Stablecoin bankruptcy rules: what the GENIUS Act does

The GENIUS Act, enacted in July 2025, amended the U.S. Bankruptcy Code so required reserves backing regulated payment stablecoins do not form part of an issuer’s bankruptcy estate. Token holders receive a first-priority claim on those segregated reserves. If reserves are insufficient to cover outstanding tokens, holders obtain a super-priority claim on the issuer’s remaining corporate assets intended to cover the shortfall.

The statute requires reserves to be held in segregated, bankruptcy-remote accounts and bars issuers from rehypothecating those funds, meaning the issuer may not lend them out or use them as collateral for its own obligations. The law preserves the reserves for holders rather than making them available to general unsecured creditors.

Legal protection created by the statute depends on segregation. If an issuer commingled reserve funds with operating accounts or used reserves in ways that violated the statute, the separation the law assumes may not exist in practice. Audits, custody arrangements and the demonstrable chain of custody for reserve accounts are central to whether courts will treat the funds as outside the estate.

Some bankruptcy scholars and practitioners say the statutory priority is untested and could be affected by common insolvency claims. In a Chapter 11, repo and margin lenders, debtor-in-possession financing, administrative expenses and professional fees, and set-offs by depositaries or brokers can be paid during the proceeding in ways that may effectively come ahead of token holders. Legal expenses generally cannot be drawn from segregated reserves, so a court-supervised restructuring could require new financing that changes how claims are satisfied.

No major regulated U.S. stablecoin issuer has failed under the GENIUS Act regime, so courts have not resolved how competing claims will be handled in practice. Administrating a bankruptcy in which core assets sit outside the estate may present different procedural and financing challenges compared with a typical corporate insolvency.

The law applies to issuer-backed fiat stablecoins such as USDC and USDT, which are liabilities of corporate issuers holding bank reserves. It does not apply to crypto-backed tokens such as DAI or USDS, which rely on on-chain collateral and governance and are exposed to smart-contract failure and collateral-price risk rather than traditional issuer insolvency.

International approaches differ. The European Union’s MiCA framework keeps reserves separate from the issuer’s estate but does not provide an equivalent super-priority claim on corporate assets for shortfalls. The United Kingdom is moving toward a statutory-trust model set to take effect in October 2027.

The statutory framework shifts the legal position of regulated stablecoin holders closer to the front of a bankruptcy distribution than under prior law. How that position will be applied in a real bankruptcy depends on whether issuers maintained segregation and on how courts prioritize competing claims.