The identity of the wallet holder was obscured by Tornado Cash, a well-known crypto “mixer.” As a result, Aave not only faced significant bad debt, but also an existential threat to public confidence in the platform. Panicked Aave depositors withdrew more than $10 billion from the platform, reducing the platform’s lending capacity and effectively freezing the remaining assets and leaving remaining users unable to withdraw. Borrowing rates on Aave surged as “stranded lenders scrambled to borrow stablecoins against their locked collateral.”[16] Order was only restored after Aave raised approximately $307 million from industry players in what the Wall Street Journal described as “the largest recovery effort in DeFi history.”[17] Notably, this incident did not involve a stablecoin issuer, but rather a third-party crypto financing platform; one can only imagine how much greater that disruption would have been had bad actors directly targeted a stablecoin issuer or an affiliated platform in a similar fashion.
The Interoperability and Fragmentation Problem
All of the above operational risks are exacerbated by another core problem: the lack of inherent interoperability among the different blockchains on which transfers of payment stablecoin may be recorded. As the economist Hyun Song Shin has noted, fragmentation of the blockchain universe inevitably arises from the fact that, as capacity constraints and gas fees for transactions grow on one blockchain, users migrate to competing, less crowded blockchains that offer lower fees.[18] As Shin explains, the resulting lack of interoperability itself introduces substantial additional operational risk, exacerbating all of the problems just described above:
“A USDC token on Ethereum is not the same as a USDC token on Solana – they exist on separate ledgers that have no native way of communicating with each other. Transferring between chains requires the use of bridges: specialised software protocols that lock tokens on one chain and issue equivalent tokens on another. These bridges introduce additional risks, including vulnerabilities in the smart contract code – bridge exploits have accounted for billions of dollars in cumulative losses – and they impose costs and delays that undermine the seamless transferability that is the hallmark of money. The result is a landscape in which stablecoins from the same issuer exist in multiple, non-fungible forms across different blockchains, fragmenting liquidity and undercutting the network effects that should be the strength of a widely adopted payment instrument.”[19]
Fragmentation due to interoperability across blockchains is in many ways a function of a stablecoin’s success – the greater the transactional volume, the more likely it is that users migrate to new chains, resulting in fragmentation and use of bridges. Thus, as any individual stablecoin becomes more popular and is used more frequently as a means of payment, the compounding of operational risk through fragmentation is likely to become a larger and more pronounced problem. Similarly, this fragmentation is also more likely to occur during a period of significant transfers or redemptions when blockchain congestion is likely to occur – for example, when holders have begun to run on a stablecoin for any number of reasons – meaning this risk is likely to increase sharply at precisely the worst time.[20]
The Second Fundamental Flaw: Surprisingly Illiquid Stablecoins, Especially Under Stress
While operational failures are where a stablecoin’s problems are likely to start, the fundamental limitations of the GENIUS Act’s redemption framework are where those problems are likely to metastasize. Stablecoin holders reasonably expect that they will be able to redeem their stablecoins quickly and easily for cash under any circumstance; indeed, this is the principal selling point of stablecoins. It is thus remarkable that the emerging GENIUS Act framework does not assure retail holders of redemption on a remotely timely basis, and in fact may not grant them a legal right to redeem their stablecoin at all. Indeed, the statutory text of the GENIUS Act is unspecific about whether, when and how an issuer must redeem the stablecoins it issues, largely leaving those questions to implementing rules to be promulgated by the OCC and other federal regulators. The proposed regulations issued to date do not bode well for retail stablecoin holders expecting to redeem their stablecoins quickly on demand.
