Stablecoin Reserve Requirements: Attestations, Custody, and Liquidity Management

By Chanté Eliaszadeh | October 8, 2025

The GENIUS Act transformed stablecoin reserves from a "best practices" aspiration into a strict legal mandate. Payment stablecoin issuers now face specific requirements for reserve composition, monthly third-party attestations, qualified custody arrangements, and liquidity management systems designed to prevent runs.

For issuers planning new stablecoins or restructuring existing ones, understanding these technical requirements is critical. This guide breaks down the reserve framework, explains compliance costs, compares different reserve models, and provides actionable frameworks for building compliant reserve management infrastructure.

The 1:1 Reserve Mandate

The GENIUS Act requires payment stablecoin issuers to maintain "identifiable reserves backing outstanding payment stablecoins on at least a one-to-one basis."¹ This means for every stablecoin in circulation, the issuer must hold at least one dollar of permitted reserve assets, segregated from operating funds and held in custody with qualified institutions.

This requirement applies to all federally registered stablecoin issuers and state-registered issuers coordinating with federal regulators. The law prohibits fractional reserve banking models, algorithmic stabilization mechanisms without full backing, or dynamic collateralization approaches that fall below 100% at any point.

What "At Least" Means in Practice

While the statute requires "at least" 1:1 backing, many issuers maintain reserves exceeding 100% to provide liquidity buffers during redemption surges. The law permits over-collateralization and many compliance teams recommend 102-105% reserve ratios to accommodate:

• Redemption request processing delays
• Asset valuation fluctuations (even for low-risk Treasuries)
• Transaction timing gaps between redemption requests and asset liquidation
• Regulatory examination comfort (examiners prefer safety margins)

Industry Standard: Leading issuers like Circle (USDC) maintain reserves "greater than or equal to" outstanding stablecoins, with monthly attestations confirming compliance.² This conservative approach demonstrates financial soundness and builds market confidence.

Permitted Reserve Assets

The GENIUS Act restricts reserves to specific high-quality, liquid assets designed to minimize credit risk and ensure rapid conversion to cash for redemptions.³

Permitted Assets Under Federal Law

1. Currency and Central Bank Reserves

• U.S. dollar coins and currency
• Federal Reserve notes
• Balances held at Federal Reserve Banks
• Direct deposits at central banking authorities

Why Permitted: Zero credit risk, instantly available for redemptions, no market value fluctuation

Typical Allocation: 5-15% of reserves for immediate redemption capacity

2. Insured Depository Institution Deposits

• Demand deposits at FDIC-insured banks
• Savings deposits at federally insured credit unions
• Deposits withdrawable upon request without penalty or restriction

Why Permitted: Federal deposit insurance (up to applicable limits), minimal credit risk from regulated institutions, high liquidity

Typical Allocation: 10-25% of reserves, with consideration for FDIC insurance caps

Custody Note: Issuers with reserves exceeding $250,000 (the standard FDIC insurance limit) must use multiple banking relationships or rely on pass-through deposit insurance if available. Many issuers structure accounts to maximize FDIC coverage across multiple institutions.

3. Short-Term U.S. Treasury Securities

• Treasury bills, notes, or bonds with remaining maturity of 93 days or less
• Securities issued with original maturity under 93 days qualify continuously
• Direct obligations of the U.S. government (not agency securities)

Why Permitted: Full faith and credit of U.S. government, highly liquid secondary market, minimal interest rate risk due to short duration

Typical Allocation: 60-80% of reserves for larger issuers seeking yield while maintaining safety

Market Liquidity: U.S. Treasuries are the most liquid securities globally, with daily trading volume exceeding $600 billion. Even large stablecoin issuers ($10B+) can liquidate positions rapidly without material market impact.

4. Treasury-Backed Repurchase Agreements

• Overnight reverse repurchase agreements collateralized by U.S. Treasuries
• Cleared through approved central clearing counterparties
• Bilateral repos require prior approval from primary federal regulator

Why Permitted: Overnight maturity ensures daily liquidity, Treasury collateral provides security, clearing through CCPs reduces counterparty risk

Typical Allocation: 5-15% of reserves, primarily for overnight cash management and yield enhancement

Operational Note: Most issuers use the Federal Reserve's Overnight Reverse Repo (ON RRP) facility when eligible, providing maximum safety and competitive rates. Private repo markets offer alternatives for issuers without direct Fed access.

5. Government Money Market Funds

• SEC-registered money market funds under Investment Company Act Rule 2a-7
• Funds invested exclusively in permitted reserve assets (Treasuries, repos, cash)
• Daily liquidity requirement (at least 10% of assets redeemable same-day per 2a-7 rules)

Why Permitted: Professional reserve management, diversification across multiple Treasury securities, regulatory oversight by SEC, institutional-grade custody and accounting

Typical Allocation: 40-70% of reserves for mid-sized issuers leveraging professional fund management

Leading Option: Circle Reserve Fund (USDXX), an SEC-registered government money market fund managed by BlackRock, was created specifically for stablecoin reserve management and holds majority of USDC reserves.⁴

Explicitly Prohibited Assets

The GENIUS Act's permitted asset list is intentionally restrictive. Any asset not specifically enumerated is prohibited, including:

Corporate Securities:

• Corporate bonds (even AAA-rated)
• Commercial paper
• Corporate equity securities
• Asset-backed securities

