Payment stablecoins were designed to function as a means of payment. But when they begin to be used at scale to store value and intermediate liquidity, they take on functions that resemble so-called shadow banking, the "parallel banking system": arrangements that look like deposits and credit but operate outside traditional banking regulation.
What the GENIUS Act provides
- Sets capital, liquidity and risk management standards for authorized issuers.
- Requires asset segregation and auditable reporting, reducing insolvency risk.
- Prohibits the rehypothecation of collateral, ensuring the full availability of reserve assets for redemptions.
Why does this matter?
- Without prudential requirements, stablecoins may play a role similar to that of demand deposits, but without the protection of the traditional banking system.
- On a global scale, there is a risk of liquidity concentrating in a few issuers, amplifying the effects of crises of confidence (runs).
- Stablecoins are already being tested in practice for international settlement, such as Visa's pilot project with USDC, showing that part of global liquidity already circulates outside bank intermediation.
Regulatory agenda
- Define minimum capital and liquidity levels for issuers.
- Strengthen international coordination, since the use of stablecoins is global.
- Balance innovation and stability, avoiding both systemic fragility and excessive restrictions that would stifle new payment models.
In short: by imposing prudential requirements, the GENIUS Act recognizes that stablecoins, although created as a means of payment, may generate risks typical of shadow banking. The regulatory challenge is to prevent this innovation from becoming a source of instability for the global financial system.
This is the last post in the series on the GENIUS Act and its implications for the international regulatory debate.