Under the OCC and FDIC’s pending proposals, stablecoin issuers would have up to two business days after a holder requests redemption to redeem in the ordinary course. Depending on how the issuer chooses to make cash available to the customer, even longer delays may be typical before a customer actually has access to redeemed funds – the OCC and FDIC proposals are entirely silent as to whether “redemption” has occurred when, for example, (i) the issuer begins to process payment or (ii) the funds are actually available to the holder. And issuers are granted substantially greater latitude during periods of stress; for example, under the OCC proposal, the two-business-day “timely redemption” period would be extended to seven calendar days whenever redemption demands exceed 10 percent of the payment stablecoin issuer’s outstanding issuance value in a single 24-hour period, and issuers would be prohibited from satisfying redemption requests during that period absent a specific OCC determination that redemptions may proceed.[21]
This is, in effect, a redemption gate – and a particularly prolonged and clumsy one. This design feature would almost certainly exacerbate the stress at any issuer that triggers the gate and potentially transmit that stress to other issuers, and would effectively incentivize run behavior by pushing payment stablecoin holders to redeem before any extension of the period for timely redemption is triggered.[22] This incentive problem with redemption gates is widely recognized – for example, in the money market fund context, where redemption gates were eventually prohibited because it became clear that they perversely worsened the risk of panic-driven runs during market stress.[23]
The OCC’s proposal recreates that dynamic across distributed ledgers that never sleep, with holders globally distributed and with redemption demands that can spike within minutes rather than days. The result is a clear first-mover advantage that would amplify secondary-market dislocations and increase the risk of instability or failure of one or more issuers. This dynamic also could prompt fire sales of “reserve” assets as issuers try to meet elevated redemption demand from first movers, and transmit stress at a single issuer to the broader funding and U.S. Treasury markets, as well as to the banks that hold reserve assets as deposits.[24] Similarly, where the reserves that are being used to meet redemptions are bank deposits – the asset type that the OCC proposal expects that issuers would tap first – the rapid draining of those deposits could entail a fire sale of the bank’s assets and/or create liquidity stress across the banking system.
The framework’s first-mover dynamic is compounded by the fact that the OCC’s proposal would permit issuers to honor redemption requests in any particular order the issuer chose, with no obligation to do so on a pro rata basis or to treat similarly situated holders alike. The proposed rule would fix only the outer limit of the redemption period, not the sequence in which requests within it are satisfied. Thus, an issuer facing a wave of redemption requests presumably would be permitted to redeem its preferred counterparties first – for example, the comparatively small number of institutional customers with which it has direct relationships, or those that hold their digital assets with an affiliate. As a result, an issuer’s largest and most sophisticated customers and/or its own affiliates may ultimately be better positioned than retail users to liquidate and exit their holdings at the first sign of stress.
As discussed below, further complicating the disorder of a stress scenario is a lack of clarity about whether issuers are even required to honor direct redemption requests from stablecoin holders, or if those holders may only redeem indirectly through exchanges with which they are in contractual privity.
The Third Fundamental Flaw: Unclear Redemption Rights and Unsettled Private Law
For a stablecoin to function as a reliable instrument, the legal nature of the holder’s claim must be reasonably clear. How and under what conditions can it be exercised? Against whom? How and when can it be transferred to others? And what happens to that claim when the stablecoin is held through an intermediary, pledged as collateral, or moved across blockchains? On all of these key questions, the GENIUS Act is largely silent.
Unclear Redemption Rights
The most glaring of these gaps may reflect an especially perplexing aspect of the GENIUS Act framework: some stablecoin holders may not have any redemption rights at all. The Act’s only direct provision on the redemption right appears in the passive voice and is embedded within a statutory definition: an issuer “is obligated to convert, redeem, or repurchase for a fixed amount of monetary value.”[25] As academics have observed, the statute “fails to clarify the boundaries that such a right would have, the conditions for its exercise, the available remedies, or any issuer defenses.”[26] Nor is it clear whether the right runs to the legal and/or beneficial owner of the stablecoin, or only to those direct-account holders who have been onboarded by the issuer.
That last ambiguity is not just a law review hypothetical. Despite USDT’s approximately $150 billion in outstanding circulation, Tether maintains direct redemption relationships with only 882 verified customer accounts worldwide. These verified account holders are subject to a $100,000 minimum redemption threshold and a $1,000 minimum redemption fee, and customers in the United States, Canada and Singapore are categorically excluded as verified account holders.[27] Even for those in privity with Tether, the company’s terms describe the redemption right as “a personal, restricted, non-exclusive, non-transferable, non-sublicensable, revocable, limited licence.”[28] Circle, the next-largest issuer, maintains 1,834 direct accounts; non-account-holders are explicitly “not customers of Circle” and “may not redeem USDC with Circle unless and until [they] open a Circle Mint account.”[29]
Whether the GENIUS Act displaces these arrangements, supplements them, or leaves them in place is, on the face of the statute, unclear. While it is possible that this critical uncertainty could be resolved through implementing rules, that currently appears unlikely. The OCC’s pending proposal does not address whether redemption rights belong to both direct and indirect holders; thus, stablecoin issuers that wish to continue to restrict direct redemption to a limited set of entities would apparently be permitted to do so.[30]
When holders lack direct access to the issuer, they become dependent on secondary markets to liquidate their positions, which can expose both institutional and retail holders to potential losses if market liquidity is insufficient or secondary market prices deviate from par. This dynamic would amplify secondary market price volatility and increase the risk that a payment stablecoin de-pegs, with potential contagion effects that extend beyond the individual stablecoin to the broader financial system.[31] This is to say nothing of the consumer harms that may unfold if issuers are allowed to discriminate against certain classes of stablecoin holders while favoring others – say, those that hold their stablecoins through affiliates, or third-parties with which the issuer has special revenue-sharing or other commercial arrangements. There is also the possibility that an issuer will encumber or condition holders’ “right” to redeem – for example, by requiring them to pay a fee and/or satisfy minimum balance requirements before they may redeem. Nothing in the GENIUS Act or the OCC or FDIC’s proposed rules would prevent issuers from effectively taxing redemption rights in this way.