Municipal Obligations:

• State and local government bonds
• Municipal notes
• Tax-exempt securities

Crypto and Digital Assets:

• Bitcoin, Ethereum, or other cryptocurrencies
• Tokenized securities
• Other stablecoins (no cross-collateralization)
• Algorithmic stabilization mechanisms

Longer-Duration Treasuries:

• Treasury securities with maturity exceeding 93 days
• Treasury STRIPS
• TIPS (Treasury Inflation-Protected Securities)

Real Assets:

• Real estate
• Commodities (gold, silver, oil)
• Physical assets of any kind

Derivatives:

• Interest rate swaps
• Options or futures (except as explicitly permitted for hedging under regulatory approval)
• Credit default swaps

The Rationale: Permitting only the safest, most liquid assets prevents the credit risk, maturity mismatches, and illiquidity that created historical stablecoin failures. Tether's controversial reserve composition (which historically included commercial paper and corporate bonds) would not comply with GENIUS Act standards.

Reserve Asset Comparison Table

Strategic Allocation: Most sophisticated issuers use tiered liquidity approach:

• Tier 1 (Immediate): 10-20% in cash and Fed deposits for same-day redemptions
• Tier 2 (Same-Day): 30-50% in T-bills and government MMFs for intraday liquidity
• Tier 3 (Yield Optimization): 40-60% in slightly longer-dated T-bills (30-90 day maturity) for enhanced returns

Custody and Segregation Requirements

The GENIUS Act mandates that reserves be held with "qualified custodians" and segregated from issuer operating funds, creating bankruptcy-remote protection for stablecoin holders.⁵

Qualified Custodian Standards

Eligible Custodians:

1. Federally Chartered Banks

   • National banks supervised by OCC
   • Federal savings associations
   • Edge Act corporations

2. State-Chartered Depository Institutions

   • State-chartered banks with FDIC insurance
   • State-chartered trust companies with banking regulators

3. SEC-Registered Broker-Dealers

   • Broker-dealers with custody authorization under Exchange Act
   • Subject to SEC Customer Protection Rule (Rule 15c3-3)

4. CFTC-Registered Futures Commission Merchants

   • FCMs with segregated account authority
   • Subject to CFTC customer fund segregation rules

5. Registered Investment Advisers (Limited)

   • RIAs with qualified custody under Investment Advisers Act Rule 206(4)-2
   • Must maintain fidelity bond and undergo surprise examinations

Regulatory Supervision Requirement: All qualified custodians must be subject to ongoing federal or state regulatory supervision, including regular examinations, capital requirements, and consumer protection standards.

Disqualified Custodians:

• Unregulated crypto custody providers
• Foreign custodians without U.S. regulatory oversight
• Self-custody arrangements (issuer holding own reserves)
• Affiliated entities lacking independent regulatory supervision

Segregation and Bankruptcy-Remote Structuring

Legal Segregation: Reserves must be "separately accounted for and segregated from and not commingled with the assets of the custodian."⁶ This means:

1. Separate Accounts: Reserve assets held in accounts titled for benefit of stablecoin holders, not issuer's general accounts

2. Clear Recordkeeping: Custodian maintains records identifying which assets back which stablecoins

3. No Commingling: Reserve assets never mixed with custodian's proprietary assets

4. Bankruptcy Protection: In issuer bankruptcy, reserves are not part of bankruptcy estate and remain available for stablecoin redemptions

Account Titling: Most issuers use titling language like:

"[Custodian Bank], as Custodian for [Stablecoin Issuer], for the benefit of [Stablecoin Name] holders"

This establishes clear beneficial ownership separate from both issuer and custodian.

Multi-Custodian Approach: Many large issuers use multiple qualified custodians to:

• Reduce concentration risk
• Increase FDIC insurance coverage (multiple $250K limits)
• Provide redundancy if one custodian relationship terminates
• Comply with institutional investor requirements for diversification

Example: Circle holds USDC reserves with The Bank of New York Mellon (BNY Mellon), one of the largest global custodians with over $43 trillion in assets under custody.⁷ BNY Mellon provides institutional-grade custody, segregated account structures, and integration with Circle's transparency reporting.

Rehypothecation Restrictions

The GENIUS Act "prohibits payment stablecoin issuers from rehypothecating (also known as repledging or reusing) collateral held in reserves, except for creating liquidity to meet reasonable redemption expectations."⁸

Permitted Liquidity Exception: Issuers may pledge Treasury securities as collateral for overnight repurchase agreements to generate cash for redemptions, provided:

• Repos are overnight (not term repos)
• Collateral is U.S. Treasuries from reserve holdings
• Purpose is meeting redemption requests, not generating yield
• Repos are either cleared through approved CCP or pre-approved by primary regulator

Prohibited Rehypothecation:

• Lending reserve assets to generate fee income
• Using reserves as collateral for issuer's corporate borrowing
• Securities lending programs
• Any use generating revenue unrelated to redemption liquidity

Rationale: Preventing rehypothecation ensures reserves remain available for redemptions at all times. Historical bank runs often involved banks lending out deposits, creating maturity mismatches. The GENIUS Act prevents stablecoin issuers from replicating these risks.

