Stablecoins & Digital Money
Could Federal Reserve Access Make Stablecoins Safer?
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Stablecoins are an attempt to bring many of the advantages of blockchain technology to currencies, including transparency and settlement efficiency, while minimizing the extreme volatility that has traditionally characterized cryptocurrencies.
So far, their main applications have been as a bridge between “normal” money, especially the US dollar, and the world of cryptos, with stablecoins like Tether (USDT), USD Coin (USDC), and PayPalUSD (PYUSD). Besides the sheer size of these stablecoins in market capitalization, major financial actors are moving in this segment; for example, Mastercard, which acquired the UK-based stablecoin startup BVNK for $1.8B. (MA )
To perform well, the link between cryptos and fiat currencies, stablecoins first need to be trusted to stay stable and maintain the 1:1 peg to the reference fiat currency. Except that, as with every financial institution and tool, there can be hidden risks.
The July 2025 Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act establishes a U.S. regulatory framework for stablecoin reserves. In practice, the move to turn these guidelines into working rules is still ongoing, as the Treasury, the OCC, the FDIC, the NCUA, and the Federal Reserve have put out roughly ten proposals between them over those twelve months, and not one has been finalized yet.
A new study from researchers at the University of California, Washington University in St. Louis, Drexel University, and Hong Kong University of Science and Technology analyzes stablecoin reserve risks in the context of the GENIUS Act, through empirical evidence from the shock of the Silicon Valley Bank collapse in 2023.
It found that how stablecoins’ reserves (mostly treasuries) are kept, either in bank deposits or in treasury, can impact their stability. It also found that direct Federal Reserve access could provide an additional layer of stability.
They published their findings in International Review of Economics & Finance1, under the title “Stablecoin reserve risk under the GENIUS Act: Evidence from the Silicon Valley Bank shock”.
Silicon Valley Bank Collapse & Stablecoins
GENIUS Act & Access To The Federal Reserve
In March 2023, the second-largest U.S. dollar stablecoin, USDC, lost its peg to the dollar after its issuer disclosed $3.3B of reserve exposure to Silicon Valley Bank. In the secondary markets, USDC traded as low as USD 0.86 on March 11th.
The shock propagated to DAI through MakerDAO’s Peg Stability Module (PSM), to GUSD and USDP through DAI’s auxiliary modules, and to TUSD through its exposure to Signature Bank.
This moment was largely responsible for the creation of the GENIUS Act, which regulates stablecoins. Since then, further signals from the US government have made stablecoins not just a new crypto idea but a way to stabilize the role of the US dollar in international trade and as the global reserve asset.
It should be noted that the final results of the bank shock on these stablecoins were different from the Terra-Luna collapse, which illustrates the distinct fragility profile of algorithmic stablecoins that the GENIUS Act effectively excludes from the US market.
The GENIUS Act specifies the eligible reserve assets and disclosure obligations for permitted payment stablecoin issuers. It is, however, silent on whether non-bank issuers may hold balances at the Federal Reserve, a process that is essential to the stability of most large financial institutions.
The question is important, as with stablecoin market capitalization at roughly $300B, they have become a sizeable and growing component of the dollar payments system.
Evaluating Stablecoins Real Stability
To evaluate how different types of reserves and access to the Federal Reserve can affect stablecoins, the researchers modeled a comparison of four different setups:
- A pre-GENIUS status quo benchmark calibrated to USDC’s reserve composition in March 2023.
- A GENIUS-compliant arrangement leaning on deposit-eligible bank balances.
- A GENIUS-compliant arrangement leaning on short Treasuries.
- A hypothetical regime in which the issuer’s reserves are held in their entirety at the Federal Reserve
The three stablecoins studied are USDC, USDT, and DAI, each with qualitatively distinct reserve structures and therefore distinct risk positions.
USDC in March 2023 held a substantial fraction of reserves as uninsured deposits at Silicon Valley Bank and Signature Bank. During the Silicon Valley Bank collapse, USDC reserve fund assets were severely impacted.
USDC later shifted away from bank deposits toward Treasury-backed reserve-fund instruments, including Treasury repos and Treasury securities.
USDT’s reserves are heterogeneous and partially opaque, and include significant commercial paper and secured loans alongside Treasuries, with commercial paper and cash and bank deposits mostly removed after 2023.
DAI is overcollateralized in on-chain crypto-assets through MakerDAO’s lending vaults, with governance-controlled stabilization
On a more technical element, the study used a Diamond-Dybvig-style reserve-fragility model, a Silicon Valley Bank-event calibration of the bank-deposit reserve-loss channel, and a Monte Carlo comparison of GENIUS-compliant reserve regimes with a Federal Reserve master-account extension.
Revisiting The SVB Collapse
Silicon Valley Bank entered receivership on Friday, March 10, 2023, at approximately 14:37 ET after a single-day deposit outflow of approximately $42B the day prior.
For the emitter of USDC, Circle, the $3.3B of reserves held in deposits at SVB were 10x bigger than Circle’s stockholders’ equity of $0.34B. In parallel, USDT, with no SVB exposure, instead appreciated above parity as flight-to-safety flows entered it.
USDC’s substantial uninsured-bank-deposit exposure exhibited the largest reserve-channel peg deviation, mostly driven by rational market evaluation of the reserve-loss impact on USDC value.
In contrast, the DAI depeg was not a portfolio-choice phenomenon, but a contagion phenomenon driven by MakerDAO’s Peg Stability Module (PSM) design.
