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Stablecoins

The Bridge Between Traditional Finance and Digital Assets

The GENIUS Act, enacted in July 2025, has introduced a regulatory framework for payment stablecoins, digital assets designed to maintain a stable value relative to a sovereign currency like the US dollar. This comprehensive whitepaper, "Stablecoins: The Bridge Between Traditional Finance and Digital Assets," delves into the implications of the Act for both the stablecoin market and traditional financial institutions, providing a detailed analysis that is essential for finance professionals, banks, and corporate treasurers.

Key Highlights

1

Regulatory Clarity and Consumer Protection: The Act restricts stablecoin issuance to regulated entities, such as subsidiaries of insured banks or newly chartered non-bank stablecoin companies. Issuers must maintain full reserves of US dollars or similarly liquid assets and provide monthly disclosures of reserve holdings and redemption policies. Stablecoin holders are given first priority to claim reserve assets in case of insolvency, and properly regulated stablecoins are not treated as securities under US law. However, stablecoin holders cannot earn interest or be covered by FDIC insurance.

2

Market Adoption and Growth: The GENIUS Act has significantly boosted market confidence, that supports further expansion of a $4 trillion market cap for digital assets. It has attracted major players and new entrants, creating both opportunities and challenges for traditional financial institutions. The Act's provisions have raised the bar for market entry, requiring new licenses and adherence to bank-like reserve standards.

3

Disruption of Traditional Payment Systems: Stablecoins transact on public, permissionless blockchains, offering near real-time settlement and minimal transaction fees. This can revolutionize international payments, making them faster and cheaper compared to traditional payment rails, which often involve higher costs and longer settlement times.

4

Tax and Accounting Considerations: The Act clarifies that the issuance of a stablecoin for fiat is treated as issuing debt, not a taxable transaction. Stablecoins are considered property for tax purposes, not money, which means that any gains or losses from their disposition, even if minimal, may trigger Form 1099-DA reporting. Accounting-wise, stablecoins that meet the Act's definition may be classified as financial assets under US GAAP, but a detailed analysis of the stablecoin's terms and conditions is necessary to determine the appropriate classification.

5

Technical and Operational Integration: Financial institutions must update their core infrastructure to support stablecoin transactions, including the development of digital wallet and custody infrastructure, blockchain network connectivity, and API integration with core banking systems. These changes can be phased over 18 months, with high-priority updates in the first six months.

6

Risk Management and Security: Institutions must implement robust cybersecurity measures, such as institutional-grade custody, smart contract assurance, and off-chain system security, to ensure that stablecoin transactions are secure and compliant with regulatory requirements.

7

Customer Experience and Education: Banks and financial institutions should focus on creating user-friendly interfaces and educational materials to help customers understand the benefits and risks of stablecoin transactions, emphasizing their speed, cost-effectiveness, and security.
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This whitepaper is a critical resource for anyone navigating the evolving landscape of digital finance. It provides a detailed examination of the opportunities and challenges presented by the GENIUS Act, making it an essential read for finance professionals, banks, and corporate treasurers who are seeking to leverage stablecoins for their business operations. Download the whitepaper to gain insights into how stablecoins can bridge the gap between traditional finance and digital assets, and to understand the regulatory, technological, and operational considerations necessary for successful integration.

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Brian Consolvo
Principal, KPMG LLP
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Eamonn Maguire
Advisory Managing Director, C&O Financial Services, KPMG US
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Brian Consolvo
Principal, KPMG LLP
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Eamonn Maguire
Advisory Managing Director, C&O Financial Services, KPMG US
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