Source: Chainlink Oracle
Original link: https://mp.weixin.qq.com/s/g69ZAGYBTd17aqrNUZNWZQ
Key Points
This quarter, we will discuss two new legislative proposals targeting payment stablecoins - the GENIUS Act and the STABLE Act.
These bills prohibit stablecoin issuers from paying yields to holders, so holders will need to earn returns through other means, such as DeFi lending markets - Chainlink’s CDY index can play a key role in tracking yields.
The GENIUS Act sets out specific reserve requirements for stablecoin issuers and may allow issuers to use tokenized assets as reserves. Services such as Chainlink’s Proof of Reserve, Data Feeds, and the Cross-Chain Interoperability Protocol (CCIP) can provide important value here.
To help stablecoin holders navigate potential solvency crises, Chainlink Proof of Reserves can provide valuable capital structure data.
The GENIUS Act emphasizes the interoperability standards of stablecoins. Chainlink CCIP can achieve secure cross-chain transmission of tokens and data, helping issuers meet future regulatory requirements.
introduction
In the first quarter of 2024, geopolitical tensions and potential macroeconomic changes led to increased volatility in global markets. While traditional financial markets are still dealing with this uncertainty, stablecoins have become the focus of issuers, users, protocol parties and even legislatures. With the support of the world's largest economy, the US dollar has become the first choice for stablecoin reserve assets - which also explains why USDT and USDC can dominate with market capitalizations of $140 billion and $60 billion respectively. As a core element of decentralized finance (DeFi), stablecoins not only provide a source of liquidity and a hedging tool for market volatility, but also become the pricing basis for almost all major digital assets.
Given these features of stablecoins, if decentralized finance develops to the scale of traditional finance, while digital assets are still denominated in US dollars and US dollar stablecoins continue to dominate the DeFi field, the radiating effect of its influence on the US economy, currency, and politics will be immeasurable. To ensure that stablecoins are in the interests of the United States, US lawmakers are working to build a potential stablecoin regulatory framework, which will have a profound impact on stablecoin issuers, users, DeFi protocols, and even traditional financial institutions. In this process, Chainlink creates important value for all participants with the following four core capabilities: 1) Time-tested and industry-leading Data Feeds; 2) Proof of Reserve ; 3) Cross-Chain Interoperability Protocol (CCIP) ; 4) Chainlink CDY Index. Although the specific evolution path of the financial market is still difficult to predict, under the increasingly clear regulatory framework, Chainlink will help stablecoins maintain reliability, transparency, interoperability, and compliance.
Definition of Payment Stablecoin
The two pending bills, the GENIUS Act and the STABLE Act, establish a regulatory framework for payment stablecoins, which may have a significant impact on traditional finance and decentralized finance systems. To understand this impact, we first need to examine the definition of payment stablecoins in the bills.
In short, both bills define payment stablecoins as tokens that are backed by fiat currency, maintain a fixed value, and do not promise any income or returns. As the name suggests, payment stablecoins are intended to be used as payment or settlement tools. Below we will present the definitions of payment stablecoins in the two bills respectively, and focus on comparing their differences.
(Note: The GENIUS Act analyzed in this article is based on the draft version advanced by the Senate Banking Committee in March 2025, while the STABLE Act uses the version submitted to the House of Representatives on May 6, 2025. Both are for analysis purposes only and should not be considered final.)
The GENIUS Act defines "payment stablecoins" as follows:
(Some content has been deleted; the bold parts are the key differences from the STABLE Act)
Definition of "payment stablecoin":
(A) means a digital asset that meets the following criteria:
(i) is currently or is designed to be used as a means of payment or settlement; and
(ii) Its issuer must meet the following requirements:
(I) is obligated to be exchanged, redeemed or repurchased for a fixed amount of monetary value (excluding digital assets denominated in a fixed amount of monetary value); or
(II) states that it will maintain (or produce the appearance that it will maintain) a stable value relative to the value of a fixed amount of money; or…
(B) At the same time:
(i) non-national currencies;
(ii) non-deposits (including deposits recorded using distributed ledger technology);
(iii) does not provide for the payment of income or interest;
(iv) is not a security . . . unless it is a bond, note, debt instrument, or investment contract that meets the requirements of clause (A).
