Stablecoin Regulation and Formal Verification: Building the Foundation of Compliance and Security

With the continuous development of Web3 applications, more and more central banks and institutions are starting to deploy digital asset products, among which stablecoins are a key focus. Stablecoins combine the efficient and transparent characteristics of blockchain with the stability of traditional finance, and are expected to reshape the global payment system and financial infrastructure. However, to promote the mainstream adoption of stablecoins, more efforts are still needed in areas such as user trust, regulatory Compliance, and compatibility with existing Web3 systems.

Under a strict Compliance framework, Formal Verification is seen as a highly promising method 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 a stablecoin project in the United States, the "GENIUS Act" is an important 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 batch of cryptocurrency stablecoin projects in 2014, stablecoins have been seen as a bridge connecting the traditional financial system and the Web3 world. The traditional financial system generally suffers from high delays, lack of transparency, and high costs. To improve these shortcomings, stablecoins have introduced:

• Real-time Settlement

• immutable record

• Smart contracts that can automatically verify rules or redirect foreign exchange paths

• Greater financial inclusivity, allowing anyone to participate easily.

The electronic currency regulatory framework launched in 2009 was not originally designed for the Web3 scenario, but has gradually extended to include Web3-compatible solutions, including stablecoins.

Currently, regulatory agencies in several places, including the Abu Dhabi International Financial Centre and the Hong Kong Monetary Authority, have their central banks testing related schemes. The U.S. Congress has passed the GENIUS Act, outlining a regulatory roadmap for the Compliance development of stablecoins.

The GENIUS Act

The "GENIUS Act" launched in June 2025 establishes a mandatory Compliance framework for stablecoin payments in the United States. This Act sets a unified federal-level "certification" for stablecoins, helping to reduce regulatory fragmentation issues and providing clear institutional guidelines for product design, risk management, and audit preparation. Adhering to the norms in the "GENIUS Act" is not only a fundamental requirement for Compliance but also a key safeguard for enhancing the security of user asset transactions.

As a Formal Verification research team, we aim to introduce Formal Verification methodologies to help prove the key properties 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 Provisions to Formal Verification Lemmas

Formal Verification expresses each Compliance requirement as an invariant or liveness on the chain. For instance, in the case of the "GENIUS Act", the legal provisions can be formally expressed as corresponding lemmas. Furthermore, the technical invariants of certain stablecoins should be strictly proven to ensure compliance with specific legal requirements.

These formal lemmas will become proof obligations in the selected verification framework. However, only some of these specifications are related to the formal verification process of smart contracts. In the following example, we constructed a case based on the Solana stablecoin system and conducted a formal verification of its specifications.

Solana stablecoin program example: How to implement the invariance requirements of the "GENIUS Act"

We have built a simplified version of a Solana stablecoin program that demonstrates how all operations on the chain satisfy its core invariants. In the complete result, we were able to successfully perform Formal Verification of the invariant: total supply ≤ total reserves.

After all proof obligations have been demonstrated, the above Solana stablecoin program example can be mathematically proven to strictly satisfy the compliance requirements of Article 4(a)(1)(A) of the "GENIUS Act" regarding "one-to-one reserve backing."

The Importance of Formal Verification

Formal Verification is crucial for the compliance of stablecoins, as it protects the funds and confidence of every participant. Any vulnerabilities in the actual code implementation could lead to significant 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:

1. Earn regulatory trust: Regulators can directly refer to the compliance proof verified by machines.

2. Reduce Risks: Automatically generate proofs during code iteration to avoid potential risks caused by regression issues.

3. Enhance audit efficiency: Financial and technical proofs are checked simultaneously, allowing security audits and CPA audits to proceed in parallel.

4. Achieving market differentiation: The "proven compliance" statement can effectively enhance the trust of partners and become an important support for brand credibility and collaboration expansion.

In addition, when promoting stablecoins to relevant parties, being able to demonstrate that the protocol has undergone Formal Verification in accordance with the requirements of the GENIUS Act, and that there are no unresolved proof obligations, transforms compliance risks into competitive advantages.

This not only enhances the credibility of the project but also significantly accelerates several key processes, including regulatory approval, enterprise-level integration, and the establishment of DeFi partnerships.

Conclusion

As global regulators increasingly focus on stablecoins, compliance and security have become the core challenges faced by issuers. Whether to meet the requirements of the GENIUS Act or to plan for expansion globally, stablecoin projects need to build a reliable security foundation from the ground up.

The Formal Verification framework is specifically built for real-world blockchain application scenarios. This approach breaks through the abstract models at the academic level and can generate on-chain verifiable security proofs that directly correspond to Compliance requirements. This is not a theoretical exploration, but a reliable guarantee aimed at practical production environments.

Whether to meet the Compliance requirements of the GENIUS Act or to create a globally trusted stablecoin, Formal Verification can safeguard the project, helping it to launch securely and efficiently. Through systematic and provably secure methods, stablecoin projects can achieve compliant and highly reliable operations, laying a solid foundation for future development.