Stablecoin Risk and Regulatory Scrutiny in the Post-TrueUSD Era: Assessing Long-Term Viability Amid Legal and Transparency Challenges

The collapse of TrueUSD's reserve transparency in 2023 ignited a global reckoning for stablecoins, exposing vulnerabilities in their foundational promise: 1:1 pegging to fiat assets. In the aftermath, regulators have moved swiftly to impose stringent frameworks, with the U.S. GENIUS Act of 2025 and parallel international efforts reshaping the landscape. Yet, as these rules take hold, the question remains: Can stablecoin-backed assets survive the scrutiny of legal uncertainty and the technical challenges of reserve transparency?

The GENIUS Act: A New Era of Federal Oversight

The U.S. GENIUS Act, enacted in July 2025, represents the most comprehensive federal regulation of stablecoins to date. It mandates that every stablecoin be fully backed by permissible assets such as U.S. dollars, short-term Treasuries, or government-issued securities, with reserves audited annually and monthly reports published, according to a LW analysis. The law also prohibits interest payments to holders and establishes a dual regulatory system: federal oversight via the OCC and Federal Reserve for large issuers, and state-level options for smaller entities (those with less than $10 billion in outstanding stablecoins) if their state regimes align with federal standards, according to the same LW analysis.

This framework aims to mitigate risks like the TrueUSD debacle, where misappropriation of reserves led to a $456 million asset freeze by Dubai's Digital Economy Court, as reported by Decrypt. However, critics argue the Act's leniency toward "crypto banks" could leave gaps. Senator Elizabeth Warren has warned that the law's focus on innovation might undermine financial stability, particularly if stablecoin issuers fail to insulate their operations from broader market risks, according to a Coinpaper report.

Global Convergence and Divergence

While the U.S. has taken a leading role, other jurisdictions are aligning with or diverging from its approach. Hong Kong's Hong Kong Monetary Authority (HKMA) has proposed licensing requirements for stablecoin issuers, mandating local incorporation and high-quality reserve assets, as reported by Benzinga. Meanwhile, the EU's Markets in Crypto-Assets (MiCA) regulation, which shares similarities with the GENIUS Act, allows for a more flexible framework where e-money tokens can transition to pan-European supervision as they scale, according to a WEF report.

This global patchwork creates both opportunities and risks. The Financial Stability Board (FSB) has flagged significant gaps in cross-border implementation, warning that inconsistent rules could enable regulatory arbitrage and destabilize the financial system, as reported by the FSB. For instance, Tether, which holds $98.5 billion in U.S. Treasury bills as of Q1 2025, according to a Coinlaw report, faces pressure to adopt full external audits-a requirement under the GENIUS Act but not universally enforced elsewhere.

Case Studies: Transparency in Practice

The GENIUS Act's impact is already visible in the actions of major stablecoin issuers. Circle, which operates USDC, has embraced the law's transparency mandates, publishing detailed reserve reports and advocating for global regulatory alignment, according to a Business Times report. By contrast, Tether has lagged, negotiating with a Big Four accounting firm for a full audit but delaying implementation, according to a Coinlaw report. TrueUSD, meanwhile, has adopted real-time proof-of-reserves dashboards, leveraging on-chain tools to rebuild trust after its 2023 crisis, according to the same Coinlaw report.

Yet challenges persist. A 2025 BPInsights report notes that even fully backed stablecoins can lose value due to liquidity risks, while DeFi platforms using stablecoins for lending face bank-like vulnerabilities, such as the absence of deposit insurance, according to the BPInsights report. These systemic risks underscore the limitations of regulatory frameworks that focus narrowly on reserves without addressing broader financial stability concerns.

The Road Ahead: Innovation vs. Oversight

The debate over stablecoins now hinges on balancing innovation with oversight. Andreessen Horowitz (a16z) has proposed integrating privacy-preserving technologies like zero-knowledge proofs (ZKPs) to modernize AML and KYC frameworks, arguing that such tools could enhance compliance without sacrificing user privacy, according to a Coinpaper report. Conversely, Coinbase has urged regulators to narrow the GENIUS Act's scope to avoid stifling open protocols and early-stage innovation, according to the same Coinpaper report.

The U.S. Treasury's Advanced Notice of Proposed Rulemaking (ANPRM) in September 2025 reflects this tension, seeking input on issues ranging from reserve definitions to the extraterritorial application of the Act, as reported by DWT. With comments due by October 20, 2025, the final rules will likely shape the next decade of stablecoin development.

Conclusion: A Fragile Equilibrium

The post-TrueUSD era has ushered in an era of heightened scrutiny for stablecoins, with regulators prioritizing transparency and stability. While the GENIUS Act and similar frameworks have made progress in standardizing reserve requirements, gaps in enforcement and cross-border coordination remain. For stablecoin-backed assets to thrive long-term, stakeholders must address not only the technical challenges of transparency but also the systemic risks inherent in their design. As the FSB warns, the path forward demands not just regulation, but a reimagining of how digital money integrates with the broader financial ecosystem, as reported by the FSB.