Reassessing Stablecoin Risk in the Post-Coinbase Era

The U.S. stablecoin market has undergone a seismic shift since the enactment of the GENIUS Act in July 2025, a legislative response to the regulatory uncertainty and operational risks exposed by the Coinbase crisis. This law, formally titled the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025, has redefined the landscape for stablecoin issuance, reserves, and oversight. For investors evaluating stablecoins as a deposit alternative, the post-GENIUS Act environment demands a nuanced reassessment of risk and resilience.

Regulatory Clarity and Structural Reforms

The GENIUS Act mandates that stablecoin issuers maintain 1:1 reserves in high-quality liquid assets such as U.S. Treasuries, deposits, or repurchase agreements, with public reporting and independent auditsHow will the GENIUS Act work in the US and impact the…^[1]. This framework restricts issuance to subsidiaries of insured depository institutions, OCC-approved entities, or state-certified regimes, effectively excluding non-financial firms unless they secure unanimous approval from the Stablecoin Certification Review Committee (SCRC)The GENIUS Act: A Comprehensive Guide to US Stablecoin Regulation^[2]. These measures aim to mitigate the risks of insolvency and liquidity crises that plagued earlier stablecoin models, such as the Terra UST collapse in 2022Stablecoins Are Growing Rapidly. What Does This Mean for the Stability of the Financial System?^[3].

The Act also introduces a dual-track system: issuers with less than $10 billion in stablecoin issuance may operate under state regimes deemed "substantially similar" to federal standards, while larger entities face federal oversight within 360 daysThe GENIUS Act Becomes Law: Key Provisions from the Federal…^[4]. This bifurcation balances innovation with systemic stability, as seen in the rapid entry of traditional financial institutions like Bank of America and Citigroup into the stablecoin spaceUS Establishes First Federal Regulatory Framework…^[5].

Market Response and Performance Metrics

Post-GENIUS Act, the U.S. stablecoin market cap surged to $268.585 billion by August 2025, a $4 billion increase in the first week aloneStablecoin Market Booms Post-GENIUS Act with Mixed Outcomes…^[6]. Falcon Finance's USDf stablecoin exemplifies this growth, with a 121% supply increase and a market cap of $1.175 billion. However, not all stablecoins have thrived. World Liberty Financial's USD1 and BlackRock's BUIDL saw declines, reflecting market fragmentation and the challenges of competing with established players like Tether's USDT ($164.66 billion) and Circle's USDC ($63.68 billion)Stablecoin Market Booms Post-GENIUS Act with Mixed Outcomes…^[6].

Regulatory clarity has also spurred global competition. The European Union's MiCA framework and Hong Kong's Stablecoin Ordinance mirror U.S. efforts, while China's renminbi-backed stablecoin initiatives highlight the geopolitical stakesGENIUS Act: A New Era For Stablecoin Innovation^[7]. Yet, as noted by Professor Barry Eichengreen, the risk of a "rush to redeem" stablecoins during market stress remains, underscoring the need for global coordinationHow will the GENIUS Act work in the US and impact the…^[1].

Resilience Under Stress: A Dual-Edged Sword

The GENIUS Act's reserve requirements and liquidity safeguards are designed to enhance stablecoin resilience. For instance, the Act prioritizes stablecoin holders' claims in insolvency proceedings, a critical consumer protection measureStablecoins and the Genius Act: What you need to know^[8]. However, experts caution that the reliance on short-dated U.S. Treasuries could amplify liquidity shocks in thin markets. Historical case studies, such as the 2019 repo-rate spike and the 2014 "flash rally," demonstrate how sudden demand for Treasuries could force stablecoin issuers into fire sales, exacerbating market volatilityStablecoin Liquidity Risk Under the GENIUS Act: An Institutional…^[9].

Moreover, the Act's exclusion of prudential liquidity buffers—such as those applied to traditional banks—raises parallels to the 2008 financial crisis, where regulatory carve-outs contributed to systemic failuresStablecoin Liquidity Risk Under the GENIUS Act: An Institutional…^[9]. While stablecoins now function as a "digital Treasury," their role in amplifying or buffering stress depends on adoption rates and institutional frameworks. For example, during bank stress scenarios, stablecoins could either absorb liquidity drains or exacerbate them by redirecting funds away from traditional lending channelsStablecoins in Bank Stress Scenarios: Amplify or Buffer Stress?^[10].

Expert Evaluations and Regulatory Challenges

Despite the Act's progress, challenges persist. Smaller issuers face disproportionate compliance costs, prompting some to relocate operations overseasGENIUS Act & Stablecoins: A 2025 Impact Review^[11]. Additionally, state-level initiatives, such as Wyoming's Frontier Stable Token (FRNT), highlight the tension between federal preemption and local innovationGENIUS Act Stablecoin Regulation: Federal vs. State Divide^[12]. The SCRC's role in certifying state regimes as "substantially similar" will be pivotal in maintaining uniformityGENIUS Act Stablecoin Regulation: Federal vs. State Divide^[12].

Globally, the Act's impact is mixed. While it positions the U.S. as a leader in stablecoin regulation, concerns about dollarization and regulatory arbitrage persist. Chinese and European officials have raised alarms about the potential erosion of monetary autonomy, emphasizing the need for international AML/CFT standardsHow will the GENIUS Act work in the US and impact the…^[1].

Investment Implications

For investors, the post-GENIUS Act era presents both opportunities and risks. The Act's emphasis on transparency and reserve adequacy has bolstered confidence in major stablecoins, making them viable short-term deposit alternatives. However, the market's concentration in a few dominant players—Tether, Circle, and emerging entrants like USDf—raises concerns about systemic fragility. Diversification across issuers and asset classes remains prudent.

Long-term, the success of stablecoins as a deposit alternative hinges on global regulatory alignment and the resolution of liquidity risks. Investors should monitor the SCRC's certification process, the Fed's response to stablecoin-driven liquidity shifts, and international efforts to harmonize standards.

Conclusion

The GENIUS Act has transformed the U.S. stablecoin market, offering a blueprint for balancing innovation with stability. Yet, the path forward is fraught with challenges, from liquidity vulnerabilities to geopolitical tensions. For stablecoins to truly rival traditional deposits, regulators and market participants must address these risks through continuous oversight and international collaboration. In this evolving landscape, investors must remain vigilant, leveraging the Act's safeguards while hedging against its unanticipated consequences.