Unsettled Private Law
The mystery of stablecoin redemption rights is just one of many basic questions of stablecoin issuance that the GENIUS Act and proposed implementing proposals leave to private law – that is, stablecoin issuers’ and exchanges’ terms of service with their customers – to determine. For example, neither the GENIUS Act nor current implementing proposals definitively address any of the following key questions:
- Whether or when a peer-to-peer stablecoin transfer extinguishes the payor’s debt to the recipient;
- The obligations of intermediaries through which transactions flow and how to allocate the risk of their failure;
- The precise extent to which a payment stablecoin issuer holds reserves on behalf of, or subject to the interests of, the holders of its payment stablecoins, for the specific purpose of meeting their claims; and
- The precise nature of a stablecoin holder’s security or other interest in reserves.[32]
As a result, unless the OCC and other relevant agencies step into the breach when issuing implementing rules, the answer to some of the most fundamental questions about what a stablecoin issuer must do, and what a stablecoin holder is entitled to, are likely to vary widely by stablecoin and be buried somewhere in an issuer’s or an exchange’s terms of service.
Making matters worse, the GENIUS Act does not even define the legal nature of a payment stablecoin. Indeed, while stablecoin proponents highlight that these assets are “fully reserved” by eligible assets, the statute seems to state that a payment stablecoin is merely an unsecured debt obligation of the issuer – meaning that it is secured, collateralized, or “backed” by nothing but the issuer’s promise to pay. The issuer owns as principal the reserve assets that back the payment stablecoins it has issued and undertakes a contractual obligation as principal to pay the holder of its payment stablecoin when the holder presents a payment stablecoin for conversion, redemption or repurchase. The holder is therefore subject to credit and counterparty risk vis-à-vis the issuer, without the accompanying public law protections that apply in the context of a bank deposit (e.g., deposit insurance and special government receivership).
Of course, all of these legal uncertainties dramatically increase the incentive for stablecoin holders to run at the first sign of trouble. Indeed, failing to do so would be an irrational choice.
The Fourth Fundamental Flaw: Ineffective and Untested Insolvency Law
Especially given the operational, illicit finance and private law risks attached to stablecoins under the GENIUS Act framework, the statutory provisions addressing the failure and insolvency of issuers are particularly important, as they form the last line of consumer protection for stablecoin holders. Unfortunately, those provisions are also among the law’s most problematic.
Section 11 of the Act adopts several special rules to govern the treatment of certain types of failed issuers under the Bankruptcy Code. Among other things, that section (i) excludes required reserves from the bankruptcy estate of a failed issuer, (ii) extends the automatic stay to those same reserves and directs the bankruptcy court to use “best efforts” to begin distributions within fourteen days of a required hearing and (iii) grants stablecoin holders super-priority over administrative expenses for any shortfall between reserves and outstanding claims. Yet as academics have pointed out, when read together, these provisions produce “a paradox where assets are simultaneously sequestered from the estate yet subject to its protective jurisdiction.”[33]
That paradox has severe operational consequences. If reserves are outside the estate, they cannot be surcharged under Bankruptcy Code Section 506(c) to pay the costs of preserving and distributing them, and the Act provides no alternative mechanism for funding those costs.[34] If, on the other hand, stablecoin holders genuinely enjoy super-priority over administrative expenses, then, as the same scholars observe, “[n]o rational trustee, attorney, or debtor-in-possession (DIP) lender would agree to service a reorganization when their fees are junior to the potentially massive liability of the stablecoin float.”[35] Another academic has argued that courts might rescue the framework by distinguishing the “debtor-in-possession” from the “debtor” for purposes of permitting DIP financing secured by reserves – but only at the cost of subordinating stablecoin holders to DIP lenders and the professional fee carve-outs that accompany such financing, demoting their supposed super-priority to something more like fifth priority.[36]
Whatever the answer, stablecoin holders face serious risks upon an issuer’s failure. If they actually enjoy super-priority, that privilege is likely to make reorganization or an orderly wind-down of the issuer untenable. And if they don’t, holders may enjoy an operationally functional bankruptcy proceeding but find themselves suffering losses because some of the reserve assets on which they depended are being paid out to other parties with higher priority. From the perspective of an orderly resolution with maximum possible recovery for stablecoin holders, neither outcome is a good one.
