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Trust Law/Level IX · Trusts on chain/9.2 Tokens and real-world assets/Lesson 4

Stablecoin reserves held in trust

How stablecoin reserves are kept apart from an issuer’s own assets, what the US GENIUS Act and New York’s 2022 guidance require, the difference between an attestation and an audit, and why TerraUSD had no such reserve.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

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. Lowest-cost exposure: hold a permitted payment stablecoin and redeem it directly with the issuer at par; issuers must publish redemption fees and give 7 days’ notice of changes (GENIUS Act §4(a)(1)(B)). Catch: issuers may pay no interest or yield for holding.
  2. Check the free monthly reserve reports, examined by a registered public accounting firm and certified by the CEO and CFO, before choosing a coin. Catch: an attestation covers reserves on stated dates, not the issuer’s whole finances as an audit does.
  3. In an issuer’s insolvency, required reserves are excluded from its bankruptcy estate and holders take priority over other claims on them. Catch: stablecoins have no FDIC insurance or federal guarantee (GENIUS Act §4(e)), and the automatic stay can still delay payment.
  4. Each stablecoin sale or swap is a reportable disposal, usually with near-zero gain; brokers may skip Form 1099-DA where a customer’s yearly qualifying stablecoin sales total $10,000 or less. Catch: the holder must still report every disposal.
  5. Avoid algorithmic designs such as TerraUSD, which had no segregated reserve for holders to claim when it collapsed in May 2022. Catch: from 18 July 2028, US service providers may not offer stablecoins from non-permitted issuers.

MaterialsThe GENIUS Act, Public Law 119-27 (2025), especially sections 4 (reserves) and 11 (insolvency), free on the congress.gov and govinfo.gov websitesThe New York Department of Financial Services industry letter of 8 June 2022, ‘Guidance on the Issuance of U.S. Dollar-Backed Stablecoins’, free on the DFS websiteLesson 1.1.5, on legal title and beneficial ownership, and lesson 9.2.7, on proof of reserves, for backgroundAny published monthly reserve report of a stablecoin issuer, read only to see which reserve categories and which type of accountant’s report it contains

Wonder

  1. If a company that issues stablecoins goes bankrupt, who has first claim on the assets backing them?
  2. What is the difference between an accountant’s attestation and a full audit?
  3. Why did TerraUSD fail in May 2022, and why did it have no reserve to fall back on?

Explore

  1. A reserve-backed stablecoin is a token that its issuer promises to redeem for a fixed amount of a currency, usually one US dollar. The promise is only as good as the assets behind it and the holders’ claim to those assets if the issuer fails. Trust law offers the classic answer: property held by a trustee for beneficiaries is kept apart from the trustee’s own estate (lesson 1.1.5). Stablecoin rules borrow that idea, but they usually achieve it by statute or regulation rather than by an express trust. This lesson explains how reserve protection works and does not recommend or assess any stablecoin.
  2. In the US, the GENIUS Act (Public Law 119-27, signed on 18 July 2025) requires a permitted payment stablecoin issuer to keep identifiable reserves backing its outstanding stablecoins on at least a 1 to 1 basis. Permitted reserves include US coins and currency, demand deposits at insured depository institutions, Treasury bills, notes or bonds with a remaining maturity of 93 days or less, certain overnight repurchase and reverse repurchase agreements, and certain government money market funds. Reserves generally may not be pledged, rehypothecated or reused. The Act takes effect on the earlier of 18 months after enactment or 120 days after regulators issue final implementing rules.
  3. The Act also requires transparency. An issuer must publish each month, on its website, the total number of its outstanding stablecoins and the amount and composition of its reserves. Each month that report must be examined by a registered public accounting firm, and the chief executive and chief financial officers must certify its accuracy to the regulator; a knowingly false certification is a crime. Custodians of reserves must be supervised institutions, and must keep reserves separately accounted for and not commingled with their own assets. The Act does not use the word ‘trust’ for any of this.
  4. Insolvency is where the trust idea matters most. The GENIUS Act amends the US Bankruptcy Code so that required stablecoin reserves are excluded from the issuer’s bankruptcy estate, although the automatic stay still applies to them. In an issuer’s insolvency, holders’ claims have priority, shared ratably among holders, over all other claims against the required reserves; the priority covers only claims arising directly from holding the stablecoins. This is similar in effect to a trust, because the reserve is kept for holders rather than for the issuer’s general creditors, but it rests on the statute, not on a trust deed.
  5. New York had set conditions earlier. In an industry letter of 8 June 2022, the Department of Financial Services said that US dollar-backed stablecoins issued under its oversight must be fully backed by a reserve whose market value is at least equal to the outstanding units at the end of each business day, and redeemable at par in a timely way, by default within two full business days. Reserve assets must be segregated from the issuer’s own assets and held at approved custodians for the benefit of holders. At least monthly, an independent CPA must examine management’s assertions about the reserve under AICPA attestation standards.
  6. An attestation is not the same as an audit. A financial statement audit gives an opinion, with reasonable assurance, on an entity’s financial statements as a whole. An attestation reports on a narrower assertion, such as the value of a reserve on particular dates; an examination gives reasonable assurance and a review gives only limited assurance. TerraUSD (UST), which collapsed in May 2022, was an algorithmic stablecoin: it relied on a mechanism linked to the LUNA token rather than on a segregated reserve of cash and short-term government debt, so when confidence failed there was no reserve for holders to claim.

Key facts

  • The US GENIUS Act (Public Law 119-27) was signed on 18 July 2025 and requires identifiable reserves backing payment stablecoins on at least a 1 to 1 basis.
  • Under the GENIUS Act, permitted reserves include cash, insured demand deposits and Treasury securities with a remaining maturity of 93 days or less, among other listed assets.
  • An issuer under the GENIUS Act must publish its reserve composition monthly, have the report examined by a registered public accounting firm, and have its CEO and CFO certify it.
  • The GENIUS Act excludes required reserves from the issuer’s bankruptcy estate and gives holders priority over other claims against those reserves.
  • NYDFS guidance of 8 June 2022 requires full backing, redemption at par, segregated reserves held for holders, and monthly CPA attestations.
  • TerraUSD, which collapsed in May 2022, was an algorithmic stablecoin with no segregated reserve of cash or government debt backing it.

Exercise nine, six, three, one

9CollectList up to 9 features of stablecoin reserve protection described in this lesson or in the statute or guidance you are reading (some sources give fewer), such as what counts as a reserve, how often it is reported, who checks it and what happens in insolvency.
6ClusterSort them into 6 categories: reserve composition, backing ratio, public reporting, accountant’s checks, custody and segregation, and treatment in insolvency.
3DistillReduce the 6 categories to 3 groups: what the reserve must contain, how outsiders can see it, and what protects holders if the issuer fails.
1CrystallizeWrite 1 sentence explaining, in your own words, how excluding stablecoin reserves from an issuer’s bankruptcy estate resembles the separation of trust property from a trustee’s own assets.

Fact check

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

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