Monthly Attestation Requirements

The GENIUS Act requires monthly third-party attestations of reserve adequacy, bringing institutional-grade transparency to stablecoin reserves.⁹

Attestation Standards and Procedures

Monthly Examination by Registered Public Accounting Firm:

Stablecoin issuers must engage a registered public accounting firm (PCAOB-registered for larger issuers, or licensed CPAs for smaller issuers) to examine monthly reserve reports using attestation standards established by the American Institute of Certified Public Accountants (AICPA).

AICPA Attestation Standards: In 2025, AICPA published comprehensive "Criteria for Stablecoin Reporting: Specific to Asset-Backed Fiat-Pegged Tokens," providing standardized framework for stablecoin attestations.¹⁰ These criteria specify:

1. Assertion by Management: Issuer's CEO and CFO certify reserve composition and adequacy

2. Examination Procedures: CPA performs agreed-upon procedures to verify:

   • Total stablecoins outstanding (on-chain verification)
   • Reserve asset composition (custody account confirmation)
   • Market value of reserve assets (pricing verification)
   • Adequacy of reserves to meet 1:1 requirement
   • Segregation and custody compliance

3. Report Format: Standardized attestation report identifying:

   • Date and time of examination (month-end snapshot)
   • Total stablecoins in circulation
   • Total reserve value (and breakdown by asset class)
   • Reserve ratio (reserves ÷ outstanding stablecoins)
   • Custodian identification
   • CPA firm opinion on adequacy

4. Public Disclosure: Report published on issuer's website within 30 days of month-end

Attestation vs. Audit: Monthly attestations are "examination engagements" under AT-C Section 205 (AICPA standard), providing reasonable assurance but less comprehensive than full financial statement audits. Attestations focus specifically on reserves, not entire company financial condition.

Annual Audit Requirement: Issuers with over $50 billion in outstanding stablecoins must also publish annual audited financial statements prepared under PCAOB auditing standards, providing enhanced oversight for systemically important issuers.¹¹

CEO/CFO Certification

Each monthly attestation must be accompanied by certification from the issuer's chief executive officer and chief financial officer that:

• The report contains no material misstatements
• Reserve disclosures accurately reflect the issuer's financial condition
• All reserve requirements have been met
• Internal controls over reserve management are effective

This personal certification creates accountability and potential personal liability for executives who knowingly certify false information.

What Attestation Reports Include

Standard Disclosures:

1. Reserve Composition Breakdown:

   • Percentage in each permitted asset class
   • Weighted average maturity of Treasury holdings
   • Custodian identification for each asset category
   • Geographic location of custodians (if applicable)

2. Quantitative Metrics:

   • Total stablecoins outstanding (verified on-chain)
   • Total reserve value (marked to market)
   • Reserve ratio (typically >100% for quality issuers)
   • Breakdown by asset type ($XXM in Treasuries, $XXM in bank deposits, etc.)

3. Custody Verification:

   • Confirmation that assets held with qualified custodians
   • Verification of segregated account structures
   • Attestation that no commingling with issuer funds

4. Redemption Metrics (Optional but Common):

   • Redemption volume during attestation period
   • Average redemption processing time
   • Largest single-day redemption as % of reserves

Example: Circle publishes monthly USDC attestation reports prepared by Deloitte & Touche LLP showing reserve composition, with majority held in Circle Reserve Fund (USDXX), remainder in cash at regulated banks, and confirmation that reserves exceed outstanding USDC.¹²

Attestation Costs

Monthly attestation costs vary based on stablecoin issuance volume, reserve complexity, and accounting firm selected.

Cost Ranges by Issuer Size:

Cost Drivers:

• Asset Complexity: Simple reserve composition (single government MMF) costs less than multi-custodian, multi-asset structures
• Custodian Integration: Attestation firm needs API access or data feeds from custodians; integration complexity affects costs
• Blockchain Verification: On-chain verification of outstanding tokens requires specialized procedures
• Geographic Scope: Multi-jurisdictional operations increase complexity
• Regulatory Intensity: Issuers subject to enhanced federal supervision face more rigorous attestation requirements

Annual Audit Costs (For $50B+ Issuers):

In addition to monthly attestations, systemically important issuers ($50B+) must undergo annual PCAOB audits:

• Big Four Audit Fees: $500,000 - $1,500,000 annually
• Scope: Full financial statement audit, internal controls assessment (SOC 2 Type II or equivalent), reserve verification
• Timeline: 90-day turnaround from fiscal year-end

Total Annual Compliance Cost (Attestation + Audit): For a $5 billion stablecoin issuer using Big Four accounting firm:

• Monthly attestations: $480,000/year
• Annual compliance infrastructure: $200,000/year
• Technology integration (custody/blockchain feeds): $150,000/year
• Internal compliance staff (dedicated team): $400,000/year

Total: $1.23M annually in attestation-related compliance costs alone.

