A payment stablecoin is a token designed to be used for payment or settlement, whose issuer is obligated to redeem it for a fixed amount of monetary value and represents that it will hold a stable value against that amount. In the United States that is now a statutory definition rather than a marketing one. The redemption obligation, not the price on a chart, is what makes the instrument what it is.
The peg is a consequence, not a mechanism. What holds a payment stablecoin at par is a credible promise to redeem at par, backed by assets somebody can actually liquidate on the day. Everything else is arbitrage responding to that promise.
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The definition is a redemption promise
The GENIUS Act, signed 18 July 2025 as Public Law 119-27, defines a payment stablecoin as a digital asset that is or is designed to be used as a means of payment or settlement, whose issuer is obligated to convert, redeem or repurchase it for a fixed amount of monetary value, and which represents or creates the reasonable expectation that a stable value will be maintained relative to that amount.1
Read the two limbs separately, because designs fail on the second one. The first limb is about use: this is a settlement instrument, not a store of value with a marketing claim attached. The second limb is an obligation on the issuer, enforceable, and it is the only thing in the definition that a holder can act on.
That framing has a direct consequence for anyone designing one. A token that maintains its price through protocol mechanics with no enforceable redemption right is not satisfying the second limb, whatever its chart looks like. It is a different instrument and it belongs in a different conversation.
The reserve is a permitted-assets list, not a percentage
The statute requires a permitted issuer to maintain identifiable reserves backing outstanding stablecoins on an at least one-to-one basis, and then constrains what those reserves may be: US coins and currency or balances at a Federal Reserve Bank, demand deposits at insured institutions, Treasury bills, notes or bonds with a remaining maturity of 93 days or less, overnight repo and reverse repo collateralised by those Treasuries, and money market funds invested in them.1
Two provisions do more work than the ratio itself. Reserves may not be pledged, rehypothecated or reused except in narrowly defined circumstances, which closes the route by which a one-to-one reserve quietly becomes an encumbered one. And the composition has to be published monthly, examined each month by a registered public accounting firm, with the chief executive and chief financial officer certifying the report's accuracy to the regulator.1
For a design team, the reserve rule is where the economics of the product actually live. A 93-day maturity ceiling on Treasuries is not a compliance detail, it is a duration cap that determines what the reserve yields and how quickly it can be liquidated under redemption pressure. Those are the same number viewed from two directions.
No interest to holders, so the float is the business
The statute prohibits a permitted or foreign payment stablecoin issuer from paying the holder any form of interest or yield, in cash, tokens or other consideration, solely in connection with holding, using or retaining the stablecoin.1 The Federal Reserve's own analysis reads it the same way, noting the law prohibits directly paying interest while the possibility of indirect reward is not ruled out.2
That single provision rewrites the business model. The issuer earns the reserve yield and the holder earns nothing, so the product is a float business: revenue scales with tokens outstanding and with short-rate levels, and competition moves to distribution rather than to yield.
It also constrains protocol designs that assumed otherwise. If your model routed reserve yield back to holders as the reason to hold, that route is closed for a permitted issuer, and any rewards you build have to sit clearly outside the holding relationship. Where exactly that line falls is a rulemaking question that has not fully settled, and the GENIUS Act page tracks it.
The statutory carve-out from securities and commodities law
The Act amends the securities laws and the Commodity Exchange Act so that a payment stablecoin issued by a permitted payment stablecoin issuer is excluded from the definitions of security and commodity.1 Latham and Watkins summarise the practical effect: such a stablecoin is therefore not subject to SEC or CFTC oversight.3
Note how narrow that carve-out is. It attaches to a payment stablecoin issued by a permitted issuer. It says nothing about a stable-value token issued by anyone else, nothing about tokenised deposits, and nothing about yield-bearing instruments that look similar on a chart. Treating the exclusion as a general statement about dollar-denominated tokens is a misreading with real consequences.
The statute also restricts distribution: three years after enactment it becomes unlawful for a digital asset service provider to offer or sell a payment stablecoin to a person in the United States unless it was issued by a permitted issuer.1 That is a listing constraint on exchanges and wallets, and it shapes which stablecoins a US-facing product can integrate with.
