Regulation of Stablecoins and the GENIUS Act: The Necessity of Formal Verification
With the development of Web3 applications, stablecoins have become a key focus for central banks and institutions, with the potential to reshape global payment and financial infrastructure. Formal verification, as a technical means, can effectively assist stablecoin projects in meeting regulatory requirements, including the GENIUS Act, and in building a more reliable contract system.As Web3 applications continue to accelerate, more and more central banks and institutions are developing digital asset products, with stablecoins being one of the key focuses. Stablecoins combine the efficiency and transparency of blockchain with the stability of traditional finance, and are set to reshape the global payment system and financial infrastructure. However, to drive mainstream adoption of stablecoins, a solid foundation must still be laid in areas such as user trust, regulatory compliance, and compatibility with existing Web3 systems.
Under a strict compliance framework, formal verification is considered a highly promising methodology that can help build reliable stablecoin contracts while verifying key compliance requirements. This article will focus on the following directions:
A comprehensive understanding of the regulatory requirements for stablecoins is crucial for all stablecoin issuers;
When launching stablecoin projects in the United States, the "GENIUS Act" is an indispensable basis for assessing compliance risks;
Formal verification can help stablecoin projects more effectively meet the compliance requirements of the "GENIUS Act."
Overview of Stablecoin Regulatory Landscape
Since the launch of the first crypto stablecoin projects in 2014, stablecoins have been viewed as a bridge connecting the traditional financial system with the Web3 world. The traditional financial system generally suffers from high latency, lack of transparency, and high costs. To improve these shortcomings, stablecoins introduce:
Real-time settlement
Immutable records
Smart contracts that can automatically verify rules or redirect foreign exchange paths
Broader financial inclusion, allowing anyone to participate easily
The electronic money (E-Money) regulatory framework, introduced in 2009, was not initially designed for the Web3 scenario, but has gradually extended to cover Web3-compatible solutions, including stablecoins.
Currently, regulatory agencies in multiple regions, including the Abu Dhabi Global Market (ADGM) and the Hong Kong Monetary Authority (HKMA), have central banks testing related solutions. The U.S. Congress has passed the "GENIUS Act," outlining a regulatory roadmap for the compliant development of stablecoins.
The "GENIUS Act"
Launched in June 2025, the "GENIUS Act" (Guiding and Establishing National Innovation for U.S. Stablecoins Act) establishes a mandatory compliance framework for stablecoin payments in the United States:
Portions of the "GENIUS Act" Legal Text
The Chinese reference for some legal text is as follows:
Why is the "GENIUS Act" Crucial?
The act establishes a unified federal-level "certification" for stablecoins, helping to reduce regulatory fragmentation and providing clear institutional guidance for product design, risk management, and audit preparation. Adhering to the standards in the "GENIUS Act" is not only a basic requirement for compliance but also a key safeguard for enhancing the security of user asset transactions.
As the formal verification research team at CertiK, we aim to introduce formal verification methodologies to help prove the key attributes of stablecoin smart contracts. By utilizing rigorous mathematical derivations and machine-checkable logical proofs, we ensure that the code meets compliance and security requirements under any boundary conditions.
From Legal Text to Formal Verification Lemmas
Formal verification expresses each compliance requirement as an on-chain invariant or liveness. Taking the "GENIUS Act" as an example, the aforementioned legal text can be formally expressed as the following lemma:
Additionally, certain technical invariants of stablecoins should be rigorously proven to ensure compliance with specific legal requirements.
Stablecoin technical invariants:
These formal lemmas will become proof obligations within the chosen verification framework (TLA⁺, Coq, K, Isabelle, or Why3).
However, only some of these specifications are related to the formal verification process at the smart contract stage. In the following example, we have built a case based on the Solana stablecoin system and formalized its specifications.
Solana Stablecoin Program Example: How to Implement the Invariant Requirements of the "GENIUS Act"
Below is a simplified version of the Solana stablecoin program we constructed, demonstrating how all operations on-chain satisfy its core invariants:
Formal Verification Output Example of the Solana Stablecoin Program
The following is a simplified version of the Solana stablecoin program example, showcasing how to enforce core invariants on-chain:
In the complete results, we successfully formalized the proof of the invariant: total supply ≤ total reserve, where
total supply (total_supply) =∑~i~Account[i].amount
total reserve (total_reserve) =∑~k~Bank[k].reserve
Core invariant:
Once all proof obligations are proven, the above Solana stablecoin program example can be mathematically proven to satisfy the compliance requirements of the "GENIUS Act" Section 4(a)(1)(A) regarding "one-to-one reserve backing."
Why Formal Verification is Not Just "Nice to Have," but a Compliance Necessity
Formal verification is not a "nice to have" feature. For the compliance of stablecoins, it is crucial for protecting the funds and confidence of every participant. Any vulnerabilities in the actual code implementation could lead to severe asset losses, regulatory penalties, and even long-term negative impacts on the brand.
Following best practices in formal verification will bring additional advantages to stablecoin protocols:
Gaining Regulatory Trust: Regulators can directly refer to machine-verified compliance proofs without having to review numerous legal documents or audit reports one by one.
Reducing Risk: When code is iterated, its handling contracts will automatically generate proofs, avoiding potential risks from regression issues.
Enhancing Audit Efficiency: Since both financial and technical proofs are checked simultaneously, security audits and CPA audits can proceed in parallel.
Achieving Market Differentiation: A "provably compliant" statement can effectively enhance trust among partners such as banks, merchants, and DeFi platforms, becoming an important pillar for brand reputation and partnership expansion.
Moreover, when introducing your stablecoin to the board, community, or regulators, being able to say, "Our protocol has been formally verified according to the requirements of the 'GENIUS Act,' with no unresolved proof obligations," transforms compliance risks into competitive advantages.
This not only enhances the project's credibility but also significantly accelerates multiple key processes, including:
Regulatory approval timelines (review approval, entry into regulatory sandbox)
Enterprise-level integration (completeness proofs required by banks and payment service providers)
DeFi partnerships (oracles and lending platforms are more inclined to trust mathematically verified protocols)
Risk warning Risk warning