Selecting an Attestation Provider

Big Four vs. Specialist Firms:

Big Four Advantages:

• Regulatory credibility (federal examiners recognize names)
• Institutional investor comfort (many investors require Big Four attestation)
• Global reach for international operations
• Deep resources for complex structures

Big Four Disadvantages:

• Higher costs (2-3x specialist firms)
• Slower engagement setup (conflict checks, onboarding)
• Less flexible on innovative structures

Specialist Firm Advantages:

• Crypto-native expertise (Armanino, Moss Adams have dedicated digital asset practices)
• Lower costs (especially for mid-market issuers)
• Faster turnaround and more flexible engagement terms
• Innovation-friendly (more willing to adapt procedures for novel structures)

Specialist Firm Disadvantages:

• Less name recognition with traditional institutional investors
• Smaller teams (capacity constraints for very large issuers)
• May not satisfy "Big Four requirement" in some institutional custody agreements

Recommendation:

• $0-500M issuance: Specialist crypto accounting firms (Armanino, Moss Adams, CohnReznick)
• $500M-5B: National firms with digital asset groups (BDO, Grant Thornton, RSM)
• $5B+: Big Four mandatory (institutional investor requirements, regulatory expectations)

Attestation vs. Audit: Understanding the Difference

Why Attestations Matter: Monthly attestations provide transparency and early warning if reserve adequacy deteriorates. Unlike annual audits (which look backwards), monthly attestations give real-time confidence to stablecoin holders and regulators.

Redemption Mechanisms and Liquidity Management

Reserve adequacy means nothing if stablecoin holders cannot redeem tokens quickly. The GENIUS Act requires issuers to establish clear redemption procedures and maintain sufficient liquidity to honor requests.¹³

Redemption Policy Requirements

Mandatory Disclosures:

Issuers must publish a redemption policy on their website in "plain language" addressing:

1. Redemption Process:

   • How to submit redemption requests (web portal, API, email, etc.)
   • Verification requirements (KYC/AML for large redemptions)
   • Minimum and maximum redemption amounts
   • Supported redemption methods (wire, ACH, crypto rails)

2. Timing Commitments:

   • Processing timeline (e.g., "Redemptions processed within 1-2 business days")
   • Cutoff times for same-day processing
   • Holiday schedule affecting redemption timing

3. Fee Disclosure:

   • Redemption fees (if any), disclosed in dollars or basis points
   • Fee changes require 7 days advance notice
   • Fee waivers (e.g., large institutional redemptions may have negotiated fee structures)

4. Redemption at Par:

   • Explicit commitment to redeem 1 stablecoin for 1 U.S. dollar
   • No market-based discounts or premiums
   • Protection against issuer charging unfair fees

Industry Standard: Leading issuers process redemptions within 1-2 business days, charge zero or minimal fees (0-0.1%), and guarantee par redemption regardless of market conditions.

Example: USDC redemption policy commits to processing requests "within 1-2 business days" with no redemption fees for verified Circle accounts. Institutional customers with $100K+ redemptions receive priority processing.¹⁴

Direct Redemption vs. Secondary Market Trading

The GENIUS Act does not explicitly require all stablecoin holders to have direct redemption rights from the issuer. This creates two redemption models:

Model 1: Universal Direct Redemption

• All holders can redeem directly with issuer (retail + institutional)
• Requires robust KYC/AML infrastructure for retail redemptions
• Higher operational costs (customer service, compliance, fraud prevention)
• Examples: USDC (via Circle account), PYUSD (via PayPal account)

Model 2: Authorized Participant Redemption

• Only institutional "authorized participants" can redeem directly with issuer
• Retail holders redeem via secondary market (exchanges, DEXs)
• Lower operational costs (fewer redemption counterparties)
• Relies on arbitrage to maintain peg (APs redeem if market price < $1, buy if > $1)
• Examples: Traditional ETF model (potential stablecoin application)

Regulatory Consideration: Federal regulators have not provided clear guidance on whether authorized participant models comply with GENIUS Act redemption requirements. Conservative approach: offer direct redemption to all holders above minimum threshold ($100-$1,000).

Liquidity Management During Runs

Stress Testing Requirements:

Prudent reserve management includes regular stress testing to ensure liquidity during redemption surges. Recommended scenarios:

1. Baseline Stress: 10% of outstanding stablecoins redeemed in single day
2. Severe Stress: 25% redeemed in single day
3. Extreme Stress: 50% redeemed in 3-day period

Liquidity Buffers:

To meet stress scenarios without forced asset sales, issuers maintain:

• Cash and Fed Deposits: 10-20% of reserves in immediately available cash
• Same-Day Liquidity: 50-60% in assets convertible to cash same-day (T-bills, MMFs)
• 1-3 Day Liquidity: 20-30% in assets requiring 1-3 days to liquidate
• Repurchase Agreement Capacity: Pre-negotiated repo lines allowing overnight borrowing against Treasury collateral

Emergency Liquidity Tools:

The GENIUS Act permits issuers to use Treasury repo markets to generate temporary liquidity during redemption surges:¹⁵

• Pledge T-bills as collateral for overnight repos
• Raise cash to fund redemptions
• Repay repos as redemption pressure subsides
• Maintains reserve adequacy (T-bills remain in reserves, repo is temporary borrowing)

Example Scenario: Stablecoin issuer faces $500M redemption requests in one day:

1. Hour 1: Use $200M cash reserves to process first wave of redemptions
2. Hour 2-4: Pledge $300M T-bills in repo market, raise $300M cash
3. Hour 5-8: Process remaining redemption requests using repo proceeds
4. Day 2: Sell additional T-bills if redemption pressure continues, or repay repo if pressure subsides

Bankruptcy Court Stay Powers:

In extreme circumstances, the GENIUS Act allows bankruptcy courts to impose automatic stays on stablecoin redemptions, though this provision is intended as last resort only.¹⁶ Federal Reserve can also impose redemption restrictions during "unusual and exigent circumstances."