The insolvency framework is further complicated by the variety of forms a payment stablecoin issuer may take. Issuers organized as uninsured national trust banks, federal branches of foreign banks or certain state-chartered institutions are not generally eligible for proceedings under the Bankruptcy Code at all, and would instead be resolved under FDIC, OCC or state regimes that may lack either the statutory authority or the funding to administer a stablecoin resolution. This is a particularly important distinction because it is quickly becoming apparent that the legal vehicle of choice for payment stablecoin issuers is likely to be an uninsured national trust bank chartered by the OCC.[37]
What, then, is the insolvency framework for that emerging stablecoin issuer legal vehicle of choice? It is not the Bankruptcy Code (the focus of most of Section 11 of the GENIUS Act), nor is it the carefully crafted insolvency framework that governs the resolution of failed insured depository institutions under the Federal Deposit Insurance Act. It is instead a few paragraphs of the National Bank Act authorizing the OCC to appoint a receiver, with insolvency to be governed by an outdated and under-developed federal common law of receivership.[38] Indeed, the OCC has not resolved an uninsured national bank under this framework in nearly a century, and the common law and judicial precedent to which it and a court would purportedly look is thus nearly a century out of date.
As theoretically interesting as it would be to predict how a court might analyze the rights of stablecoin holders using 19th century case law and analogies to bills of exchange and banker’s acceptances, stablecoin holders are likely to be more interested in concrete, predictable answers about what happens to them if an uninsured national trust bank issuer fails.[39] An uninsured national trust bank that issues payment stablecoins looks nothing like a traditional one – its primary activities are issuance of on-balance-sheet debt obligations to customers and the investment and management of those funds on the asset side of the balance sheet. They thus raise precisely the most difficult question in insolvency – priority, or which creditors are entitled to which assets – that has motivated the carefully crafted frameworks set forth in the Bankruptcy Code (for nonbanks) and in the Federal Deposit Insurance Act (for insured banks). Under GENIUS, these critical questions will instead be left to an archaic legal framework that has not been used in a century.
Conclusion
Congress intended the GENIUS Act to lay a sound foundation for a regulatory framework for stablecoins. But that framework is undermined by crucial fault lines that put consumers and financial stability at risk: operational and illicit finance risks; flaws in the redemption framework; uncertainty about the rights of stablecoin holders and other stakeholders in a failure; and a deeply flawed resolution and bankruptcy framework. Together, these fundamental flaws leave consumers and the financial system at serious risk of destabilizing runs, failed stablecoins issuers, and protracted and ineffective resolution processes that at best subject retail holders to uncertainty and delay, and at worst subject them to losses.
[1] This note focuses on payment stablecoins as defined in the GENIUS Act, but many of the risks described apply equally or more acutely to stablecoins that do not fall within this definition, because those instruments lack even the basic protections set forth in the GENIUS Act.
[2] See Melinda Huspen, Coinbase relaunches direct deposit option, American Banker (May 26, 2026) (available here); see generally Bank Policy Institute, The Risks from Allowing Stablecoins to Pay Interest (Sept. 25, 2025) (available here); Bank Policy Institute, Even Crypto-Funded Research Affirms that Yield-Bearing Stablecoins Reduce Bank Deposits and Lending (Jan. 23, 2026) (available here); Jessie Jiaxu Wang, Banks in the Age of Stablecoins: Some Possible Implications for Deposits, Credit, and Financial Intermediation, FEDS Notes (Dec. 17, 2025) (available here); Andrew Nigrinis, The Coming Stablecoin Shock to America’s Credit Markets, Open Banker (Oct. 16, 2025) (available here).