The STABLE Act specifically emphasizes in its definition:
"Payment Stablecoin" means (B) a digital asset denominated in a national currency
It is worth noting that although the GENIUS Act does not directly mention "national currency" in its definition, it interprets "currency value" as "national currency or deposits denominated in national currency" in other provisions.
Stablecoin Return Terms
Both bills explicitly prohibit issuers from paying returns to holders. The GENIUS Act directly stipulates in the definition of stablecoins:
“Payment stablecoins… do not provide yield or interest payments; and… are not securities”
Although the STABLE Act does not mention returns in the definition clause, it explicitly prohibits the payment of returns to holders in subsequent chapters:
“Prohibition on Yields—Licensed payment stablecoin issuers may not pay interest or yield to stablecoin holders”
This means that if any bill is passed as currently written, stablecoin holders will not be able to earn returns directly from the issuer and will have to realize asset appreciation through other means. The DeFi lending market, with its breadth, depth, activity, liquidity, and transparency, provides asset holders with an on-chain channel to earn returns by injecting tokens into lending pools. Currently, tens of billions of dollars of fiat-collateralized stablecoins are generating returns in DeFi lending protocols. As the DeFi ecosystem becomes increasingly fragmented, it will be significantly more difficult to track the lending yield of a specific token across the entire market. Our CDY Indices index provides a solution to this problem by monitoring the majority of the funding pools of the total locked value (TVL) of each token in DeFi lending protocols.
Image source: cdy.chain.link
Traditionally, U.S. banks and brokers do not automatically move clients’ uninvested cash into interest-bearing instruments and return the proceeds to clients, requiring clients to opt-in to these programs. Recently, stock brokerages have begun competing by offering cash management programs, some even with auto-enrollment options (such as Fidelity’s Cash Management Account). In this model, brokers move clients’ uninvested cash into money markets and return the proceeds (after fees) to clients. With the launch of the Chainlink CDY Index, DeFi markets and cryptocurrency exchanges can easily replicate this model, providing clients with yield on their stablecoin and other non-interest-bearing digital asset holdings.
DeFi lending yields fluctuate widely and are not necessarily correlated with U.S. Treasury yields; in fact, these yields can sometimes be several times higher than Treasury yields. The CDY index can achieve the following functions: 1) Allow users to seize opportunities that were originally opaque; 2) Help DeFi protocols set competitive lending rates; 3) Allow financial institutions to earn returns for customer assets; 4) Allow brokers to complete transaction settlements based on credible lending rates; 5) Provide a benchmark return standard for investment managers. The figure below shows the comparison of the CDY-USDC and CDY-USDT indices with U.S. Treasury yields (1-month, 10-year) over the past two quarters.
Image source: cdy.chain.link, US Treasury
During market downturns, borrowing yields tend to fall as many borrowing positions face liquidation risk (especially those borrowing stablecoins with crypto-native assets as collateral) and user risk appetite decreases. Such market downturns and liquidations lead to a decline in the usage of borrowing tokens, which in turn drives down their borrowing yields - this was the case in the first quarter of this year.
According to the data panel, Aave v3 on the Ethereum mainnet experienced several large-scale liquidations this quarter, including $169 million in debt liquidated when the cryptocurrency market fell on February 3 (of which $122 million was USDC and USDT). It is worth noting that the lending supply of stablecoins remained basically flat this quarter, indicating that the supply side remains confident in the robustness of stablecoins and lending protocols.
The chart below shows the USDT borrowing utilization (blue) versus supply (red) for Aave v3 on the Ethereum mainnet. The dashed horizontal line represents the optimal utilization level for USDT on the protocol.
Image source: Aave v3
Requirements for stablecoin issuers
The proposed requirements for stablecoin issuers in both bills are fairly comprehensive. This article will review the requirements set out in Section 4 of the GENIUS Act and explore where the Chainlink ecosystem can provide support.
