DFC

Circle submitted an application to the Office of the Comptroller of the Currency (OCC) to establish a national trust bank, First National Digital Currency Bank, N.A. If approved, the bank would be authorized to operate as a federally regulated trust institution, subject to OCC oversight, and would oversee the management of the USDC Reserve on behalf of Circle’s U.S. issuer. An approval would also further strengthen the infrastructure that supports the issuance and circulation of USDC and would offer digital asset custody services to institutional customers. A federally regulated trust charter would also help Circle meet expected requirements under the proposed GENIUS Act legislation, which would represent a meaningful step forward in integrating digital assets into the broader U.S. financial system.

The GENIUS Act's Section 11 establishes comprehensive insolvency protections for payment stablecoin holders by fundamentally restructuring bankruptcy priorities and procedures. The Act grants stablecoin holders first priority claims over all other creditors, including administrative expenses, ensuring they have primary access to required reserves and any remaining unencumbered assets of the debtor. It addresses potential gaps by deeming all stablecoin holders to have valid claims regardless of contractual terms, while excluding required reserves from the bankruptcy estate to prevent other creditors from accessing these funds. However, the Act creates some operational tensions by subjecting these excluded reserves to the automatic stay, requiring a court-approved process for redemption that could delay access by more than two weeks. The legislation also mandates that insolvency proceedings for regulated depositories be handled by appropriate federal or state regulators, and requires a comprehensive study of potential legal gaps in stablecoin insolvency law within three years of enactment.

RISK has made freely available a 2021 article by Charles Kahn and Manmohan Singh that argues that stablecoins pose fundamental challenges to traditional monetary policy because, unlike conventional bank money that must be backed by central bank reserves, stablecoins are backed by short-term government securities, commercial bank deposits, and other high-quality liquid assets. This creates a parallel currency system outside central bank control, potentially reducing its ability to influence money supply through monetary policy operations. The authors suggest that to maintain monetary policy effectiveness, central banks should consider allowing stablecoin issuers direct access to central bank reserves and payment systems, essentially treating them like banks.

JD Supra published an article that analyzes the proposed GENIUS Act of 2025 and its exclusion of payment stablecoins (PSCs) from the definition of "commodity" under the Commodity Exchange Act. The author argues this exclusion would prevent futures trading on PSCs, eliminate regulatory oversight by the CFTC and SEC over PSC derivatives markets, and create enforcement gaps since banking regulators lack market regulation expertise. The article warns that removing PSCs from commodity status could paradoxically create an unregulated retail derivatives market while preventing legitimate hedging opportunities. The author suggests a simple fix: removing the commodity exclusion provision to allow proper regulatory oversight while maintaining the Act's other protections for stablecoin issuers and users.

The Daily Economy published an article by Peter C. Earle that argues that while the GENIUS Act is styled as a stablecoin regulation measure, it effectively enables a “shadow retail CBDC” system, allowing federally chartered commercial banks—with full federal oversight—to issue digital dollar tokens that mimic the functional characteristics of a central bank digital currency, such as instant settlement, programmability, and 1:1 dollar backing . By restricting issuance to regulated banks and excluding nonbank entities, the Act embeds digital dollar issuance within the traditional banking system, preserving bank intermediation, deposit insurance, and regulatory control—while potentially limiting fintech innovation and reinforcing incumbent banks’ dominance. Earle warns this model could blur lines between public and private monetary instruments, granting many of the benefits of a retail CBDC without requiring the Federal Reserve’s direct involvement—raising questions about competition, inclusion, and potential global spillover effects—just as the bill heads to the House.

JD Supra published a succinct summary of the GENIUS Act (S.1582), a comprehensive federal framework for U.S. dollar‑pegged “payment stablecoins”, passed by the U.S. Senate on June 17, 2025. The Act would close regulatory loopholes and define who can issue stablecoins—namely, insured banks, federal non‑bank entities under OCC jurisdiction, and state‑regulated issuers—while criminalizing non‑authorized issuance. It would mandate full 1:1 reserve backing in low-risk highly-liquid assets, prohibit rehypothecation, and require stringent transparency (monthly reserve disclosures, annual audits for large issuers), redemption rights, and no interest payments to holders. The GENIUS Act also bolsters consumer protection, AML compliance, and technical capabilities for freezing assets if ordered by regulators. Additionally, it amends the Bankruptcy Code to prioritize holders' claims on reserves in issuer insolvency.

