Sorting Through the Issues Surrounding Stablecoin

March 16, 2026

David Pendered Senior Content and Publishing Specialist

• Article
• Payments

One way to demystify stablecoin is to think of this digital currency as the latest innovation in money, another step in the evolution to improve payments efficiency that began in Eurasia as early as 750 BCE.

Considered from this perspective, it's no surprise that discussions around stablecoin have reached the level it has now that the federal government has authorized its use in the United States, though it's important to note that stablecoins are not backed or insured by the US government. Instead, under the new law, payment stablecoins must be backed one-to-one by high-quality, segregated reserves, primarily US dollars, Treasury bills, or cash equivalents. Added to the caution inherent in the creation of any payments system is the language of stablecoin, which is foreign to many—terms such as "distributed ledger" and "self-custodial software interfaces" are not common in popular discourse.

Past civilizations may have faced similar anxieties as new currencies were introduced. Imagine transitioning from primitive monetary objects, such as cowrie shells and axes, to imprinted metal discs that a state had sanctioned as money, starting around 750 B.C.E. Or confronting paper money in twelfth-century China as the Southern Song dynasty sought to supplement its bronze coinage with state-issued paper money. These developments and others are chronicled in a paper issued in 2022 and updated in 2024 by Michael D. Bordo, of Rutgers University, the National Bureau of Economic Research and the Hoover Institution, at Stanford University, and Will Roberds, now an emeritus economist with the Federal Reserve Bank of Atlanta.

Whereas ancient cultures might have taken time to embrace a new currency, pressing deadlines for regulators to write rules are fueling the rapid pace of discussions around stablecoin in the United States. By July 18, federal and state banking regulators are to have made public their rules for implementing stablecoin, following appropriate notice and public comment. Six months later, each federal banking regulator is to submit proposals to Congress. These terms are specified in the law signed in July 2025 by President Trump, the GENIUS Act, short for "Guiding and Establishing National Innovation for U.S. Stablecoins Act."

In addition to regulatory discussions, Congress continues to deliberate two proposals to address components of stablecoin usage. One proposal, the CLARITY Act, would establish guardrails for the digital industry, while the other, the Anti-CBDC Surveillance State Act, would forbid federal agencies from exploring the development of a central bank digital currency.

Chris Colson, an Atlanta Fed expert on emerging and alternate payment systems, speaks routinely on stablecoin and the broader realm of the future of money. Colson has monitored digital currency since 2012 and shares his knowledge through presentations to interested groups and at Bank-sponsored seminars, such as the series on payments innovation and through his posts that appear in the Atlanta Fed blog Take on Payments. The series delves into evolving risks in retail payment systems and collaborative efforts around enhancing risk detection and mitigation. Colson's most recent report on stablecoin appeared in the series as "Here a Coin, There a Coin, Everywhere a Stablecoin."

"My goal is to provide the payments industry with a clear, practical understanding of what stablecoins are, how they are being used, and why people are talking about them." Colson said. "There are a lot of technical terms surrounding digital assets, and my focus is on translating them into concepts people already understand, like payments, money movement, and trust."

Colson presents the stablecoin and its surrounding technology in everyday language. He explains that stablecoin is a form of digital money designed to maintain a stable value, typically by being backed one-to-one by US dollars or other safe assets, allowing it to be used for payments without the price volatility other cryptocurrencies can experience.

Colson has devised answers that can help laypeople understand a basic question about digital currency: why do we need stablecoin? Each answer, culled from one of his presentations, is easy to understand, as Colson outlines the potential uses of stablecoin by consumers and businesses and for transactions conducted with only digital currency:

• Consumers: Stablecoins can support more direct cross-border payments by enabling value to move among parties with fewer intermediaries than traditional banking arrangements.
• Businesses: Stablecoins can provide options for liquidity management and cross-border commerce with automation through smart contracts and with reduced foreign exchange risks, particularly in volatile economies and enhanced global reach in regions with limited financial infrastructure.
• Financial institutions: Stablecoins can facilitate competition and innovative financial services to expand access to underserved customers.

Colson also discusses potential pitfalls he sees in the implementation of stablecoin, which is an emerging payment instrument that must balance innovation with safety, particularly when it begins to function like traditional money but operates outside the conventional banking system. Also, international standards for stablecoins are developing, but the landscape remains fragmented. Cross-border payment systems are complex for regulators and data compilers, highlighting the need for strong collaboration. Effectively managing macroeconomic risks—such as currency substitution, volatile capital flows, and payments fragmentation—requires new approaches and industry cooperation.

Among these issues are:

• Ensuring that stablecoin reserves are high-quality, transparent, and readily redeemable;
• Clarifying regulatory oversight so consumers know which rules apply and who is responsible;
• Managing operational and cyber security risks tied to digital wallets and blockchain infrastructure;
• Preventing runs, de-pegging events, or loss of confidence stemming from concerns about reserve adequacy or the potential default or failure of stablecoin issuers, exchanges, payment ramps, and other key counterparties; and
• Reduced transparency of payment activity for economic reporting, since stablecoin transactions might not be fully captured in traditional monetary and payments data.

As US regulators confront these challenges, countries around the world are rapidly expanding adoption of stablecoin and other cryptocurrency assets. Globally, the use of digital assets grew robustly in 2025 and did so for varying reasons, according to the annual report by Chainalysis, a blockchain data platform. For instance, in Latin America stablecoins were purchased as a hedge against inflation, currency volatility, and capital controls. India's large diaspora is a big user of remittances. In Ukraine and Israel, residents bought crypto in response to geopolitical upheaval. Closer to home, the United States ranks as the world's second-highest regional crypto market in light of recent regulatory shifts that favor crypto assets.