[3] See Franklin Noll, What Are Stablecoins Used for Today? Estimating the Distribution of Stablecoins (Fed. Rsrv. Bank of Kan. City, Payments Sys. Research Briefing, Apr. 10, 2026), (available here) (finding that “payments are still a very small part of the world of stablecoins, accounting for less than 1 percent of all stablecoin use”).
[4] See, e.g., Untethered: The History of Stablecoin Tether and How It Has Lost Its $1 Peg, Cointelegraph (available here).
[5] See Krisztian Sandor, Circle Confirms $3.3B of USDC’s Cash Reserves Stuck at Failed Silicon Valley Bank, CoinDesk (Mar. 10, 2023) (available here).
[6] See Joint Statement by the Department of the Treasury, Federal Reserve, and Federal Deposit Insurance Corporation (Mar. 12, 2023) (available here). The costs of SVB’s failure to the Deposit Insurance Fund were passed on to the largest banks through a special deposit insurance assessment.
[7] See CoinMarketCap, Top Stablecoin Tokens by Market Capitalization (data as of June 8, 2026) (available here).
[8] See Implementing the Guiding and Establishing National Innovation for U.S. Stablecoins Act, 91 Fed. Reg. 10,202 (Mar. 2, 2026) (available here); GENIUS Act Requirements and Standards for FDIC-Supervised Permitted Payment Stablecoin Issuers and Insured Depository Institutions, 91 Fed. Reg. 18,534 (April 10, 2026) (available here).
[9] Bank Policy Institute, Consumer Bankers Association & Financial Services Forum, Comment Letter on OCC GENIUS Act Implementing Rule (91 Fed. Reg. 10,202) (May 1, 2026), at 46–47 (Recommendation 31) (available here); see also Bank Policy Institute, Consumer Bankers Association & The Clearing House, Comment Letter on FDIC GENIUS Act Implementing Rule (91 Fed. Reg. 18,534) (June 9, 2026) (available here).
[10] The OCC’s proposed rules include only a de minimis $5 million capital requirement for de novo issuers, a number likely to be rapidly dwarfed by stablecoin volumes as an issuer’s activities grow. See 91 Fed. Reg. 10,202 at proposed § 15.41(a)(1)(i)(B).
[11] Importantly, not all third-party custodians are subject to uniformly robust requirements designed to help ensure that custodied assets remain safe and secure. For more information on the extensive requirements to which custodian banks are subject, see Bank Policy Institute, Association of Global Custodians and Financial Services Forum, Comment Letter on Custody of Crypto Assets (Sept. 18, 2025) (available here). As concerns concentration risk, we note that the OCC’s proposed rules to implement the GENIUS Act identify two potential options for limiting the concentration risks posed by custodians or banks holding stablecoin reserves. Under either option, issuers would be permitted to maintain up to 40 percent of their reserve assets at any one eligible financial institution (whether as deposits or insured shares at any one insured depository institution, securities custodied at any one eligible financial institution, bilateral reverse repurchase agreements with any counterparty or through other exposures). See 91 Fed. Reg. 10,202 at proposed § 15.11(c).
[12] Bank Policy Institute, Time for a Reckoning on AML and Crypto (Apr. 23, 2026) (available here).
[13] Chainalysis, The 2026 Crypto Crime Report at 7, 39 (2026) (available here).
[14] See id. at 76; Online Scams, Crypto Fraud, and Digital Extortion: An Examination of How Transnational Criminal Networks Target Americans, Hearing Before the House Committee on Homeland Security, 119th Cong. (2026) (statement of Ari Redbord, Global Head of Policy, TRM Labs) at 7, 10 (available here); see generally Financial Crimes Enforcement Network and Treasury Department Office of Foreign Assets Control, Permitted Payment Stablecoin Issuer Anti-Money Laundering/Countering the Financing of Terrorism Program and Sanctions Compliance Program Requirements, 91 Fed. Reg 18,582 (April 10, 2026) (proposed rule) (available here).
[15] Bank Policy Institute, Time for a Reckoning on AML and Crypto, supra note 12.
[16] Vicky Ge Huang, Crypto Rushes to Bail Out Decentralized Lender Targeted by Hackers, Wall Street Journal (Apr. 29, 2026) (available here).
[17] Id.
[18] See Hyun Song Shin, Tokenomics and blockchain fragmentation (March 5, 2026) (available here) at 2-3.
