A stablecoin is a digital asset that aims to maintain a stable price (e.g., a 1:1 peg) with a reference asset, such as the U.S. dollar. In the 119th Congress, legislation to regulate payment stablecoins has seen legislative action in the House (H.R. 2392) and Senate (S. 1582). This In Focus analyzes some of the key issues that have been raised in the legislative debate. A CRS overview of H.R. 2392 is available here. Background on stablecoins is available here.
Policymakers have debated whether to permit stablecoin issuance by (1) banks (including credit unions), (2) nonbank financial firms, and/or (3) nonfinancial commercial firms. Both bills would allow all three types of firms to issue stablecoins under the same regulatory regime.
Two arguments for allowing banks to issue stablecoins are (1) banks already play a central role in payments, and stablecoins could be viewed as a new method for a traditional bank activity, and (2) banks are already subject to strict safety and soundness rules and close federal supervision—therefore, they are well placed to issue stablecoins prudently. Some policymakers would even limit issuance to banks on those grounds. However, under both bills, stablecoin issuers (including banks through subsidiaries) would not be subject to existing bank regulation; they would be subject to the regulatory regimes created by the bills. The regimes have safety and soundness rules (discussed in the next section), but they are less comprehensive than bank regulation, and the bills carve stablecoin issuers out of banks' consolidated capital requirements. And, as discussed below, state bank stablecoin issuers would not be under the supervision of federal bank regulators under H.R. 2392.
Critics of allowing bank issuance of stablecoins view it as exposing banks to the significant risks posed by the broader crypto market. (The bills also allow banks to issue tokenized deposits, use blockchains, and provide custody services for stablecoins.) Notably, the bills regulate only the issuance of stablecoins—regulation of broader crypto markets, including institutions that most customers currently use for stablecoins transactions, is currently being contemplated separately. Some fear that exposing banks to risks in the crypto market would make a broader financial crisis more likely.
Arguments against commercial firms issuing stablecoins have focused on the potential for "big tech" firms to use stablecoins to dominate digital payments. These concerns were prominent when Facebook (now Meta) proposed issuing a stablecoin called Libra in 2019. Currently, firms are generally allowed to blend commercial and financial activities, so long as they do not operate as banks (i.e., accept deposits). If only financial firms were permitted to issue stablecoins, nonbank financial firms might potentially be required to divest some activities to qualify as issuers.
One of the primary reasons that policymakers have cited for regulating stablecoins is the run risk they pose. If stablecoin holders became convinced that an issuer will be unable to maintain a 1:1 peg, every holder has an incentive to redeem their stablecoins first, before the peg is broken. However, mass redemptions make it more likely that the peg will be broken. This is similar to a classic bank run, where depositors race to withdraw their deposits first, causing the bank to fail. Eliminating bank runs, and the risk they pose to financial stability, is the primary reason that banks are regulated for safety and soundness.
The bills attempt to eliminate run risk for stablecoins primarily through requirements for the reserves that back stablecoins. This involves a trade-off between safety and soundness and profitability for the issuer. Stablecoins backed entirely by cash balances would face no run risk but would earn the issuer no profits (outside of any fee income). Alternatively, the issuer could maximize profits by investing reserves in illiquid, risky assets that have a high expected return. But an issuer employing that strategy might be unable to meet redemption requests on demand, and losses on the reserves could cause the market value of reserves to fall below the par value of outstanding stablecoins. Both bills would require stablecoins to be 100% backed by reserves invested in relatively safe and liquid assets ranging from deposits to government money market funds. However, those assets are not completely riskless and liquid, and stablecoins face other types of risk, so some run risk would remain. The bills would also require regulators to set capital, liquidity, and risk management requirements to further mitigate run risk.
For banks, run risk is addressed through regulation, federal deposit insurance, and access to the Federal Reserve's (the Fed) discount window—which can also increase risk through moral hazard, however. Both bills are explicit that there is no comparable federal backstop for stablecoins.
Policymakers have also debated whether stablecoins should be subject to federal or state regulation (or both). Until recently (when banks were permitted to issue stablecoins), stablecoins were regulated only at the state level—typically under more limited requirements than the bills propose. Both bills envision that stablecoin issuers could opt for regulation by a state regulator or a federal banking regulator. A key difference is that H.R. 2392 would allow nonbanks and state-chartered banks to choose between state and federal regulation, whereas S. 1582 would limit state regulation to nonbank issuers with under $10 billion in stablecoins (as opposed to total assets).