Operational Reality: Well-managed stablecoin issuers should never need emergency stays. Proper liquidity management prevents runs:

• Transparent attestations build confidence
• Over-collateralization provides cushion
• Diversified liquidity sources (cash + T-bills + MMFs + repo capacity)
• Clear communication during market stress

Reserve Models: 100% Backing vs. Over-Collateralization

While the GENIUS Act mandates minimum 1:1 backing, issuers face strategic choice between minimum compliance and conservative over-collateralization.

100% Reserve Model

Structure:

• Exactly 1:1 reserve backing (reserves = outstanding stablecoins)
• No surplus reserves
• Minimal capital tied up in non-revenue-generating assets

Advantages:

• Capital efficiency (no excess reserves)
• Maximum flexibility for issuer balance sheet
• Simpler accounting and reserve management

Disadvantages:

• Zero margin for error (any valuation decline or operational gap creates compliance breach)
• Requires perfect real-time reserve management
• Minimal liquidity buffer during redemption surges
• Regulatory concern (examiners prefer cushions)

When Appropriate:

• Sophisticated issuers with advanced treasury management systems
• Small-scale issuers ($10M-$100M) where excess reserves are capital-intensive
• Issuers with reliable redemption patterns and minimal volatility

Over-Collateralization Models

Common Ratios:

Benefits of Over-Collateralization:

1. Operational Cushion: Absorbs timing gaps between redemption requests and asset liquidation
2. Valuation Protection: Protects against minor asset valuation fluctuations
3. Regulatory Comfort: Examiners view buffers favorably, potentially reducing examination intensity
4. Market Confidence: Transparent over-collateralization signals financial strength
5. Competitive Advantage: "Reserves exceed outstanding stablecoins" is marketing differentiator

Cost of Over-Collateralization:

• Capital Requirement: 5% buffer on $1B stablecoin = $50M additional capital
• Opportunity Cost: Excess reserves earn T-bill yields (~4-5%) but could be deployed elsewhere
• Accounting Complexity: Must track surplus reserves separately from minimum required reserves

Industry Standard: Most leading issuers maintain 102-105% reserve ratios. Circle, for example, reports reserves "greater than or equal to" USDC outstanding, with monthly attestations confirming surplus.¹⁷

Reserve Composition Strategies

Aggressive Yield Strategy (Within Permitted Assets):

• 80% in 30-90 day T-bills (maximum permitted yield)
• 15% in government MMFs (professional management)
• 5% in cash (minimum redemption liquidity)
• Pros: Higher yield generation, institutional-grade returns
• Cons: Lower immediate liquidity, requires daily monitoring

Conservative Liquidity Strategy:

• 60% in government MMFs (daily liquidity)
• 25% in overnight repos (overnight liquidity)
• 15% in cash and Fed deposits (instant liquidity)
• Pros: Maximum liquidity for redemptions, minimal liquidation risk
• Cons: Lower yields (MMFs and repos yield less than T-bills)

Balanced Strategy (Most Common):

• 65% in 7-30 day T-bills (yield + liquidity)
• 20% in government MMFs (diversified liquidity)
• 10% in cash at FDIC banks (immediate access)
• 5% in Fed deposits or overnight repos (emergency capacity)
• Pros: Balances yield and liquidity, flexible for different redemption scenarios
• Cons: Requires active management and daily rebalancing

Comparing Leading Stablecoins' Reserve Approaches

USDC (Circle):¹⁸

• Reserve Ratio: >100% (exact ratio disclosed monthly)
• Composition: Majority in Circle Reserve Fund (USDXX), a government MMF managed by BlackRock; remainder in cash at regulated banks
• Custody: Bank of New York Mellon
• Attestation: Monthly reports by Deloitte & Touche LLP
• Transparency: Weekly reserve holdings disclosure, monthly third-party attestations
• Model: Over-collateralized, maximum transparency, institutional-grade custody

USDT (Tether):¹⁹

• Reserve Ratio: Reported >100% (Q1 2025: assets exceed liabilities)
• Composition: 66.4% U.S. Treasury bills, 10.3% overnight repos, 5% corporate bonds/precious metals/Bitcoin
• Attestation: Quarterly attestations by BDO Italia (not monthly)
• Transparency: Quarterly disclosures (less frequent than USDC)
• Compliance Gap: Corporate bonds and crypto holdings would NOT comply with GENIUS Act permitted assets; Tether would need restructuring for U.S. federal registration
• Model: Over-collateralized but includes non-compliant assets under U.S. law

PYUSD (PayPal):²⁰

• Reserve Ratio: 100%+ (exact ratio not publicly disclosed at same frequency as USDC)
• Composition: Deposits and U.S. Treasuries (specific breakdown less transparent)
• Attestation: Third-party attestations (provider and frequency not as prominently disclosed)
• Transparency: Less detailed public reporting than USDC
• Model: Compliant with permitted assets, leverages PayPal's banking relationships

Key Takeaway: USDC sets industry gold standard for GENIUS Act compliance readiness with monthly Big Four attestations, government MMF-heavy reserves, and institutional custody. Tether would require significant restructuring to achieve compliance. PYUSD appears compliant but could enhance transparency.

Building a Compliant Reserve Management Framework

For issuers planning new stablecoins or restructuring existing ones, implementing compliant reserve management requires systematic approach.