[19] Id. at 6 (internal citations omitted). Shin notes that one industry source estimated cumulative bridge hack losses between 2021 and 2024 at over $2.5 billion. See id. at n. 4.
[20] See Elizabeth C. Klee, Arazi Lubis, Chase P. Ross, Sharon Y. Ross, and Alexandros P. Vardoulakis, The Fragility of Perfectly Safe Digital Money (available here) at 3 (showing that stablecoin “instability can arise even when reserve assets are perfectly safe and liquid, driven entirely by the interaction of network externalities and the congestion costs inherent to decentralized settlement”).
[21] See 91 Fed. Reg. 10,202 at proposed § 15.12(c). The FDIC has proposed that, if a payment stablecoin issuer receives redemption requests that exceed 10 percent of the issuer’s outstanding issuance value in less than 24 hours, it must notify the FDIC and it may request that the FDIC grant it approval to extend the redemption period beyond two business days. 91 Fed. Reg. 18,534 at proposed § 350.5(c).
[22] See Bank Policy Institute et al., OCC Comment Letter, supra note 9, at 33–34 (Recommendation 18).
[23] See Money Market Fund Reforms, 88 Fed. Reg. 51,404 (Aug. 3, 2023) (codified at 17 C.F.R. pts. 270, 274, 279) (available here); President’s Working Group on Financial Markets, Overview of Recent Events and Potential Reform Options for Money Market Funds (Dec. 2020) (available here).
[24] See Bank Policy Institute et al. Comment Letter, supra note 9, at 32-34.
[25] GENIUS Act § 2(22)(A)(ii)(I), 12 U.S.C. § 5901(22)(A)(ii)(I).
[26] Christopher K. Odinet, Andrea Tosato & Yesha Yadav, The Moneyness of Stablecoins, 136 Yale Law Journal (forthcoming 2026) (available here) at 50.
[27] Id. at 35 (citing Tether Relevant Information Document).
[28] Id. at 39 (quoting Tether Terms of Service § 2).
[29] Id. at 36 (citing Circle Mint User Agreement and USDC Terms).
[30] To its credit, the OCC proposal acknowledges that many stablecoins issuers currently have policies that limit direct interaction with retail holders and poses several questions about whether and how the OCC rules should regulate such policies. See 91 Fed. Reg. 10,202 at 10,259.
[31] Bank Policy Institute et al., OCC Comment Letter, supra note 9, at 34.
[32] The GENIUS Act does not expressly address the legal nature of a payment stablecoin, although it includes several provisions that make clear that a payment stablecoin issued by a PPSI must be an unsecured debt obligation – that the PPSI owns as principal the reserve assets that back the payment stablecoins it has issued and undertakes a contractual obligation as principal to pay the holder of its payment stablecoin when the holder presents a payment stablecoin for conversion, redemption or repurchase. However, if the relevant federal and state agencies do not confirm that this is the contemplated legal nature of every payment stablecoin to be issued by a licensed PPSI, there is likely to be significant uncertainty regarding the rights of payment stablecoin holders and the duties and obligations of PPSIs.
[33] Odinet et al., supra note 26, at 57.
[34] Id.
[35] Id.
[36] Adam J. Levitin, Sorry to Break It to You Geniuses: Under the GENIUS Act the Holders of Stablecoins Actually Have FIFTH Priority in an Issuer Bankruptcy, Credit Slips (Dec. 2, 2025) (available here).
[37] This trend is the result of four unique competitive advantages of that charter relative to other potential legal entity choices: (i) federal preemption of state laws under the National Bank Act; (ii) the OCC’s inappropriately expansive interpretive view concerning the activities in which an uninsured trust bank may engage; (iii) provisions in the OCC’s proposed GENIUS rules that would permit uninsured national bank issuers to engage in all such activities, notwithstanding provisions in GENIUS Act that strictly and expressly limit all payment stablecoin issuers to a much narrower set of stablecoin-related activities; and (iv) legal eligibility to apply for an account at a Federal Reserve Bank.
[38] See OCC, Receiverships for Uninsured National Banks, 81 Fed. Reg. 62,835 (Sept. 13, 2016) at 62836.
[39] This relatively untested and archaic insolvency framework may not pose significant policy concerns in the context of traditional uninsured trust banks – which, as the OCC observed, “typically have few assets on the balance sheet, … exercise fiduciary and custody powers, do not make loans, do not rely on deposit funding, and consequently have simple liquidity management programs.” 81 Fed. Reg at 62,836.
