The GENIUS Act is a landmark moment for stablecoin regulation in the US and introduces a step forward in bringing private digital dollars into the regulated financial system. But now comes the hard part: regulators from agencies like the Fed, Treasury, OCC and FinCEN will need to work together to decide how these rules get implemented, are enforced and are evolved.

Stablecoin issuers hold a significant amount of US Treasury securities, which is a conventionally conservative strategy. But even the Treasury markets can be susceptible to strain, and if stablecoins grow large enough, a run could cause these markets to seize. Regulators and policymakers are going to have to face the question of whether stablecoin issuers will have access to the Fed Discount Window, and if not, what if any structural safeguards are needed to protect the US Treasury market?

Stablecoins are an extension of today’s monetary system and share many attributes with legacy finance. However, a nuanced analysis reveals crucial differences in financial and technical vulnerabilities. In our latest post from the MIT DCI, we explore some of these differences.

The Crucial Promise

Stablecoin issuers offer a simple proposition: send one dollar to the stablecoin issuer in exchange for a digital token that represents that dollar on a blockchain. That stablecoin, for example, can be used as a payment tool or a store of value, and the issuer promises to redeem it for a dollar later. This simple promise of 1:1 redemption, known as par-value exchange, is more complicated than many realize and depends on a series of assumptions.