Testing Different Stablecoin Reserve Models
The first finding of the study is that, maybe unsurprisingly, moving from bank deposits exposed to potential bank collapse to short-term treasuries is important to improve stablecoins’ resilience. The higher the share of reserves in treasuries, the lower the deviation in case of a shock.
The largest modeled improvement came from the hypothetical Federal Reserve master-account scenario. Under the researchers’ severe-stress assumptions, median peak deviation fell from 2.97% with Treasury-heavy GENIUS-compliant reserves to 1.03% with reserves held directly at the Federal Reserve. That roughly 65% reduction is model-implied, however, and depends on assumptions about settlement liquidity and how direct Federal Reserve access would reduce redemption pressure.
Overall, this indicates that Federal Reserve account access could improve significantly stablecoins’ stability and safety, at a level that just compliance with the GENIUS ACT and treasury-heavy reserves cannot achieve alone.
But of course, attribution of such access is a decision also involving moral hazard, regulatory perimeter, legal, operational, privacy, competition, and institutional considerations, so these academic findings are far from a straight policy recommendation.
Lastly, the researchers remind us that the SVB-period contagion to DAI through MakerDAO’s PSM was a contagion phenomenon distinct from the reserve-portfolio choice that the GENIUS Act regulates, and the Act’s reserve regime does not address it.
Altogether, these conclusions lead to the idea that treasury-heavy reserves substantially reduce modeled depeg risk, while direct Federal Reserve access could provide an additional stability layer.
Such access, if given to well-capitalized issuers such as Circle, could become a competitive advantage as stablecoins become embedded in the financial system and issuers with Federal Reserve access are seen as more trustworthy.
For investors, this means considering not only what assets back a stablecoin, but also which issuers may ultimately gain access to the safest settlement infrastructure.
Investing In Stablecoins
Circle Internet Group
CRCL Price Chart
Circle is the issuer of USDC, the second-largest stablecoin by market capitalization, with a range of around $ 80B-$90B, compared to USDT (Tether) at $180B in capitalization. USDC saw daily on-chain transaction volume of $163B in Q2 2026 and $14.8T volume for the quarter, up 151% year-to-year.
Circle forecasts a growth of stablecoin capitalization of 40% CAGR until 2030, with $0.9T to $4T in assets, compared to $0.3T in July 2026.
Source: Circle
Where USDC differs from USDT is in being fully audited, with the monthly reserve-asset attestations performed by Big Four accounting firms; GENIUS-compliant reserve funds are also held in segregated accounts.
The company is also behind EURC, the largest digital Euro and tokenized MMF (money market fund).
Source: Circle
In total, the company holds 55 registrations or licenses, and is linked to 35 blockchain networks.
This high level of regulatory and accounting seriousness has greatly contributed to the company’s securing 1,000+ banks, blockchains, distributors, and other partners, including 15 partner banks, with BNY Mellon as the main primary custodian for Circle Reserve Fund cash management. For investors, Circle’s NYSE listing also provides direct public-market exposure to the growth of regulated stablecoin infrastructure.
Source: Circle
On July 10th, 2026, Circle Internet (CRCL ) Group won final approval from the U.S. Office of the Comptroller of the Currency (OCC) to establish a national trust bank named Circle National Trust. OCC trust banks automatically become members of the Federal Reserve System and are legally eligible to apply for Federal Reserve membership and master accounts, but acceptance is not automatic.
As an uninsured institution, Circle’s application will sit in Tier 2 or Tier 3 under the Fed’s guidelines. This means it will undergo the strictest possible scrutiny regarding its capital, risk controls, and systemic threat level before the Fed grants it payment rails.
If Circle were to access one day directly to a Federal Reserve master account, it could certainly help the company rank further as a leading regulated partner for institutional digital-dollar infrastructure.
However, it will also likely come with intrusive supervision, compliance costs, restrictions on reserve income, and political resistance over granting public-balance-sheet access to a private issuer, so while this may be a net positive, it will also come with its own set of problems and constraints.
Circle is also innovating in stablecoin technology in other ways. On September 16th 2026, the company will launch Arc Mainnet, an institutional-grade Layer-1 public blockchain designed specifically for stablecoin-native finance and real-world economic activity, marketed as the “Economic OS for the internet”.
Source: Circle
Arc supports the Ethereum (ETH ) Virtual Machine, building upon pre-existing smart contracts and standard Ethereum tools, but will use USDC as native gas, eliminating price volatility and providing businesses with predictable, dollar-denominated transaction costs. The Arc Privacy Sector (APS) will allow institutions to conduct confidential transfers (shielding balances/amounts) while granting view keys selectively to regulators or auditors.
In addition, Circle is building its “Agent Stack” for AI-agent-driven transactions, with 99.3% of x402 agent-payment volume settling in USDC (x402 is an open standard developed initially by Coinbase to enable native, automated microtransactions for AI agents and software clients).
Source: Circle
Overall, Circle is the company to invest in for exposure to the stablecoin sector with solid regulatory compliance and auditing of reserves, with Arc, EURC, AI agents, and a potential future access to the Federal Reserve as a future source of growth and competitive advantages.
Latest Circle Internet Group (CRCL) Stock News and Developments
Study Referenced
1. Hongzhe Wen et al. Stablecoin reserve risk under the GENIUS Act: Evidence from the Silicon Valley Bank shock. International Review of Economics & Finance. September 2026. Article: 105620. Volume 110. 10.1016/j.iref.2026.105620