Noelle Acheson published an exploration of the criticisms and risks associated with stablecoins while acknowledging their potential benefits. She addresses common anti-stablecoin arguments, such as their use in crime, lack of transparency in reserves, potential destabilization of treasury markets, and the ethical concerns around non-interest-bearing models benefiting issuers over taxpayers. Acheson refutes some claims as exaggerated or simplistic, like comparisons to fiat currency risks, but agrees with others, such as the need for better reserve transparency and the risks of depegging. The paper also highlights how stablecoins challenge traditional notions of money and financial control, emphasizing the importance of addressing valid criticisms to ensure their sustainable growth amid rapid adoption.

The U.S. National Bureau of Economic Research (NBER) published a paper that investigates the trade-off between price stability and run risk in stablecoins, focusing on the role of arbitrage concentration. It document that stablecoin issuers, such as Tether (USDT), limit the number of arbitrageurs who can redeem stablecoins for cash, leading to concentrated arbitrage. They argue that while more efficient arbitrage improves price stability by reducing secondary market price deviations, it also increases run risk by lowering the price impact of investor sales, thereby encouraging panic selling. The study develops a theoretical model showing how issuers balance these trade-offs and analyzes policy implications, such as the unintended consequences of regulations promoting unconstrained redemptions. The findings highlight the need for coordinated policies addressing both arbitrage efficiency and reserve asset liquidity to mitigate systemic risks in the stablecoin ecosystem.

Kings College London Business School published a paper that explores the future of stablecoins and outlines key dimensions for their sustainable growth and adoption. It emphasizes the need for a standardized approach across seven critical areas: monetary policy (minting/burning, reserve tracking), reserve asset verification, compliance (identity, regulatory rules), interoperability (cross-chain functionality), privacy (confidential transactions), fees and yield generation (business models), and roles/events (governance and transparency). The author argues that while some aspects, like mint/burn functions, are mature enough for standardization, others, such as privacy and compliance, require further industry consensus. The paper highlights the importance of transparency in reserve assets, the potential for yield-bearing stablecoins despite regulatory skepticism, and the role of interoperability protocols like Chainlink CCIP. Ultimately, it calls for coordinated development to avoid fragmentation and ensure stablecoins can fulfill their promise as a foundational element of on-chain finance.

A16zcrypto published a paper that explores how stablecoins can evolve into a mainstream form of money by addressing three key challenges: ensuring the "singleness of money" (1:1 interchangeability with traditional currency), integrating dollar stablecoins into non-dollar economies without undermining local monetary policies, and managing the collateral and credit implications of large-scale stablecoin adoption. It highlights the need for universal at-par conversion systems, local stablecoin solutions, and innovative collateral models (like tokenized deposits or diversified assets) to maintain economic dynamism. The author argues that stablecoins, with their speed, low cost, and programmability, can revolutionize finance but require careful design and regulatory collaboration to mitigate risks like liquidity fragmentation, reduced monetary sovereignty, and disruptions to credit markets.

South Korea’s ruling Democratic Party has introduced the Digital Asset Basic Act, designed to regulate and promote the issuance of stablecoins by domestic companies with at least 500 million won in equity capital. The bill requires issuers to maintain reserves to guarantee refunds and obtain approval from the Financial Services Commission, shifting oversight away from the central bank to the financial regulator. This move, championed by newly elected President Lee Jae-myung, aims to boost transparency, foster competition, and keep national wealth within Korea by reducing reliance on foreign stablecoins, as trading volumes in the country have soared to 57 trillion won in early 2025.

