Stablecoin Reserve Requirements Crack Down on Unstable Assets

The concept of stablecoins has been around for a while, but regulatory frameworks have only recently been put in place to ensure their stability.

A stablecoin is a digital asset pegged to another asset, like the US dollar. Its value is supposed to remain steady, not fluctuate like other cryptocurrencies.

To maintain this stability, issuers must hold reserves that back every token they put into circulation. The GENIUS Act in the United States and the MiCA regulation in the European Union set out rules for these reserve requirements.

In both jurisdictions, reserves must contain a 1:1 backing of low-risk, liquid assets like bank deposits, short-term Treasury bills, and government money market funds. These assets are held separately from corporate funds and their composition is publicly reported on a regular basis.