Stablecoin Regulatory Risks and Growth Potential: A Comparative Analysis with Traditional Digital Payment Systems

The stablecoin market has entered a new era of regulatory clarity in 2025, marked by the U.S. enactment of the GENIUS Act, according to Forbes on stablecoins. This legislation, signed into law by President Donald Trump on July 18, 2025, has redefined the risk landscape for stablecoins, positioning them as a legitimate alternative to traditional digital payment systems like credit cards and PayPal. For investors, understanding the interplay between regulatory frameworks and growth potential is critical to navigating this evolving sector.

Regulatory Frameworks: A Tale of Two Systems

The GENIUS Act establishes a federal licensing regime for "payment stablecoins," requiring them to be fully backed by high-quality liquid assets such as U.S. currency, insured deposits, or short-term Treasuries (≤93-day maturity). This mirrors the reserve requirements of traditional payment systems, which are governed by a patchwork of federal and state regulators, including the Consumer Financial Protection Bureau (CFPB), Financial Crimes Enforcement Network (FinCEN), and the Federal Reserve, as outlined in the GR4VY guide. However, the Act introduces a unique dual-state-federal licensing pathway, enabling fintechs to navigate a more flexible compliance environment compared to the rigid oversight of traditional systems.

In contrast, traditional digital payment providers face stringent non-governmental standards like the Payment Card Industry Data Security Standard (PCI DSS), which mandates robust encryption and fraud prevention protocols for credit card transactions. While these measures enhance security, they also create higher operational costs and slower innovation cycles. The GENIUS Act's emphasis on liquidity and solvency-ensuring stablecoins can be redeemed on a one-to-one basis-aligns with the core principles of traditional finance but streamlines compliance for digital-first players.

Risk Profiles: Depegging, AML, and Systemic Exposure

Stablecoins under the GENIUS Act are subject to anti-money laundering (AML) compliance programs and consumer protections, such as prioritizing stablecoin holders in insolvency events. This mirrors the claims processes of traditional financial systems but introduces new risks, such as depegging (when a stablecoin's value diverges from its peg) and redemption failures. For example, Singapore's regulatory framework for single-currency stablecoins mandates that at least 50% of reserves be held in cash or overnight deposits, a stricter liquidity requirement than the U.S. model, according to a Modern Treasury analysis. Such international benchmarks highlight the global concern over stablecoin systemic risks, which regulators are addressing through tailored reserve mandates.

Traditional payment systems, meanwhile, face well-established risks like data breaches and fraud. The PCI DSS framework, while effective, has been criticized for its inflexibility in addressing emerging threats like AI-driven synthetic identity fraud. The GENIUS Act's focus on real-time settlements and cross-border efficiency may mitigate some of these risks but introduces complexity in harmonizing with legacy systems.

Growth Potential: Innovation vs. Institutional Caution

The GENIUS Act has catalyzed institutional adoption of stablecoins, particularly in cross-border remittances and real-time settlements. By legitimizing stablecoins as a payment tool, the Act has spurred competition with central bank digital currencies (CBDCs) and traditional fintech platforms. For instance, banks and fintechs are leveraging stablecoins to reduce transaction costs and settlement times, a trend that could disrupt the dominance of credit card networks.

However, growth is not without hurdles. The U.S. regulatory environment for traditional payments remains fragmented, with overlapping mandates from the CFPB and FinCEN creating compliance challenges. Stablecoins, while benefiting from the GENIUS Act's clarity, must still navigate state-level variations in enforcement. Investors should monitor how federal-state coordination evolves, as inconsistencies could delay market expansion.

Conclusion: Balancing Innovation and Oversight

The GENIUS Act represents a pivotal shift in stablecoin regulation, offering a risk-managed framework that balances innovation with consumer safeguards. While traditional digital payment systems remain entrenched in their regulatory ecosystems, stablecoins are carving out a niche through speed, efficiency, and institutional backing. For investors, the key differentiator lies in the U.S. model's ability to harmonize federal and state oversight-a feature that could accelerate adoption but requires vigilance against systemic risks. As global regulators like Singapore and the UK refine their approaches, the stablecoin sector's growth trajectory will hinge on its capacity to adapt to evolving standards while maintaining the agility that distinguishes it from legacy systems.