Let’s look at the first section first (the bold text is the key points):
(1) General provisions:
Issuers approved to issue payment stablecoins should:
(A) Maintain full reserve backing of issued Stablecoins in a ratio of at least 1:1, with such reserves consisting of the following assets:
(i) United States legal tender (including Federal Reserve Notes), or funds held in accounts at a Federal Reserve Bank;
(ii) funds on demand deposit or in an insured savings account held with an insured depository institution;
(iii) Treasury bills, medium-term notes, or bonds issued by the United States Treasury;
(iv) Repurchase Agreement: An overnight repurchase agreement where the issuer acts as the seller and is collateralized by Treasury bills with a maturity of less than 93 days;
(v) Reverse repurchase agreement: the issuer acts as the buyer, overnight, and uses government bonds as collateral;
(vi) securities issued by money market funds whose underlying assets consist only of the assets listed in clauses 1 to 4 above;
(vii) other highly liquid assets issued by the federal government and approved by the primary federal payments stablecoin regulator;
(viii) tokenized forms of the reserve assets listed in Sections 1 to 7, provided that such tokenized assets comply with all applicable legal and regulatory requirements.
Chainlink’s Proof of Reserve can verify and disclose whether any of the above assets are used as reserve assets for stablecoins. The most noteworthy of these is Article 8, which indicates that the tokenized versions of these assets can also be considered compliant reserve assets. In this case, Chainlink can provide value in at least three aspects:
Data Feeds: Chainlink already provides price data for major stablecoins (aka “tokenized cash”) and has the infrastructure to provide high-quality data for other eligible tokenized assets.
Proof of Reserve: Like stablecoins, Chainlink’s Proof of Reserve can verify the reserves of these tokenized assets;
Cross-Chain Interoperability (CCIP): Chainlink’s CCIP can be used to distribute and synchronize verification information of these reserve assets across multiple blockchains.
The following chapters mention monthly certification and audit requirements:
(3) Monthly certification; audit report from a certified public accounting firm:
(A) …an approved stablecoin issuer shall have reviewed monthly by a registered public accounting firm the information disclosed by the issuer as of the end of the previous month (such information being the result of the requirements of section (1)(D)).
Section (1)(D) requires the following:
(D) The issuer shall publish a monthly reserve composition report on its official website, including:
(i) the total amount of payment stablecoins currently issued;
(ii) the amount and composition of reserve assets (as defined in clause (A)).
These provisions provide the basic information necessary to trust stablecoins. If the bill passes and these monthly reviews become mandatory, on-chain users will benefit from Chainlink’s Proof of Reserves mechanism, which is able to verify and provide on-chain:
The current number of issued stablecoins;
The amount and composition of reserve assets.
Chainlink Proof of Reserves enables smart contracts to access this data, accurately calculating the true collateralization ratio of any on-chain asset backed by off-chain or cross-chain reserves.
It is not yet clear whether issuers must disclose their capital levels and duration risk, but if this data becomes public information, Chainlink's reserve proof mechanism can also publish this information on the chain and meet compliance inspection requirements.
The bill also sets out capital and liquidity requirements:
(4) Capital, liquidity and risk management requirements—
(A) … the lead Federal payments stablecoin regulator, or, in the case of a State-approved payments stablecoin issuer, jointly with that State payments stablecoin regulator, shall issue—
(i) Capital requirements applicable to issuers of licensed payment stablecoins…
(ii) regulations implementing the liquidity standards specified in clause (i);
(iii) Reserve asset diversification and interest rate risk management standards…
(iv) appropriate operational, compliance, and information technology risk management standards, including Bank Secrecy Act and sanctions compliance requirements.
While it is not yet clear whether issuers will be required to disclose their capital levels and interest rate duration risk, if this information is made available externally, Chainlink’s Proof of Reserves could enable this information to be brought on-chain (in addition to their own requirements).
Although it is difficult to predict the ultimate impact of this bill, in the future, stablecoin users (and even the entire crypto user community) may pay more attention to whether the issuer complies with regulatory requirements, rather than just whether its reserves match the token issuance. This is similar to the traditional banking industry: even if a bank is "solvent" on paper, it may be punished or even closed if it does not meet the capital adequacy ratio required by regulations. Therefore, investors usually care more about compliance indicators rather than pure solvency.
