The U.S. recently introduced two legislative proposals, the GENIUS Act and the STABLE Act, aimed at regulating stablecoins. These bills primarily focus on stablecoin issuers, setting clear guidelines on issuance, reserve backing, consumer protection measures, and regulatory oversight. While they do not directly regulate stablecoin users, their implications will shape how stablecoins function within the broader financial system.

Below, are the five key takeaways from the STABLE Act:

1. Payment stablecoins are NOT securities

One of the bill’s most significant contributions is providing a concrete definition of a “payment stablecoin”—a digital asset designed for payments and settlement that is pegged to a fixed monetary value and is not classified as a national currency or a security.

This distinction removes uncertainty for stablecoin issuers and users by ensuring that payment stablecoins are not treated as securities, which would be subject to SEC oversight and complicated compliance obligations. Instead, stablecoins will be subject to a well-defined regulatory framework, eliminating any form of rule-making by enforcement. This clarity fosters a more predictable regulatory environment, encouraging institutional adoption and investment in the stablecoin space.

2. Only regulated entities can issue stablecoins

The bill restricts stablecoin issuance to regulated entities, including subsidiaries of insured depository institutions (banks, credit unions), federally qualified nonbank issuers approved by federal regulators, and state-qualified issuers approved by state regulators.

By ensuring that only well-regulated entities can issue stablecoins, the bill reduces systemic risk by keeping unregulated or poorly capitalized issuers out of the market. It also raises the bar for stablecoin issuers, which could potentially result in foreign issuers losing access to the U.S. market if they fail to meet federal or state regulatory standards. While this creates higher compliance hurdles for new entrants, potentially limiting competition, it is ultimately good for consumer protection purposes as consumers will get access to high quality issuers with high standards of supervision.

3. Compliance costs will increase, but consumer protection strengthens

The bill emphasizes consumer protection through key provisions:

• Restricted Issuer Activities: Payment stablecoin issuers can only engage in issuance, redemption, reserve management, and custodial services—preventing them from high-risk activities like lending and reducing risks similar to those seen in FTX or Terra-Luna.

• 1:1 Reserve Backing: Issuers must maintain fully backed reserves in cash, central bank reserves, Treasury bills (90 days or less) and others stipulated in the Bill, ensuring stablecoins can be redeemed at par value and are not subject to any risky leveraging. This will keep the reserves liquid, reducing any risk of bank runs.

• Temporary Ban on Crypto-Backed Stablecoins: A two-year moratorium is placed on new issuances of "endogenously collateralized stablecoins"—those backed by digital assets created by the same originator. While the Bill seemingly acknowledges various types of stablecoins available in the market, payment and settlement stablecoins must strictly maintain the stipulated reserve types only. This protects consumers and prevents the re-occurrence of a Terra-Luna scenario.

• Transparency Requirements: Issuers must disclose redemption policies, publish monthly reserve reports audited by independent firms, and have executives certify these reports under penalty of law.

These safeguards will increase compliance costs for issuers but will boost market confidence by ensuring stablecoins maintain their value and preventing industry-wide crises.

4. Custodial risks remain despite regulatory oversight

The bill allows payment stablecoin issuers to provide custodial services but does not impose additional capital requirements on custodians. However, custodians cannot list customer stablecoin holdings as liabilities on their own balance sheets.

While preventing custodians from using stablecoins as liabilities reduces systemic risks, the bill does not explicitly require any stablecoins held in custody or safekeeping by the payment stablecoin issuers to be bankruptcy-remote. This means that in the event of issuer insolvency, consumers might face delays or losses in retrieving funds. While the easing of regulatory burdens on custodians is prudent, however it must be balanced with strict operational controls in place for any stablecoins held in custody or safekeeping by the payment stablecoin issuers to be bankruptcy-remote. Additionally, the rules on commingling funds remain unclear, creating potential risks for customers. Further clarification in this area would beneficial for both issuers and users.

5. Flexible but uncertain capital and liquidity requirements

The bill requires federal and state regulators to jointly determine capital and liquidity requirements for stablecoin issuers based on their capital structure, risk profile, complexity, and financial activities. This flexible approach prevents overly restrictive, one-size-fits-all regulation.

While a risk-based, case-by-case approach is beneficial as it enables more precise and proportionate regulation, it could also lead to inconsistencies, where similar issuers may be subject to different standards.

The lack of clearly defined capital, liquidity, and risk management rules creates uncertainty for issuers, potentially leading to misaligned expectations between the industry and regulators. Greater clarity in these requirements will be crucial to ensuring regulatory effectiveness while fostering market confidence.

Closing thoughts

This marks a significant step toward establishing clear regulations for stablecoins, reducing reliance on enforcement-based rulemaking and enhancing consumer protection.

However, compliance will come at a cost. Issuers will face higher operational and regulatory expenses through increased capital requirements, enhanced reserve management, and stricter reporting obligations. These changes may lead to market consolidation, favoring well-capitalized firms and potentially limiting competition.

Despite these regulatory burdens, the new standards enhance consumer and investor confidence, paving the way for greater mainstream adoption and institutional participation. A well-regulated stablecoin market could drive innovation and financial stability, though striking the right balance between oversight and growth remains crucial.

The framework still needs further clarity on capital, liquidity, and custody regulations, especially for issuers offering custodial services. As the regulatory landscape evolves, collaboration between policymakers, industry leaders, and stakeholders will be essential to refine these regulations in a way that protects consumers, fosters innovation, and supports long-term growth in the digital asset economy.