Congestion Risks for Digital Dollars in New Stablecoin Framework

The GENIUS Act aims to regulate payment stablecoin issuers by requiring them to maintain reserves at least one-to-one in specified liquid assets. However, a recent Federal Reserve staff paper raises concerns about the potential for digital dollars to be vulnerable to sudden blockchain network 'bank runs.'

The paper models how transaction congestion can destabilize even a perfectly backed digital dollar. It finds that high fees can reduce use, making the token less attractive and giving holders a reason to leave. This can lead to coordinated and abrupt redemptions.

Researchers used an unbalanced weekly panel of five stablecoins from November 2017 through December 2025. They found that higher fees were associated with more net value moving from Ethereum to Tron, and that higher Ethereum fees coincided with cross-chain reallocation.

The findings support a conditional warning: congestion can create an exit incentive, but it does not predict that every user will leave. GENIUS protects the token, not every rail, by addressing important failure modes such as weak assets and poor operational controls. However, it leaves base-layer pricing and capacity outside its explicit stablecoin rules.