The Digital Euro Association (DEA) published a paper that examines how the growing $225 billion stablecoin market impacts European financial sovereignty across four critical dimensions: monetary, payments, regulatory, and digital sovereignty. With stablecoins processing over $7 trillion (adjusted volume) in the last 12 months, rivaling established payment networks, Europe sovereignty faces both opportunities and challenges. The research introduces a novel analytical framework and demonstrates that well-regulated euro stablecoins could strengthen European autonomy, while unmanaged foreign alternatives pose sovereignty challenges.

The Bank for International Settlements (BIS) published a paper that examines the impact of dollar-backed stablecoin flows on short-term US Treasury yields using daily data from 2021 to 2025. The results of the empirical analysis suggest that a 2-standard deviation inflow into stablecoins lowers 3-month Treasury yields by 2-2.5 basis points within 10 days, with limited to no spillover effects on longer tenors. It also finds evidence of asymmetric effects: stablecoin outflows raise yields by two to three times as much as inflows lower them. Decomposing the yield impact by issuer shows that USDT (Tether) has the largest contribution followed by USDC (Circle), consistent with their relative size.

The UK Financial Conduct Authority (FCA) published a consultation paper that outlines a proposed regulatory framework for the issuance of fiat-referenced stablecoins and the custody of qualifying crypto-assets. The framework focuses on establishing clear rules to ensure the stability, transparency, and redemption rights of stablecoins, mandating that issuers back tokens 1:1 with secure, liquid assets held in statutory trust by independent custodians. Custodians must also segregate and safeguard client assets under trust arrangements. The proposals aim to enhance consumer protection, market integrity, and innovation, while aligning with global standards. The FCA plans further consultations on conduct, prudential, and governance standards, and encourages industry feedback by July 31, 2025.

The USDF Consortium, launched in 2022 to create a US dollar stablecoin-based interbank payment system on a permissionless blockchain, has reportedly closed down. The original idea was that its USDF tokens would be redeemable at any of the participant community banks. The banks involved were New York Community Bank, Synovus, Bank, Sterling National Bank, FirstBank, and NBH Bank. Under regulatory pressure, it moved to a private chain until it became clear that regulators still didn’t want it to proceed and so it reportedly shuttered late last year. However, its website (usdfconsortium.com) is currently displaying a "maintenance mode is on... site will be available soon" message, so maybe it's not so dead?

According to the Wall Street Journal (WSJ) a consortium of the biggest U.S. banks, including Bank of America, Citigroup JP Morgan Chase, and Wells Fargo, are in the early conceptual stages of exploring issuing a joint stablecoin. Early Warning Services, the operator of the Zelle peer-to-peer payment system, and The Clearing House payments network, are also reportedly involved. Early Warning Services, which runs the Zelle instant payments system, is owned by Bank of America, Capital One, JP Morgan Chase, PNC Bank, Truist, U.S. Bank and Wells Fargo. The Clearing House is owned by 22 banks which include the same ones as Early Warning Services, but also Bank of New York, Citigroup and many international banks such as Barclays, Deutsche Bank, HSBC and Santander.

The paper "Stablecoin Self-Regulation" by Federal Reserve Board (FRB) Principal Economist Francesca Carapella proposes a self-enforcing, market-based alternative to traditional regulation for addressing the fragility of stablecoin issuers. It models an economy where stablecoins and banks coexist, both facing limited commitment to redeem liabilities. To mitigate this, the author introduces a voluntary, two-part mechanism: (1) a loss mutualization fund and (2) costly one-period membership titles that issuers must purchase to insure their obligations. This structure aligns with how central counterparties (CCPs) manage risk. The paper finds that this self-regulatory approach can improve financial stability more effectively than current legislative proposals, which often ignore the indirect impact of regulation on traditional financial institutions and lack key disciplining features. Notably, integrating stablecoin issuers under bank regulation may reduce banks' incentive to offer insured deposits, potentially increasing systemic risk.

Coinmetrics published a report that report that examines the stablecoin sector, now over $230 billion in total market cap, and break down the wide range of stablecoin types, reserve models, issuing entities, and blockchain networks facilitating their use. It maps the evolving stablecoin landscape, identify key use cases, and assess the opportunities and risks that lie ahead.