Phase 1: Infrastructure Design (Months 1-2)

Step 1: Select Qualified Custodian(s)

Evaluation Criteria:

• Regulatory supervision (OCC, state banking, SEC, CFTC)
• Segregated account capabilities
• Integration with attestation providers (API access for CPAs)
• Custody fees and minimum balance requirements
• Asset coverage (can hold all permitted asset types)
• Institutional reputation and financial strength

Leading Custody Providers for Stablecoin Reserves:

Recommendation: Use primary custody relationship with Tier 1 bank custodian (BNY, State Street) plus backup custodian for redundancy.

Step 2: Structure Reserve Accounts

Account Titling: Work with custody counsel to draft account agreements establishing:

• Beneficial ownership for stablecoin holders
• Segregation from issuer's operating funds
• Bankruptcy-remote protections
• Clear redemption mechanics

Multi-Custodian Architecture (For Large Issuers):

• Primary custody: 60-70% of reserves
• Secondary custody: 20-30% of reserves
• Tertiary (banking deposits): 10% of reserves

Provides redundancy if one relationship terminates.

Step 3: Select Reserve Asset Mix

Based on liquidity stress testing, capital efficiency goals, and yield targets, establish target allocation:

Example Target Allocation ($1B Stablecoin):

• $650M in government MMF (65% - daily liquidity + yield)
• $200M in 7-30 day T-bills (20% - enhanced yield)
• $100M in cash at FDIC banks (10% - instant redemptions)
• $50M in overnight repos (5% - emergency liquidity)
• Total: $1.0B reserves = 100% backing
• Optional buffer: +$20M = 102% ratio

Phase 2: Technology Integration (Months 2-4)

Reserve Monitoring System:

Implement real-time dashboard tracking:

• On-chain verification of outstanding stablecoins (integrated with blockchain nodes)
• Custody account balances (API integration with custodians)
• Real-time reserve ratio calculation
• Alerts if ratio falls below threshold (e.g., 101%)
• Automated rebalancing triggers

Leading Technology Vendors:

• Fireblocks: Custody integration, reserve monitoring, blockchain connectivity
• Anchorage Digital: Integrated custody and reserve management platform
• Custom Build: Internal treasury management system (typical cost: $500K-$2M)

Blockchain Integration:

To verify outstanding stablecoins, integrate with:

• Ethereum nodes (if ERC-20 stablecoin)
• Multi-chain nodes (if multi-chain deployment)
• Third-party blockchain analytics (Chainalysis, Elliptic, TRM Labs) for independent verification

Attestation Provider Integration:

Grant CPA firm:

• Read-only API access to custody accounts
• Blockchain node access for on-chain verification
• Automated data feeds for monthly attestation procedures
• Secure data room for supporting documentation

Phase 3: Operational Procedures (Months 3-4)

Daily Reserve Management:

Morning (9 AM ET):

• Verify custody account balances
• Confirm overnight stablecoin issuance/redemptions (on-chain)
• Calculate current reserve ratio
• Identify any rebalancing needs

Midday (12 PM ET):

• Process redemption requests received
• Liquidate assets if needed to fund redemptions
• Reinvest excess cash from redemption fees or new issuances

End-of-Day (4 PM ET):

• Final reserve ratio verification
• Reconcile custody statements
• Document any reserve asset purchases/sales
• Archive daily reserve snapshot for audit trail

Monthly Attestation Process:

Day 1 (Month-End):

• Freeze reserve snapshot (exact balances as of 11:59 PM)
• Generate on-chain verification report (total stablecoins outstanding)
• Export custody account statements
• CEO/CFO review preliminary data

Days 2-5:

• CPA firm performs examination procedures
• Verify custody account balances with custodians
• Confirm on-chain stablecoin supply
• Test reserve ratio calculation
• Review segregation compliance

Days 6-10:

• CPA firm drafts attestation report
• Management reviews report for accuracy
• CEO/CFO sign certification

Days 11-15:

• Publish attestation report on website
• Distribute to regulators (if required)
• Communicate results to institutional customers
• Archive for regulatory examination

Redemption Procedures:

Standard Redemption (Under $100K):

1. User submits request via web portal or API
2. KYC/AML verification (if not previously completed)
3. Burn stablecoins (remove from circulation on-chain)
4. Initiate wire/ACH payment to user's bank account
5. Processing time: 1-2 business days

Large Redemption ($100K - $10M):

1. Institutional customer submits notice (24-48 hours advance preferred)
2. Enhanced verification and sanctions screening
3. Treasury team pre-positions liquidity (liquidate T-bills if needed)
4. Burn stablecoins
5. Wire payment (same-day or next-day)
6. Processing time: Same-day to 1 business day

Jumbo Redemption ($10M+):

1. Advance notice required (48-72 hours)
2. Senior management approval
3. Liquidity plan (may require repo borrowing or staged liquidation)
4. Coordinated with custodian for large wire
5. Processing time: 1-3 business days depending on size

Phase 4: Compliance Monitoring (Ongoing)

Internal Audit Program:

Quarterly internal audits reviewing:

• Reserve ratio compliance (daily snapshots)
• Custody segregation (account structure verification)
• Redemption processing (timeliness, fee accuracy)
• Technology controls (system access, data integrity)
• Attestation procedures (CPA coordination, publication timeliness)

Regulatory Reporting:

Prepare for federal/state examinations:

• Maintain audit trail of all reserve transactions
• Document policy decisions (asset allocation changes, custodian selection)
• Track redemption metrics (volume, timing, fees)
• Monitor industry best practices (peer benchmarking)

Stress Testing:

Semi-annual stress tests:

• Model redemption surges (10%, 25%, 50% of supply)
• Test liquidity sources (can we fund redemptions?)
• Identify asset liquidation bottlenecks
• Validate repo borrowing capacity
• Update liquidity buffers if stress tests reveal gaps

State-Level Reserve Requirements

While the GENIUS Act establishes federal baseline, some states impose additional requirements for state-chartered stablecoin issuers.

