The Hidden Plumbing of Stablecoins: Financial and Technological Risks in the GENIUS Act Era

TL;DR

This paper analyzes the financial, technological, and regulatory risks of stablecoins under the GENIUS Act framework, emphasizing the need for integrated stability measures amid potential stress scenarios.

Contribution

It provides a comprehensive evaluation of risks associated with GENIUS-compliant stablecoins and proposes principles for ensuring stability across financial infrastructure and technology.

Findings

Stablecoins' stability depends on backing assets, market functioning, and operational reliability.

Stress scenarios include redemption surges, market bottlenecks, and technological disruptions.

Durable stability requires integrated financial, regulatory, and technological approaches.

Abstract

U.S. dollar stablecoins are increasingly used as payment and settlement instruments beyond cryptocurrency markets. With the enactment of the GENIUS Act in 2025, the United States established the first comprehensive federal framework governing their issuance, backing, and supervision. This paper evaluates the financial, technological, and regulatory risks that may arise as GENIUS-compliant stablecoins scale into mainstream use. We show that maintaining par-value redemption may depend not only on backing-asset quality, but also on the functioning of Treasury and repo markets, the balance-sheet capacity of broker-dealers, and the operational reliability of blockchain-based transaction rails. Even conservatively backed stablecoins can face stress from redemption surges, market-intermediation bottlenecks, or technological disruptions. We argue that durable stability will likely require an integrated approach spanning financial-market infrastructure, prudential regulation, and software governance. While grounded in U.S.\ law, the analysis identifies principles that are relevant for regulators in other jurisdictions developing stablecoin regimes.