The token contract itself is usually unremarkable
Almost none of the above lives in Solidity. A payment stablecoin is typically a plain fungible token with two additions: the ability to pause transfers and the ability to freeze specific addresses. Neither is part of the base standard. Pausing is an optional extension, in the same category as supply caps, burning and signed approvals.4
That means the diligence question for a stablecoin is not really a contract question. It is who holds the pause and freeze keys, under what policy, with what disclosure, and whether the reserve is where the monthly report says it is. The code is the easy part and it has been the easy part for years.
The corollary is worth stating plainly for founders comparing designs: a stablecoin's risk profile is set by its issuer, its reserve and its redemption path. Two tokens with byte-identical contracts can be very different instruments.
Route through an issuer, or become one
This is the question we make clients answer before any stablecoin work starts, and it usually resolves quickly. Becoming a permitted issuer means an authorisation process through a bank regulator, a reserve you fund and cannot lend against, monthly examined disclosure, and executive certification of those reports. Routing through an existing permitted issuer means none of that and a commercial agreement instead.
The real test is whether the stablecoin is your product or your plumbing. If the float is the revenue line and the balance sheet is the business, issuing is the point. If you need dollars to move inside an application you are building for another reason, issuing your own is a large regulated business bolted to the side of a smaller one.
Nothing here is legal advice, a compliance opinion or a recommendation to buy, sell or hold anything. The statute is law; the implementing rulebook was still being written through 2026, so treat the operating detail as provisional and confirm the current position with counsel before building against it.
Common questions
What is a payment stablecoin?
Under US law it is a digital asset designed for payment or settlement whose issuer is obligated to redeem it for a fixed amount of monetary value and represents that it will hold a stable value against that amount.1 The definition turns on the redemption obligation rather than on observed price behaviour, which is why a token holding its price through protocol mechanics alone does not fit it.
What can back a payment stablecoin's reserves?
The statute lists permitted reserve assets rather than setting a percentage alone. Reserves must be at least one-to-one and may consist of US currency and Federal Reserve balances, demand deposits at insured institutions, Treasuries with 93 days or less remaining maturity, overnight repo and reverse repo collateralised by them, and money market funds holding those instruments.1 Reserves cannot be pledged or rehypothecated outside narrow exceptions.
Can a stablecoin issuer pay holders yield?
Not directly. The GENIUS Act prohibits a permitted or foreign payment stablecoin issuer from paying holders any form of interest or yield, in cash, tokens or other consideration, solely for holding, using or retaining the stablecoin.1 The Federal Reserve notes the prohibition covers direct interest while indirect reward is not ruled out.2 Where that line falls is still being settled in rulemaking.
Is a payment stablecoin a security?
The Act amends the securities laws and the Commodity Exchange Act so that a payment stablecoin issued by a permitted payment stablecoin issuer is excluded from the definitions of security and commodity, and therefore falls outside SEC and CFTC oversight.3 The carve-out is narrow: it attaches to that specific instrument issued by that specific class of issuer, and says nothing about other dollar-denominated or yield-bearing tokens.
See Tokenomics Design Services for how this applies in practice.
Sources
- Guiding and Establishing National Innovation for U.S. Stablecoins Act, Public Law 119-27
U.S. Government Publishing Office, 2025
Enacted 18 July 2025. Section 2 defines payment stablecoin, Section 4 sets the one-to-one reserve requirement, permitted reserve assets, the rehypothecation prohibition, monthly disclosure with accounting-firm examination and executive certification, and the interest prohibition. Section 17 amends the securities and commodities definitions. - Payment Stablecoins and Cross Border Payments: Benefits and Implications for Monetary Policy Implementation
Board of Governors of the Federal Reserve System, FEDS Notes, 2026
Published 30 March 2026. Confirms the July 2025 passage and reads the statute as prohibiting direct interest payments while leaving indirect reward unresolved. - The GENIUS Act of 2025: Stablecoin Legislation Adopted in the US
Latham and Watkins LLP, 2025
Client alert dated 24 July 2025. States that a payment stablecoin issued by a permitted issuer is not a security under the federal securities laws or a commodity under the Commodity Exchange Act, and therefore not subject to SEC or CFTC oversight. - ERC20 API documentation, Contracts 4.x
OpenZeppelin, 2026
Lists pausing of transfers as an optional extension rather than base standard behaviour, alongside supply caps, burning and signed approvals.
Last reviewed 2026-08
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