What Is Stablecoin?

In July of this year, Congress passed the GENIUS Act, which created the first comprehensive regulatory framework for Stablecoins, a type of Cryptocurrency backed by U.S. Dollars.  Historically, cryptocurrencies have been incredibly volatile, which can be attractive if you are a speculative investor looking to make a quick buck, but terrible if you are a typical investor wanting to use cryptocurrency to pay bills or keep your money safe. In contrast, Stablecoins are a type of cryptocurrency tied to US Dollars which makes them much more practical to use. Stablecoins have existed for years, but the GENIUS Act has given legitimacy and structure to a corner of crypto that was long operating in regulatory gray space. By defining what a Stablecoin is, how it must be backed, and who can issue one, the GENIUS Act creates greater confidence in the Stablecoin market. At the same time, this new clarity is creating short-term uncertainty and volatility across the broader crypto market.  Since the introduction of the GENIUS Act, Bitcoin is down more than 30%. It is important to say this upfront: we are not cryptocurrency investors at Cedarstone Advisors, and the recent market turbulence is one of the reasons we encourage great caution when approaching this space. Having said that, many of you ask about cryptocurrencies.  Here is a quick primer on what Stablecoin is and why it may be a significant disruption to the Cryptocurrency world.

What Makes Stablecoins Different from Bitcoin?

Bitcoin is a speculative asset whose price moves based on supply, demand, and market psychology. For some investors, that volatility is the appeal. But for anyone looking for stability, predictability, or a reliable medium of exchange, Bitcoin’s price swings make it a difficult tool. What is the fair value of a Bitcoin?  Nobody knows! The price is purely driven by market mood. It is not a stable asset.

Stablecoins exist to solve that problem. They are designed to maintain a stable value, typically pegged one-to-one to the U.S. dollar. To achieve that, issuers hold reserves such as actual dollars, short-term Treasuries, or similar high-quality liquid assets. This structure makes Stablecoins far more practical for payments, cross-border transfers, or moving between digital assets without taking on price risk.

How the GENIUS Act Defines Stablecoins

The “Guiding and Establishing National Innovation for U.S. Stablecoins” (GENIUS) Act sets the rules for what the law calls “payment stablecoins.” In summary the GENIUS Act requires Stablecoins to meet these requirements:

1. 1:1 Reserve Requirements

   Stablecoins must be backed by cash or very liquid, low-risk assets. No algorithmic or unbacked models qualify.

2. Regular Reporting

   Monthly reserve disclosures and periodic audits ensure transparency and prevent the kinds of failures we’ve seen in past crypto collapses.

3. Clear Consumer Protections

   Issuers cannot imply that coins are FDIC-insured or government-guaranteed.
   

4. Regulatory Oversight

   Large issuers fall under federal supervision; smaller issuers can operate under qualified state regimes.
   

5. Priority for Holders in Bankruptcy

   Stablecoin holders have priority claims if an issuer fails — a critical safeguard.
   

6. AML and KYC Rules

   Issuers must follow anti-money-laundering and sanctions requirements just like traditional financial institutions.

With this list of requirements, the GENIUS Act reduces the risks of investing in Stablecoins, making them more predictable and regulated. In addition, the rise of Stablecoins could increase demand for US dollars and US Treasuries.

How Stablecoins May Impact the Broader Crypto Market

Many cryptocurrency fans say that cryptocurrency is the future. They picture a world where traditional banks are obsolete and all or most transactions are handled through transfer of funds on Cryptocurrency exchanges.  It is hard to imagine Cryptocurrencies achieving that goal without significant changes.  Could Stablecoins be the answer? Potentially, Because Stablecoins are, as the name implies, more stable, Stablecoins could eventually become the backbone of digital payments and institutional blockchain use. Clear regulation invites more responsible players into the space, and over time, that could make cryptocurrency use more maintstream.

However, in the short term, the GENIUS Act has also created more volatility, particularly for tokens and platforms that may not meet the new standards. Markets are adjusting. Some issuers may struggle to comply. Others may consolidate or exit entirely. Market leader Bitcoin is down more than 30% since the GENIUS Act was passed. The drop could be at least partially due to the introduction of Stablecoins as a competitor. 

This is exactly why, at Cedarstone, we stick to traditional markets. The promise of digital innovation is exciting, but the risks — from regulatory shifts to technological failures — are real and often underappreciated.

Bottom line

Stablecoins are emerging as regulated digital dollars, and the GENIUS Act is accelerating that shift. These regulatory changes are disrupting the Cryptocurrency world and introducing more volatility. As always, be careful, stay informed, and remember that not every financial innovation is an appropriate investment.