One argument for state regulation is to allow a diversity of regulatory approaches that could potentially foster innovation. An argument against state regulation is the incentive for states to engage in a "race to the bottom" in terms of crafting lax regulatory standards in the hope of attracting issuers. The bills attempt to prevent that by establishing mandatory standards that all federal and state regulators must comply with, requiring federal certification that state regulators meet these standards. Another concern is that state regulators do not have supervisory resources comparable to federal ones.
Many financial activities are currently regulated under a dual state-federal regime. Currently, financial firms that opt for state regulation can sometimes operate only in the states that they are registered and require federal or multi-state registration (or reciprocity) to operate across state lines. The regime envisioned by the bills differs in key ways, however. The bills would permit federal- or state-chartered issuers to operate across state lines without registering in each state in which they operate. Banks can also currently opt for state or federal charters, but state-chartered banks that accept insured deposits are regulated by both state and federal regulators and are generally subject to the same regulations as national banks. Under H.R. 2392, state-chartered banks could opt for state jurisdiction over their stablecoin subsidiaries, placing the subsidiaries outside of the purview of the banks' federal regulators, except in limited circumstances. Although federal regulators currently defer to other primary regulators of bank subsidiaries, it is unusual for federal bank regulators to have no jurisdiction over state-regulated subsidiaries.
As of May 2025, the U.S. dollar stablecoin market is estimated to be $245 billion. Two issuers, Tether and Circle (which issues the USDC stablecoin), make up nearly 90% of the market. While Circle is located in the United States, Tether is licensed in El Salvador. Therefore, assuming both met the bills' definition of payment stablecoin issuer, the bills' treatment of foreign-issued stablecoins would have significant implications for current market dynamics.
H.R. 2392 would prohibit the secondary offer or sale of a payment stablecoin (including from a foreign issuer) unless its issuer is licensed in the United States within 18 months of enactment or is subject to a regime determined by the U.S. Treasury to be "comparable" to the U.S. regime. Under H.R. 2392, stablecoins issued in foreign jurisdictions with comparable regimes would be limited to trading on secondary markets. S. 1582 would also restrict the "offer and sale" of a stablecoin to a person in the United States to permitted stablecoin issuers within three years of enactment. Both bills would permit issuers from foreign jurisdictions Treasury deems "comparable" to U.S. regulation to be traded by digital asset providers, be interoperable with dollar stablecoins, and be used in international transactions if they meet certain conditions. Namely, both bills would require issuers agree to ongoing reporting and examination monitoring by a federal stablecoin regulator. In addition, S. 1582 would require foreign issuers register with the Office of the Comptroller of the Currency, have the capacity to freeze transactions and follow lawful orders, and keep reserves adequate to satisfy U.S. redemptions in American banks. Treasury's role in approving comparable jurisdictions is arguably significant because weaker restrictions on foreign issuers could limit the bills' scope and reduce incentives to issue under a U.S. regime. To address overseas activity, S. 1582 would have "extraterritorial effect" if an issuer's actions include the offer or sale of a stablecoin to someone in the United States, which would depend on the efficacy of logistically complex enforcement efforts.
The blockchains on which stablecoin transactions can be processed are decentralized, public, permissionless, and protected by cryptography. Such networks are also pseudonymous, which means users are not identified by their real names or with government-issued identification, making it more difficult to know exactly who is conducting financial transactions and to comply with Bank Secrecy Act (P.L. 91-508) and anti-money laundering (BSA/AML) requirements placed on traditional financial institutions.
Under the bills, registered stablecoin issuers would be financial institutions for the purpose of the BSA, making them subject to its various requirements. S. 1582 would require issuers certify that they have implemented AML and sanctions compliance programs. Both bills would prohibit anyone that has been convicted of money laundering or financing terrorism from serving as an officer or director of an issuer. The bills would apply to issuers—who, in current practice, typically interact with large known customers, such as exchanges, where implementing BSA requirements is manageable. It is unclear, however, how issuers could address their BSA/AML monitoring responsibilities once stablecoins are off-ramped to pseudonymous public blockchains, which are not subject to issuer controls. This could lead to scenarios in which stablecoins could be used for illicit purposes that issuers are unable to monitor—potentially posing reputational and other risks to issuers. S. 1582 would also require Treasury to evaluate the effectiveness of existing AML methods, and FinCEN to facilitate "novel methods ... to detect illicit activity involving digital assets."
After both bills were released, World Liberty Financial, which lists the President and a member of his Administration as promoters in securities filings, announced it would issue a stablecoin. This sparked debate over whether the bills should include provisions governing conflicts of interest for public officials. S. 1582 asserts that existing ethics laws and regulations prohibit senior executive officials from issuing a stablecoin; those rules generally apply only to officials with a conflict of interest and some appear not to apply to a President.