MSTR Cat

Crypto Law/Level I · What crypto is in law/1.2 The labels/Lesson 5

Stablecoins: a category of their own

Why tokens designed to hold a steady value now have their own laws in the US and the EU, and what those laws do and do not promise holders.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. A dollar stablecoin bought and redeemed at $1 produces no gain, so holding cash value on-chain is nearly tax-neutral; the catch is that each swap into another coin is a taxable disposal, and any reward paid is ordinary income.
  2. GENIUS Act issuers may not pay yield for holding, so third-party stablecoin rewards are taxable and unprotected; Treasury bills bought free on TreasuryDirect pay yield exempt from state and local income tax under 31 U.S.C. §3124, though federal tax still applies.
  3. In the EU, MiCA Article 49 gives e-money token holders a right to redeem at par, and redemption ‘shall not be subject to a fee’; the catch is that the right runs against the issuer, so check who may redeem directly and minimum amounts.
  4. Prefer coins from permitted issuers once the GENIUS Act takes effect, at the latest 18 January 2027: holders get priority on reserves in insolvency; there is no FDIC insurance, and issuers must be able to freeze coins under lawful orders.

MaterialsThe GENIUS Act, Public Law 119-27 (on govinfo.gov)ESMA’s page on the EU Markets in Crypto-Assets Regulation (MiCA)The most recent reserve report or attestation published by the issuer of a stablecoin you hold or have seenThat issuer’s redemption terms: who may redeem, minimum amounts and fees

Wonder

  1. Is a dollar stablecoin the same as a dollar in a bank account?
  2. What backs a stablecoin, and who checks that the backing is really there?
  3. If a stablecoin issuer goes bust, who gets paid first?

Explore

  1. A stablecoin is a crypto token designed to keep a steady value against a reference, usually one US dollar. Most large stablecoins say they hold reserves, such as cash and short-term government debt, that back each token. Others try to hold their value through software and trading incentives instead. For years stablecoins did not fit the older labels: depending on design, they looked like money, a bank deposit, a security or a commodity. The risk is real. In May 2022 the TerraUSD (UST) stablecoin lost its dollar peg and fell to about 10 cents, leaving heavy losses for holders who had treated it as safe.
  2. The United States answered with a statute of its own. The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), Public Law 119-27, passed the Senate 68 to 30 on 17 June 2025 and the House 308 to 122 on 17 July 2025, and was signed on 18 July 2025. It defines a “payment stablecoin” as a digital asset designed to be used for payment or settlement, whose issuer is obliged to redeem it for a fixed amount of money and represents that it will keep a stable value. National currencies, bank deposits and securities are excluded. Only “permitted payment stablecoin issuers” may issue one in the US.
  3. The Act sets core rules for those issuers. They must hold identifiable reserves on at least a one-to-one basis, made up of listed low-risk assets such as US currency, balances at a Federal Reserve Bank and bank deposits. They may not pay holders interest or yield of any kind solely for holding the coin. Payment stablecoins are not backed by the full faith and credit of the United States and are not covered by federal deposit insurance, and it is unlawful to claim otherwise. Smaller issuers, with no more than $10 billion outstanding, may choose a state regime that is substantially similar to the federal one.
  4. The label is the point of this lesson. Section 17 of the GENIUS Act amends the securities laws and the Commodity Exchange Act so that a payment stablecoin issued by a permitted issuer is neither a “security” nor a “commodity”. Banking regulators, not the SEC or the CFTC, supervise the issuers. The SEC’s March 2026 interpretation likewise lists GENIUS Act stablecoins as not securities (lesson 1.2.3). Tokens outside the definition do not get the carve-out automatically; the Act orders the Treasury to study “non-payment stablecoins”, including those backed only by another token from the same originator, the design that failed at Terra.
  5. Timing matters. The Act takes effect on the earlier of 18 months after enactment, which is 18 January 2027, or 120 days after the main federal regulators issue final implementing rules, so check whether it is in force on the date you read this. Three years after enactment, it becomes unlawful for a digital asset service provider to offer or sell in the US a payment stablecoin not issued by a permitted issuer, subject to exceptions. If a permitted issuer becomes insolvent, holders’ claims have priority over other creditors with respect to the required reserves. Lesson 3.2.4 covers the Act in detail.
  6. The European Union got there first. Its Markets in Crypto-Assets Regulation (MiCA) applied its rules on stablecoin-type tokens from 30 June 2024 and became fully applicable on 30 December 2024. MiCA defines an “e-money token” as a crypto-asset that aims to keep a stable value by referencing one official currency, and an “asset-referenced token” as one that references another value or right, or a combination, such as a basket of currencies (lesson 3.3.3). A practical check: open a stablecoin issuer’s latest reserve report and note who prepared it, what the reserves consist of and who is actually allowed to redeem tokens directly.

Key facts

  • The GENIUS Act, Public Law 119-27, was signed on 18 July 2025.
  • Under the GENIUS Act, a permitted payment stablecoin issuer must hold identifiable reserves backing its outstanding stablecoins on at least a one-to-one basis.
  • The GENIUS Act prohibits permitted issuers from paying holders any interest or yield solely in connection with holding, using or retaining a payment stablecoin.
  • Section 17 of the GENIUS Act excludes payment stablecoins issued by permitted issuers from the federal definitions of “security” and “commodity”.
  • The GENIUS Act takes effect on the earlier of 18 months after enactment or 120 days after the primary federal regulators issue final implementing regulations.
  • MiCA’s rules on asset-referenced tokens and e-money tokens have applied in the EU since 30 June 2024.

Exercise nine, six, three, one

9CollectList up to 9 facts you can find about one stablecoin, such as its issuer, the currency it tracks, what its reserves hold, who reviews them, how redemption works, which country regulates the issuer and whether it pays any rewards.
6ClusterSort them into 6 categories: who issues it, what backs it, who checks the backing, how holders get money back, which law applies, and facts you could not confirm.
3DistillReduce the 6 categories to 3 groups: protections written into law, promises made only by the issuer, and gaps or unknowns.
1CrystallizeWrite 1 sentence explaining, in your own words, why a dollar stablecoin is not the same thing as a dollar in an insured bank account.

Fact check

Dates, figures and claims checked against the published sources listed below.

Open in the interactive academy →

PT ES ZH JA KO RU DE FR MS