Stablecoins After GENIUS and CLARITY
- SEDA Experts
- 6 days ago
- 8 min read
For most of their short history, dollar-denominated stablecoins occupied a regulatory grey zone.
They were treated as money transmitters, unregistered securities, deposit substitutes, or as something altogether novel. They were a bridge between the fiat world and speculative crypto tokens.
That ambiguity has now narrowed sharply. The passing of the GENIUS Act (July 2025) and the CLARITY Act negotiations (ongoing) constitute a dedicated federal framework for payment stablecoins, alongside market-structure legislation addressing the wider digital-asset perimeter. As a result, it has moved these instruments from the margins of financial regulation toward its centre.
That transition is significant in its own right.
It is also, predictably, a manufacturing process for disputes. Whenever a fast-growing market is brought inside a defined statutory perimeter, the gap between how participants behaved during the unregulated phase and how the new rules say they should have behaved becomes contested territory.
The structural features that allowed stablecoins to scale, including the composition of their reserves, the promise of redemption at par, the treatment of yield, and the custody of customer assets, are precisely the features most likely to generate litigation as the perimeter hardens. For disputes practitioners, the relevant question is no longer whether stablecoins are regulated, but where, within a now-defined framework, the fights will crystallize?
My perspective on this is shaped by having sat on both sides of the relevant ledger.
I have managed digital-asset portfolios, which gives a working familiarity with how reserves are actually constructed, attested and stressed; and I have served as treasurer of a listed bank, which is the vantage point from which the threat that stablecoins pose to deposit funding and net interest margin is most clearly understood.
Those two roles map onto the two halves of the analysis that follows.
Reserve Composition and the Redemption Promise
The defining commercial claim of a payment stablecoin is the promise of redemption at par.
One token, one dollar, on demand. The new federal framework codifies this expectation by prescribing what may sit behind the token: high-quality liquid assets such as cash, short-dated Treasury bills (93 days) and overnight reverse repurchase agreements, held on a fully backed basis, with regular attestation or audit of the reserve.
Prescription, however, does not eliminate disputes, it relocates them.
The first vector concerns reserve quality and the gap between what an attestation actually verifies and what investors and counterparties believed it verified. An attestation performed at a point in time, against management assertions, is a materially different instrument from a full audit, and the distinction is rarely understood by the holders relying on it.
In a stress event, the question of whether disclosures fairly described the reserve, its liquidity profile and the frequency and scope of verification will be litigated by precisely the parties who never read the methodology in calm conditions.
The second vector is the depeg event itself.
A stablecoin that trades below par, whether for minutes or for days, sets off a cascade of contested questions.
Was the deviation a market-liquidity artefact or evidence of genuine reserve impairment?
Did the issuer honour redemptions on the stated terms, or did it invoke gates, suspensions or discretionary mechanics buried in its terms of service?
Were some redeemers, typically the largest and best-advised, made whole while retail holders absorbed the loss?
Anyone who has managed a reserve book knows that the orderly liquidation of even high-quality short-dated assets is not frictionless when redemptions arrive faster than the portfolio can turn over.
That mismatch, familiar from money market fund history, is where the gap between the par promise and operational reality exists and will consequently be contested at tribunals.
These are not hypothetical concerns. The market has already seen significant stablecoins lose their peg, and the contractual and disclosure questions raised in those episodes will recur with greater force now that a statutory standard exists against which conduct can be measured.
The Yield Line and the Rewards Workaround
A more subtle but consequential fault line concerns yield.
The market-structure legislation draws a deliberate distinction between a payment stablecoin, which is not permitted to pay passive interest to holders for simply holding the token, and other arrangements that may.
The economic logic of the prohibition is straightforward. A token that is fully backed by interest-bearing reserves and also pays that interest through to holders begins to function as an uninsured, unregistered deposit or money market fund, which is the very characterization regulators have sought to avoid.
The line is therefore drawn at passivity: the issuer may earn the carry on the reserve, but the holder may not receive it merely for holding.
Predictably, the market has responded with structures designed to deliver economic benefit to active holders without crossing into prohibited passive yield.
Activity-based rewards, rebates funded from interchange or reserve income, points programs, affiliate yield products and tokens issued by a separate entity all sit along a spectrum, at one end of which the arrangement is clearly compliant and at the other end of which it is a passive-yield product wearing a disguise.
The disputes here will turn on characterization: does a rebate conditioned on transactional activity remain an activity-based reward, or does its practical operation make it a return on holding by another name? Were the marketing materials consistent with the legal structure, or did they promise holders a yield the structure was carefully drafted not to provide?
This is fertile ground precisely because the commercial incentive to approach the line is intense, and the line itself is defined by economic substance rather than form.
Deposit Migration and the Pressure on Bank Margins
The macro backdrop to all of this is a structural threat to the banking system that is widely acknowledged in treasury circles and less widely understood in legal ones.
A bank's profitability rests substantially on net interest margin (NIM), the spread between what it earns on assets and what it pays for funding. Cheap, sticky deposits, particularly non-interest-bearing transaction balances, are the cornerstone of that funding.
