2025 Regulatory Summit

Key Payment Stablecoin (“PSC”) Risks

R I SKS

DESCRIPTION

IMPLICATIONS

Customer Misunderstanding

PSCs are not bank deposits, lack FDIC insurance, & are not government guaranteed

Can lead to confusion, loss of trust and regulatory scrutiny.

PSC value depends on reserve assets. If reserves lose value or are concentrated, the token may drop below its intended peg.

De-Pegging Risk

Can trigger volatility and undermine confidence.

Liquidity and Redemption Risk

Mass redemptions may force rapid asset sales, causing delays or losses.

Threatens PSC stability and market trust.

Counterparty depository fails; asset custodian is hacked or has material operational snafu and losses.

Counterparty Risk

Stresses the need for reliable partners.

Issuer income depends on reserve yields. Rate changes (e.g., zero rate environment) can reduce earnings or cause losses

Interest Rate Risk

Affects profitability and PSC stability.

Minting/Burning Operational Errors

Operational mistakes can create or destroy incorrect PSC amounts.

May result in financial loss or regulatory issues.

Fraud and Misconduct

Risk of theft, misappropriation, or manipulation.

Leads to legal and reputational damage.

FX Risk

Currency fluctuations impact PSC value in international use.

Users and issuers may face unexpected gains or losses.

Network Congestion

High transaction volumes can slow the blockchain.

Reduces efficiency and user experience.

Operational Risks (Cybersecurity & Data Protection) AML/BSA Regulatory Compliance

System breaches or cyberattacks can disrupt PSC operations.

Results in financial loss and regulatory penalties.

Issuers must follow anti-money laundering and Bank Secrecy Act rules

Non-compliance leads to fines and legal action.

3

The “GENIUS” framework outlines proposed regulatory protections for PSCs, aiming to enhance safety, transparency, and consumer trust. GENIUS Act Framework

GENIUS “PROTECTIONS”

DESCRIPTION

Requires 1:1 reserve asset backing by short-term liquid assets like U.S. dollars; demand deposits at insured depositories; Federal Reserve Deposits; Treasuries with a maturity < 93 days; certain repos backed by T-bills or reverse repos; money market funds invested in approved assets Issuers must hold additional capital beyond 1:1 asset backing, plus liquidity requirements (details to be determined)

Reserve Asset Backing

Capital & Liquidity Requirements

Asset Pledge

Issuers are prohibited from pledging or hypothecating of assets

Bankruptcy

Provides PSC holder US bankruptcy preference/priority

Reserve Disclosure

Requires monthly disclosures of reserves (subject to criminal penalties)

Redemption

Requires timely redemption of PSCs

Prohibits misleading marketing about government backing or insurance, restricts the use of consumer transaction data for advertising

Marketing and Data Use Restrictions

Leadership Requirements

Prohibits “bad people” (fraud, financial crimes) from leading PSC issuers

Prohibits PSC issuer from paying interest or yield ( decreases customer confusion with insured bank deposits?) Does not prevent payment of rewards/incentives by partners

Yield Payment Prohibition

Restrictions on Issuers

Prohibits direct issuance by public commercial companies (Amazon, Starbucks, Walmart etc.)