Bankruptcy proceedings
Although compliance with regulatory requirements may become a new yardstick for stablecoin holders to assess security, it is still critical to examine bankruptcy scenarios. Circle’s recently filed S-1 document reveals an uncertainty: in the event of the issuer’s bankruptcy, if the court does not recognize the “beneficial ownership” of stablecoin holders, other creditors (excluding stablecoin holders) may make claims on reserve assets.
…it is possible that a U.S. court in the case of USDC, or a French court in the case of EURC, could rule that the reserve assets backing USDC and EURC are part of our bankruptcy estate. If that were to happen, other creditors of Circle would likely be entitled to be paid out of those reserve assets, while Circle stablecoin holders would likely be treated as ordinary unsecured creditors, which could result in them recovering only a portion of the value, rather than the nominal full amount of their stablecoins.
The STABLE Act does not explicitly specify the priority of claims for stablecoin holders in bankruptcy proceedings. In contrast, Section 10 of the GENIUS Act directly responds to the uncertainty mentioned in Circle S-1 and aims to ensure that stablecoin holders have extremely high priority claims for reserve assets. The relevant provisions are as follows (emphasis added):
In any bankruptcy proceeding brought under federal or state law against an issuer of a permitted payment stablecoin (including proceedings under Title 11 of the United States Code or proceedings led by a state-level stablecoin regulator), the claims of persons holding payment stablecoins issued by such issuer shall have priority over the issuer itself and any other creditor thereof, corresponding to the stablecoin reserve assets they claim… If a stablecoin holder is unable to fully redeem all of its claims from the reserve, the remaining unredeemed portion of the claim shall also have the highest priority, that is, priority over any other claims, including expenses or claims that would otherwise have statutory priority…
Under the framework of this bill, not only will the claims of stablecoin holders take precedence over other creditors, but even when reserves are insufficient to fully repay, the unredeemed portion will also have the highest priority.
On the surface, stablecoin holders are already well protected legally, and it seems unnecessary to put the issuer’s creditor information or capital structure on the chain. However, considering that the bankruptcy liquidation process may be extremely long, if the relevant capital structure data can be disclosed through Chainlink’s Proof of Reserve, stablecoin holders will undoubtedly be interested in this information.
Cross-chain interoperability
Although brief, Section 11 of the GENIUS Act addresses interoperability standards (emphasis added).
Article 11: Interoperability Standards
The lead federal payments stablecoin regulator … should develop standards to promote compatibility and interoperability of permitted payments stablecoin issuers with:
(1) other approved payment stablecoin issuers; and (2) the broader digital financial ecosystem, including accepted communication protocols and blockchains, both permissioned and public.
The second provision (which was not included in the STABLE Act) encourages stablecoin issuers to achieve interoperability between public and permissioned chains. Chainlink CCIP is a blockchain interoperability protocol that enables developers to build secure applications that transfer tokens, messages (data), or both between chains. Given the risks inherent in cross-chain interoperability, CCIP uses a defense-in-depth security architecture and is powered by the Chainlink oracle network, which has been proven to securely support trillions of dollars in on-chain transaction value. CCIP helps stablecoin issuers adhere to standards set by regulators and ensures that payment stablecoins are interoperable between different protocols and networks.
Summarize
With the introduction of major stablecoin regulatory frameworks, the landscape of traditional finance and decentralized finance (DeFi) may be reshaped, and the proposed regulations will have a profound impact on stablecoin issuers, users, and DeFi protocols. In this evolving environment, Chainlink is uniquely positioned to provide key infrastructure and services. With its Data Feeds and Proof of Reserve, Chainlink provides transparency and verification mechanisms for stablecoin reserves and supports the potential for tokenized assets to be included in reserves. Chainlink DeFi Yield Indices solves the problem of how to measure yields in a regulatory environment that prohibits issuers from providing yields, providing valuable insights into the DeFi lending market. In addition, Chainlink CCIP enables the interoperability required between multiple blockchains to meet regulatory standards.
As regulatory clarity continues to improve, Chainlink's ecosystem ensures the reliability, transparency, and compliance of stablecoins, further strengthening trust and stability in the digital asset ecosystem.