They are the franchise for many banks and the foundations of their profitability.
Standard Chartered has estimated that $500 billion of US bank deposits could be threatened by USD stablecoins by the end of 2028. Bank of America CEO Brian Moynihan stated that up to $6 trillion in U.S. commercial bank deposits could migrate into stablecoins under certain regulatory outcomes in a recent earnings call.
The estimates differ by an order of magnitude, and that spread is itself the point: no one knows how fast or how far balances will move, which is precisely what makes the disclosure question so live.
Having managed a bank balance sheet through the asset-liability committee, I can state the mechanism plainly: every dollar that migrates from a transaction account into a stablecoin is a dollar of low-cost funding the bank must replace at a higher marginal cost, typically through wholesale funding or higher-cost term deposits.
At modest volumes this is a curiosity. At scale it compresses margin, alters the liquidity profile of the deposit base, and forces a repricing of the entire funding stack. Meanwhile, the reserve assets backing the stablecoins concentrate into short-dated government securities, withdrawing balances from the banking system and depositing them, in effect, at the central bank and the Treasury.
This is not, in itself, a litigation event. But it shapes the disputes that follow in two ways.
First, as banks respond, whether by launching their own tokenised deposits, by partnering with issuers, or by treating stablecoin-related flows as a balance sheet risk to be managed, the disclosures they make to investors and regulators about deposit stability, funding concentration and the resilience of their net interest margin become testable. Where a bank understated the migration risk and margin subsequently compressed, the gap between disclosure and outcome is the stuff of securities and governance disputes.
Second, the counterparty relationships between banks and issuers, including reserve custody arrangements, operating accounts and the banking lines that issuers depend upon, are a new and largely untested category of commercial relationship, drafted at speed, and therefore a likely source of conflict when conditions turn.
Custody, Segregation and the Bankruptcy-Remoteness Question
If recent history offers one durable lesson about digital-asset failures (FTX, Celsius) it is that the decisive questions are rarely about price and almost always about custody.
When an intermediary fails, the holders' recovery depends on whether their assets were genuinely segregated and bankruptcy-remote, or whether they were commingled, rehypothecated or treated as general assets of the estate. The distinction between a customer with a proprietary claim to identifiable property and an unsecured creditor with a claim against a balance sheet is the difference between near-full recovery and cents on the dollar.
For stablecoins, the new framework's emphasis on full backing and reserve segregation is intended to place holders closer to the proprietary end of that spectrum. Whether it succeeds will be tested in insolvency. The contested questions are familiar to anyone who followed the major digital-asset bankruptcies:
Were reserve assets held in genuinely segregated, appropriately titled accounts, or were they pooled in ways that frustrate tracing?
Did the issuer's terms create a true custodial relationship or merely a contractual claim?
Where reserves were placed with sub-custodians or banking partners, does the holder's priority survive the chain?
These are not novel questions of law, but they are novel in this factual setting, and the answers will determine recoveries in the first significant stablecoin insolvency.
A Pattern that Repeats Across Jurisdiction
Although the US framework is the immediate catalyst, the disputes it foreshadows are not confined to American courts.
The European Union's markets-in-crypto-assets regime (MiCA), the United Kingdom's developing approach, Singapore's framework under the MAS, and the Australian regulators' treatment of stored-value and payment-token arrangements all wrestle with the same underlying tensions:
reserve quality
the par promise
the boundary between a payment instrument and a yield product
the custody of customer assets.
The labels differ; the structural fault lines do not.
A dispute over whether a rewards program is in substance a prohibited passive yield, or whether a depeg reflected reserve impairment, will look broadly similar whether it is argued in New York, London, Singapore or Sydney. For multinational issuers and the institutions that bank them, that consistency means a stress event in one jurisdiction will rarely stay contained there.
Conclusion
The arrival of a federal framework for stablecoins is being read, understandably, as a moment of legitimisation.
It is also a moment that creates a measurable standard against which past and present conduct can be judged, and that is what makes disputes inevitable.
The fights will cluster around the same structural features that allowed the market to grow: the quality and disclosure of reserves, the integrity of the par promise under stress, the boundary between permitted rewards and prohibited yield, the stability of bank funding as deposits migrate, and the custody and segregation of assets when an issuer fails.
None of these are exotic legal questions.
They are old questions about credit, liquidity, disclosure and custody, dressed in new instruments. The cases that turn on them will be won and lost not on the text alone, but on how well the parties, can explain what sophisticated market participants actually did, and reasonably should have done, as a once-unregulated market was brought inside the regulated perimeter.
The opinions, views, and statements expressed in this article are solely those of the individual authors and do not represent, reflect, or constitute the views or opinions of SEDA Experts.
EXPERT INVOLVED
Mark McKendry - Managing Director
Mark McKendry has over 25 years of global experience in capital markets, global treasury and digital assets. His areas of expertise include the trading of fixed income in the UK, Europe and Australasia. In addition, he has considerable experience in treasury risk management and bank governance.
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