The STABLE Act: New Rules Require Digital Dollars to Be Backed 1-to-1 by Cash, Banning Unreserved Stablecoins

The STABLE Act of 2025 is the federal government’s first major attempt to draw clear lines around digital currencies known as “payment stablecoins”—those digital assets pegged to the U.S. dollar and designed for transactions. If this passes, it makes one thing crystal clear: if you want to issue a digital dollar in the U.S., you need a federal or certified state license, and you must back every single coin with actual, safe assets, dollar for dollar. It’s an exclusive club, and anyone not approved is essentially banned from the market (SEC. 3).

The 1:1 Rule: Reserves Must Be Boring (and Safe)

For anyone issuing a stablecoin, the days of backing your digital dollar with complicated or risky assets are over. This bill mandates that every single stablecoin must be backed 1-to-1 by highly liquid assets. We’re talking U.S. currency held at the Federal Reserve, demand deposits at insured banks, or short-term Treasury bills (maturing in 93 days or less). This is the financial equivalent of keeping your cash in a shoebox under your mattress—except the shoebox is the Fed (SEC. 4). This reserve requirement is huge for everyday users: it means if you hold one of these approved stablecoins, you should have near-zero risk that the issuer can’t redeem it for a dollar when you need it.

To keep everyone honest, issuers must get an independent accounting firm to check their reserve reports monthly, and the CEO and CFO have to certify those reports under penalty of perjury. If they lie? They face up to $5,000,000 in fines and 20 years in prison for willful false certification (SEC. 4). That’s a serious deterrent designed to protect the retail consumer who relies on that digital dollar being worth exactly $1.

Who Gets to Play: Banks, Nonbanks, and State Oversight

The Act creates a formal regulatory path for two types of issuers. First, banks and credit unions can issue stablecoins through subsidiaries, and the bill clarifies that the parent bank won’t be hit with extra capital charges just for owning that stablecoin subsidiary (SEC. 5). This is a big win for traditional finance, giving them a clear on-ramp to digital assets without regulatory penalties. Second, nonbank entities can also apply for a federal license from the Comptroller.

States also get a seat at the table. A state can certify its own regulatory regime, allowing state-qualified issuers to operate. However, the federal government keeps a big stick: if a state regulator fails to take action against a violating issuer, the federal regulators can step in with backup enforcement, ensuring consumer safety isn’t compromised by lax state oversight (SEC. 7).

No Interest, No Securities, No Funny Business

This bill explicitly bans issuers from paying interest or yield to people holding their payment stablecoins (SEC. 4). While this ensures the coins function purely as a payment mechanism and not an investment, it also means that users won't earn anything on their digital dollars, unlike money market funds or savings accounts. This is a deliberate move to keep stablecoins outside the jurisdiction of securities regulators.

In fact, the bill amends five major federal securities laws to explicitly state that an approved payment stablecoin is not a security (SEC. 15). For the crypto world, this provides much-needed regulatory clarity, removing the threat of the SEC suddenly classifying these payment tools as investment contracts. This certainty is good for developers and businesses that rely on stablecoins for transactions, as it reduces legal ambiguity.

The Algorithmic Freeze-Out

Not all stablecoins are treated equally. The bill imposes a two-year moratorium on any new “endogenously collateralized stablecoin” (SEC. 11). This is a fancy term for algorithmic stablecoins—the kind whose stability is maintained only by the value of another digital asset created by the same issuer. Think of it as a temporary ban on new projects that rely on complex, self-referential mechanisms to maintain their peg, a direct response to high-profile failures in that space. For developers looking to innovate, this two-year timeout is a significant restriction on market entry.

Finally, the Act offers a critical protection for consumers in the event of failure. If an approved issuer goes bankrupt, the people holding the stablecoins get priority access to the reserve assets over almost all other creditors (SEC. 8). For the average person using stablecoins for payments, this is the ultimate safety net, ensuring that the cash backing their digital dollar is protected, even if the company issuing it collapses.