New York DFS Requirements

New York's Department of Financial Services established stablecoin reserve requirements in 2022 guidance, predating federal legislation:²¹

Reserve Assets (NY-Specific):

• U.S. Treasury bills (≤3 months maturity)
• Reverse repos with U.S. Treasuries
• Government money market funds
• Deposit accounts at U.S. chartered banks

Similar to GENIUS Act but more prescriptive on maturity (3 months vs. 93 days)

Custody Requirements:

• Assets held at U.S. state or federally chartered depository institutions
• FDIC insurance required
• Asset custodians approved in advance by DFS

Attestation Standards:

• Monthly examination by independent U.S.-licensed CPA
• Attestation under AICPA standards
• Public reporting within 30 days

Redemption Requirements:

• Holders can redeem at par (1:1)
• Redemption within 2 business days
• Clear, pre-approved redemption policies

Practical Impact: New York's requirements are highly aligned with GENIUS Act, making NY-chartered stablecoin issuers well-positioned for federal compliance. Issuers holding NY BitLicense or trust charter likely need minimal adjustments.

State Money Transmitter "Permissible Investments"

Most states with money transmitter licensing require licensees to maintain "permissible investments" equal to outstanding payment obligations. Stablecoin issuers operating as money transmitters must comply with both GENIUS Act and state-level investment requirements.

Common State Permissible Investments:

• U.S. government securities
• Federal agency obligations (Fannie Mae, Freddie Mac)
• FDIC-insured deposits
• Investment-grade corporate bonds (some states)
• Money market funds

State-Specific Variations:

Hawaii: Requires money transmitters handling cryptocurrency to maintain dollar-equivalent cash reserves for all crypto held.²² This effectively requires 100% reserve backing, aligning with GENIUS Act.

Texas: Permits broad range of investment-grade securities, including some corporate debt. Stablecoin issuers would need to comply with more restrictive GENIUS Act standards.

California: DFAL (Digital Financial Assets Law) imposes custody and reserve requirements on digital asset licensees. Specific permissible investments to be defined in regulations.

Compliance Strategy: Design reserve composition to satisfy most restrictive standard (GENIUS Act), ensuring compliance across federal and state requirements simultaneously.

Reserve Management Best Practices

Based on leading issuers' approaches and regulatory expectations:

1. Maintain 102-105% Reserve Ratio

Over-collateralization provides operational cushion and regulatory comfort. Even small buffers (2-5%) significantly reduce compliance risk.

2. Prioritize Liquidity Over Yield

While T-bills offer higher yields than MMFs, liquidity should be primary consideration. Maintain at least 50% in same-day liquid assets (cash, MMFs, overnight repos).

3. Use Institutional-Grade Custody

Select custodians with strong regulatory relationships, robust technology, and track record serving institutional clients. BNY Mellon, State Street, and similar Tier 1 custodians provide credibility.

4. Implement Automated Reserve Monitoring

Manual reserve tracking creates operational risk. Invest in technology providing real-time reserve ratio visibility and automated alerts.

5. Engage Big Four Attestation Early

For issuers targeting $1B+ scale, engage Big Four accounting firm from launch. Switching attestation providers later creates continuity challenges and regulatory questions.

6. Document Everything

Maintain audit trail for every reserve transaction, asset allocation decision, custodian selection, and policy change. Regulatory examiners will review documentation extensively.

7. Stress Test Regularly

Conduct quarterly stress tests modeling redemption surges. Update liquidity buffers and repo capacity based on test results.

8. Communicate Transparently

Publish monthly attestations prominently on website. Consider weekly or daily reserve disclosures (like USDC) to build market confidence.

9. Prepare for Redemption Volatility

Maintain pre-negotiated repo lines and custodian relationships supporting rapid asset liquidation. Build operational capacity for 10-25% daily redemptions.

10. Monitor Regulatory Developments

Federal and state regulators continue refining stablecoin requirements. Assign compliance team member to track guidance, enforcement actions, and industry best practices.

Cost Summary: Building Compliant Reserve Infrastructure

One-Time Implementation Costs ($1B Stablecoin):

• Custody account setup and legal structuring: $100,000-$300,000
• Technology integration (reserve monitoring, blockchain verification): $300,000-$1,000,000
• Initial CPA attestation setup (procedures, controls): $50,000-$150,000
• Internal compliance infrastructure (policies, training): $75,000-$200,000

Total One-Time: $525,000-$1,650,000

Ongoing Annual Costs ($1B Stablecoin):

• Monthly attestations (12 × $30K-$60K): $360,000-$720,000
• Custody fees (2-3 bps on $1B): $200,000-$300,000
• Technology platform licenses: $100,000-$300,000
• Internal compliance staff (2-3 FTEs): $300,000-$600,000
• Reserve asset transaction costs: $50,000-$150,000

Total Ongoing Annual: $1,010,000-$2,070,000

Reserve Management Operating Cost: ~0.10-0.20% of outstanding stablecoins annually

This aligns with leading issuers' publicly disclosed compliance costs. For scale, USDC generates revenue through yield on reserves (T-bill returns) which can offset compliance costs, though GENIUS Act prohibits passing yield to stablecoin holders.

