Regulatory Shakeup for Digital Dollars

In the early days of digital art, investors and collectors were wary regarding authenticity, ownership, and how to accurately price a visual creative work that existed only digitally. Nevertheless, by 2025, things have shifted. Among 3.1K high-net-worth individuals surveyed about their art collections, 51% had purchased digital artwork. The digital art market is expected to reach $5.8B this year and soar to $17.72B by 2032. This evolution mirrors developments in the digital financial asset space, where stablecoins have emerged as a frontrunner.After years of uncertainty around digital assets, the GENIUS Act finally gives banks a clear, regulated path to use stablecoins safely. For community financial institutions (CFIs), this means the conversation can shift from “if” to “how.”The law requires all dollar-backed stablecoins to be fully collateralized with US currency or Treasuries, subject to monthly reserve audits, and supervised at the state or federal level. Marketing stablecoins as legal tender or as government-insured products is now strictly prohibited. Oversight under the GENIUS Act is shared: certain permitted issuers fall under the OCC or state-level regulatory regimes, depending on their structure and whether they elect to be supervised federally or by a state authority. Issuers must also meet federal requirements around anti-money-laundering compliance, consumer protection, and financial stability. For CFIs, this framework provides greater clarity to evaluate stablecoin integration into payments, settlement, and liquidity functions within defined regulatory guardrails.Large institutions are already adapting. Stripe’s subsidiary, Bridge, along with Circle, Ripple, and Paxos, has applied for national trust bank status, signaling that stablecoin issuers are moving toward federally supervised models. U.S. Bank has formed a “Digital Assets and Money Movement” division to manage tokenized payments and custody functions. While CFIs aren’t expected to launch divisions of their own, these moves set the stage for future partnerships — giving community institutions new, compliant ways to connect to these rails. Risk Management: A Familiar DisciplineAdopting stablecoins is not risk-free, especially for traditional lenders and deposit-takers. However, many of the safeguards financial institutions already use — vendor oversight, liquidity monitoring, and ALCO reporting — can be adapted to manage these exposures.Recent industry guidance recommends that CFIs:

TRM Labs notes that the most successful institutions treat stablecoin oversight as part of enterprise-wide risk management — integrating it into existing frameworks for liquidity, credit, and third-party risk. This includes establishing escalation paths for peg deviations, conducting independent reserve reviews, and maintaining contingency playbooks for temporary redemption halts.For CFIs, this means folding stablecoin exposure into current governance processes — not reinventing them. The same principles that guide vendor management, correspondent relationships, and funds-availability policies apply here, too.The firm’s blueprint also highlights the importance of governance discipline. CFIs should document risk ownership and assign executive accountability for digital-asset exposure, with quarterly reporting to the board. Monitoring tools for wallet flows and blockchain analytics can enhance visibility into transaction patterns and early-warning detection for suspicious activity or liquidity stress. Navigating Uncertainty: Practical Next StepsWith stablecoins moving from experimental pilots to mainstream payment rails, the challenge for CFIs is balancing innovation with safety. Larger institutions are already demonstrating use cases for programmable payments and near instant settlement — developments worth monitoring as regulatory clarity improves under the GENIUS Act.CFIs don’t need to issue or hold stablecoins directly to prepare for this shift. A practical first step is simply assessing the exposure points within their own operations: identifying where counterparties or payment processors are beginning to use tokenized settlement, understanding transaction flows, and ensuring oversight processes remain sound.Resilience begins with preparation. CFIs should regularly test how potential disruptions — such as blockchain outages, counterparty issues, or redemption delays — could affect liquidity or customer access. Scenario testing, already familiar from ALCO and business continuity planning, can readily extend to new payment environments.Equally important is staff readiness. Employees should be trained on redemption procedures, reporting requirements, and customer communication during periods of stress or market volatility. Clear policy reviews and tabletop exercises help frontline teams understand where stablecoins may intersect with liquidity and payments, ensuring readiness without direct exposure.Regulatory Edge: Why This Matters Now

The Bottom LineStablecoins are moving from headlines to infrastructure — and regulation is catching up. For CFIs, the GENIUS Act doesn’t mean launching crypto products. It means they can now explore modern payment capabilities with clearer guardrails and less risk.CFIs that extend existing governance, vendor-risk, and liquidity practices to digital payments will be best positioned to participate confidently. Innovation doesn’t have to come at the expense of safety — and with regulatory clarity, CFIs can finally compete on both.