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Congress screwed up on the GENIUS act: stablecoin holders have fifth priority

2 days ago
https://creditslips.org/2025/12/02/sorry-to-break-it-to-you-geniuses-under-the-genius-act-the-holders-of-stablecoins-actually-have-fifth-priority-in-an-issuer-bankruptcy/
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  • #regulation
  • #stablecoins
  • #bankruptcy
  • Stablecoins must avoid issuer credit risk to function like money, otherwise they face discounts and transactional friction.
  • The GENIUS Act aims to reduce issuer credit risk by requiring reserves and regulatory oversight, similar to the National Bank Act of 1864.
  • It prioritizes stablecoin holders in insolvency, but they actually rank fifth in bankruptcy, after repo/margin lenders, DIP lenders, professionals, and set-off claims.
  • Stablecoin holders may wait months or years for payouts, unlike FDIC-insured bank deposits which are repaid quickly.
  • The GENIUS Act's priority provisions are undermined by secured claims, which are paid before unsecured claims like stablecoin holders.
  • Exceptions in the GENIUS Act allow for secured claims via margin, repos, and setoff rights, further diminishing stablecoin holders' priority.
  • DIP financing and professional fees in bankruptcy will consume reserves before stablecoin holders are paid.
  • The Act's 14-day payout goal is unrealistic due to procedural delays, DIP lender requirements, and undefined 'holder' status.
  • Stablecoin investors face significant haircuts and delays in issuer bankruptcies, leading to potential runs on stablecoins.
  • The lesson: stablecoins cannot replicate bank money without state-backed deposit insurance.
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