How the GENIUS Act Fueled Stablecoin Growth and Challenges in 2025

The GENIUS Act, enacted in early 2024, introduced a comprehensive regulatory framework for stablecoin issuers, aiming to enhance transparency and investor confidence. In 2025, stablecoin issuance surged by over 150%, reaching a market capitalization of $350 billion by the fourth quarter. While this growth underscores the Act’s impact on adoption, it also revealed persistent vulnerabilities in issuer compliance and regulatory enforcement.

What happened

The GENIUS Act came into force in early 2024, establishing mandatory reserve backing, regular disclosures, and compliance audits for stablecoin issuers. It also created the Stablecoin Regulatory Authority (SRA), a federal oversight body tasked with issuing compliance guidelines and conducting market surveillance starting in late 2024.

Following the Act’s implementation, stablecoin issuance expanded rapidly in 2025, growing by more than 150% and pushing total market capitalization to a record $350 billion by Q4, as confirmed by CoinGecko’s Q4 2025 Market Report. Major issuers such as Paxos and Circle complied with the new regulations by filing quarterly reports verifying that their stablecoins were fully backed by liquid assets, as documented in SEC filings for the first three quarters of 2025.

Despite these regulatory safeguards, at least two stablecoin issuers failed to maintain adequate reserves during a period of market stress in mid-2025. This shortfall led to temporary liquidity issues and heightened market volatility, according to a July 2025 Bloomberg report titled “Stablecoin Turmoil Hits Market in July 2025.” The SRA, while established to enhance oversight, reportedly faced constraints in enforcement powers and resources, limiting its ability to prevent such non-compliance, as noted in its 2025 Annual Report and analyses by the Harvard Law Review.

Industry observers and analysts have attributed the surge in stablecoin adoption partly to the legal clarity and investor confidence fostered by the GENIUS Act, as discussed in Decrypt and CoinDesk reports. However, some analysts caution that the Act’s framework—relying heavily on issuer self-reporting and periodic audits—left gaps that were exposed during market turbulence. Additionally, alternative views suggest that macroeconomic factors like inflation hedging and broader crypto adoption also played significant roles in driving growth, indicating that regulatory clarity alone was not the sole catalyst.

Why this matters

The GENIUS Act represents a significant step toward formalizing the stablecoin market, which had previously operated in a largely fragmented regulatory environment. By mandating reserve backing and disclosures, the Act aimed to reduce counterparty risk and improve market stability, thereby encouraging wider adoption among investors and institutions.

The rapid growth in stablecoin issuance following the Act’s implementation highlights how regulatory clarity can unlock capital inflows and foster market expansion. This growth is important because stablecoins serve as critical infrastructure for digital payments, decentralized finance, and cross-border transactions.

However, the liquidity issues experienced by some issuers in mid-2025 expose the limits of the current regulatory framework. The reliance on issuer self-reporting and periodic audits, combined with the SRA’s limited enforcement capacity, suggests that systemic risks have not been fully mitigated. This raises concerns about the resilience of stablecoins during periods of market stress and the potential for contagion effects across crypto and broader financial markets.

The establishment of the SRA is a notable advancement in regulatory oversight, but its constrained resources and powers underline the challenges regulators face in keeping pace with innovation and complexity in the stablecoin sector. Balancing the promotion of innovation with effective risk management remains a central policy challenge.

What remains unclear

Despite available information, several important questions remain unanswered. The extent to which the GENIUS Act’s compliance requirements have directly prevented systemic risks versus merely shifting those risks to less regulated stablecoin types or shadow issuers is not clear from current reporting.

The effectiveness of the SRA’s real-time risk detection capabilities is uncertain given its limited mandate and resources. Public data on specific enforcement actions against non-compliant issuers and their impact on overall market stability is sparse, limiting the ability to evaluate regulatory effectiveness comprehensively.

There is also limited transparency regarding the internal reserve management practices of stablecoin issuers beyond mandated filings. Independent academic or third-party audits that could verify the true liquidity risk of stablecoins are scarce, leaving a gap in independent verification.

Finally, the long-term systemic impact of the GENIUS Act remains to be seen, as 2025 was only the first full year of its implementation. How stablecoin issuers and market participants perceive the trade-off between innovation and regulatory burden under the Act is also not well documented.

What to watch next

Further quarterly disclosures from major stablecoin issuers, particularly regarding reserve backing and liquidity management, through 2026.
Updates from the Stablecoin Regulatory Authority on enforcement actions, compliance monitoring, and potential expansions of its powers or resources.
Regulatory developments addressing less regulated stablecoin types or shadow issuers that may pose systemic risks outside the GENIUS Act framework.
Independent audits or third-party assessments of stablecoin reserve adequacy and liquidity risk emerging from academic or industry research.
Market responses to macroeconomic conditions in 2026 and their interaction with regulatory compliance in shaping stablecoin adoption and stability.

The GENIUS Act has clearly accelerated stablecoin growth by providing a regulatory foundation that promotes transparency and investor confidence. Yet, the liquidity challenges encountered and limited enforcement capabilities highlight ongoing vulnerabilities in the ecosystem. As regulators and market participants navigate this evolving landscape, the balance between fostering innovation and ensuring stability will remain a critical area for scrutiny and development.

Source: https://decrypt.co/352552/year-stablecoins-2025-record-growth-genius-act-floodgates. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.