Conclusion: Reserve Management as Competitive Advantage

GENIUS Act reserve requirements transformed stablecoins from experimental crypto assets into regulated financial instruments with institutional-grade transparency and safety. For issuers, compliance is expensive and operationally complex—but it's also a powerful competitive moat.

Issuers demonstrating robust reserve management, transparent monthly attestations, and institutional custody arrangements will earn trust from:

• Institutional investors requiring regulated stablecoins for treasury management
• Payment processors integrating stablecoins into mainstream payment rails
• Regulators evaluating issuer safety and soundness
• Retail users seeking confidence in redemption rights

The reserve framework isn't just regulatory compliance—it's the foundation for stablecoins' evolution into essential financial infrastructure. Build it right from the start, invest in institutional-grade systems and custody, maintain conservative buffers, and communicate transparently. The issuers who excel at reserve management will dominate the regulated stablecoin market.

Need Stablecoin Reserve Compliance Guidance?

Astraea Counsel helps stablecoin issuers design compliant reserve frameworks, select qualified custodians, implement attestation processes, and navigate federal and state requirements. Explore our Digital Assets & Blockchain legal services.

Related Resources

• The GENIUS Act: Your 6-Month Stablecoin Compliance Roadmap - Complete federal registration strategy
• Qualified Crypto Custodians: Regulatory Requirements and Selection Guide - Choosing custodians for reserve assets
• Treasury Management for Crypto Companies - Corporate treasury and liquidity strategies
• Money Transmitter Licensing: State-by-State Strategy - State licensing coordination

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Footnotes

1. S. 394, Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), 119th Cong. § 202 (2025), available at https://www.congress.gov/bill/119th-congress/senate-bill/394 ↩

2. Circle, "USDC Transparency and Trust," available at https://www.circle.com/transparency (last visited Oct. 8, 2025) ↩

3. GENIUS Act § 203 (defining permitted reserve assets) ↩

4. Circle Reserve Fund (USDXX), SEC-registered government money market fund managed by BlackRock, available at https://www.circle.com/usdc ↩

5. GENIUS Act § 204 (custody and segregation requirements) ↩

6. WilmerHale, "What the GENIUS Act Means for Payment Stablecoin Issuers, Banks, and Custodians" (July 18, 2025), available at https://www.wilmerhale.com/en/insights/client-alerts/20250718-what-the-genius-act-means-for-payment-stablecoin-issuers-banks-and-custodians ↩

7. Circle, "USDC Reserve Composition," available at https://www.circle.com/transparency ↩

8. Sidley Austin LLP, "The GENIUS Act: A Framework for U.S. Stablecoin Issuance" (July 2025), available at https://www.sidley.com/en/insights/newsupdates/2025/07/the-genius-act-a-framework-for-us-stablecoin-issuance ↩

9. GENIUS Act § 205 (monthly attestation and reporting requirements) ↩

10. American Institute of Certified Public Accountants, "Criteria for Stablecoin Reporting: Specific to Asset-Backed Fiat-Pegged Tokens" (2025), available at https://www.aicpa-cima.com/resources/download/stablecoin-reporting-criteria ↩

11. GENIUS Act § 205(b) (annual audit requirement for systemically important issuers) ↩

12. Circle, "USDC Monthly Attestations," available at https://www.circle.com/transparency ↩

13. GENIUS Act § 206 (redemption policies and procedures) ↩

14. Circle, "USDC Redemption Policy," available at https://www.circle.com/usdc ↩

15. Latham & Watkins LLP, "The GENIUS Act of 2025: Stablecoin Legislation Adopted in the US," available at https://www.lw.com/en/insights/the-genius-act-of-2025-stablecoin-legislation-adopted-in-the-us ↩

16. GENIUS Act § 207 (emergency powers and bankruptcy protections) ↩

17. Circle, "USDC Reserve Attestations," available at https://www.circle.com/transparency ↩

18. Circle, "USDC Transparency Reports" (2025), available at https://www.circle.com/transparency ↩

19. Tether, "Q1 2025 Attestation Report," available at https://tether.to/attestations (Tether reported 66.4% in U.S. Treasury bills, 10.3% in overnight repo agreements, 5% in corporate bonds, precious metals, and Bitcoin) ↩

20. XAIGate, "The Stablecoin Race in Payments: USDT, USDC, PYUSD in 2025," available at https://www.xaigate.com/stablecoin-race-in-payments-usdt-usdc-pyusd-2025/ ↩

21. New York Department of Financial Services, "Guidance on the Issuance of U.S. Dollar-Backed Stablecoins" (June 8, 2022), available at https://www.dfs.ny.gov/industry_guidance/industry_letters/il20220608_issuance_stablecoins ↩

22. Brookings Institution, "What are stablecoins, and how are they regulated?" (2025), available at https://www.brookings.edu/articles/what-are-stablecoins-and-how-are-they-regulated/ ↩