GENIUS Act May Not Shield Stablecoins From Blockchain Congestion Risks

The Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) sets reserve and reporting standards for payment stablecoin issuers, but a recent Federal Reserve staff paper warns that congestion on public blockchains could still trigger rapid user exits.

Model Highlights Congestion‑Driven Vulnerability

The paper, dated June 2 2026 and updated August 31 2026, models a scenario where a stablecoin is fully backed yet transaction fees on its underlying blockchain surge. When fees become large relative to transfer value, small payments become uneconomic, reducing the token’s usefulness. The authors find a threshold: if network effects are weak, higher fees can lead to coordinated redemptions, measured as a drop in Ethereum‑based stablecoin circulation.

Empirical Findings

• Weekly panel of five stablecoins (Nov 2017‑Dec 2025) shows a $10.83 rise in gas correlates with a 0.9 percentage‑point increase in redemptions when network effects are low.
• During 2021‑2025, the 75th‑percentile fee‑to‑value ratio for below‑median USDC transfers often exceeded 100 %.
• Higher Ethereum fees were associated with cross‑chain movement of USDT from Ethereum to Tron (3‑4 % more matched value per $1 gas increase).

GENIUS Act Provisions

The Act requires issuers to hold one‑to‑one liquid reserves, disclose purchase and redemption fees, and submit monthly reports. It also gives regulators authority over capital, liquidity, diversification, operations, and IT risk.

Gap Between Reserve Safety and Network Resilience

While the Act addresses asset quality and issuer oversight, it does not set price or capacity standards for the public blockchains that carry stablecoins. Consequently, users may still face prohibitive transaction costs even if the token remains redeemable at par.

Current Stablecoin Distribution Across Chains

• Ethereum: ~ $147 billion stablecoin supply
• Tron: ~ $93 billion stablecoin supply
• Solana: ~ $16 billion stablecoin supply

At the time of a recent snapshot, Ethereum gas prices were low (≈ 0.13 gwei), implying a transfer cost of about two cents, while Tron and Solana use different fee structures.

Implications for Regulators and Market Participants

Monitoring fee‑to‑value ratios, sudden shifts in chain‑level stablecoin circulation, and cross‑chain transfer patterns can help detect emerging congestion risks. The GENIUS Act can improve issuer safety, but without addressing blockchain capacity and fee dynamics, a “bank run” on the network layer remains possible.