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

2026-04-18

AI Summary

This study addresses the systemic risks posed by the large-scale adoption of stablecoins within mainstream financial systems, with a particular focus on the challenge of maintaining par-value redeemability. Building upon the GENIUS Act framework, the paper develops a multi-layered risk transmission model that integrates Treasury and repo market functions, broker-dealer balance sheet constraints, and on-chain governance mechanisms—synthesizing insights from financial intermediation theory, market microstructure, and blockchain operational logic. The analysis reveals that even prudently backed stablecoins remain vulnerable to destabilization through bank runs, market intermediary bottlenecks, or technological failures. In response, the study proposes a cross-domain coordinated regulatory framework, offering generalizable principles and policy guidance for global stablecoin oversight.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Reasoning under Uncertainty: Other Foundations of Reasoning under Uncertainty

Application Category

• Security and Privacy: Blockchains and distributed ledgers
• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Social Networks and Social Media: Generative AI / large language models and their impact on social systems

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.

Problem

• stablecoins
• financial risk
• technological risk
• regulatory risk
• GENIUS Act

Innovation

• stablecoins
• GENIUS Act
• blockchain infrastructure
• financial stability
• prudential regulation