Stablecoin Regulation and Formal Verification: The Only Way to Compliance Development

With the rapid development of Web3 applications, more and more central banks and institutions are beginning to develop digital asset products, with stablecoins becoming a key focus. Stablecoins combine the efficient and transparent characteristics of blockchain with the stability of traditional finance, promising to reshape the global payment system and financial infrastructure. However, to promote the mainstream adoption of stablecoins, a solid foundation must still be laid in terms of user trust, regulatory compliance, and compatibility with existing Web3 systems.

Under a strict Compliance framework, Formal Verification is considered 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 first batch of cryptocurrency stablecoin projects was launched in 2014, stablecoins have been seen as a bridge connecting traditional financial systems with the Web3 world. The traditional financial system generally suffers from high latency, lack of transparency, and high costs. To improve these shortcomings, stablecoins have introduced:

• Real-time settlement
• Immutable records
• Smart contracts that can automatically verify rules or redirect foreign exchange paths
• Greater financial inclusivity, allowing anyone to participate easily.

The regulatory framework for electronic money (E-Money) launched in 2009 was not originally designed for Web3 scenarios, but has now gradually extended to include Web3-compatible solutions, including stablecoins.

Currently, central banks in multiple regions have been testing related schemes. The U.S. Congress has passed the GENIUS Act, outlining a regulatory roadmap for the Compliance development of stablecoins.

GENIUS Act

The "GENIUS Act" (Guiding and Establishing National Innovation for U.S. Stablecoins Act) launched in June 2025 establishes a mandatory compliance framework for stablecoin payments in the United States.

Why is the GENIUS Act crucial?

The bill establishes a unified federal "certification" for stablecoins, helping to reduce regulatory fragmentation issues and providing clear institutional guidance for product design, risk management, and audit preparation. Adhering to the standards set forth in the "GENIUS Act" is not only a fundamental requirement for Compliance but also a key guarantee for enhancing the security of user asset transactions.

Some research teams hope to introduce Formal Verification methodologies to help prove the key properties of stablecoin smart contracts. By utilizing rigorous mathematical derivations and machine-checkable logical arguments, they 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. Taking the "GENIUS Act" as an example, the legal text can be formally expressed as the corresponding lemma.

In addition, the technical invariants of certain stablecoins should be rigorously proven to ensure compliance with specific legal requirements.

These formal lemmas will become proof obligations in the selected verification framework.

However, among these regulations, only some are related to the Formal Verification process of the smart contract stage.

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

A simplified version of the Solana stablecoin program can be built to demonstrate how all operations on the chain satisfy its core invariants.

Example of Formal Verification Output for Solana Stablecoin Program

Through Formal Verification, the invariant can be proven: Total Supply ≤ Total Reserves, where:

• Total Supply (total_supply) = ∑iAccount[i].amount
• Total Reserve (total_reserve) = ∑kBank[k].reserve

Once all proof obligations have been demonstrated, the Solana stablecoin program example can be mathematically rigorously proven to meet the compliance requirements of Article 4(a)(1)(A) of the "one-to-one reserve backing" as stipulated in the GENIUS Act.

Why Formal Verification is Essential for Compliance

Formal Verification is crucial for the compliance of stablecoins, as it protects the funds and confidence of every participant. If there are any vulnerabilities in the actual code implementation, it 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:

1. Gain Regulatory Trust: Regulatory bodies can directly refer to compliance proofs verified by machines.
2. Reduce Risk: During code iteration, its handler contract will automatically generate proofs, avoiding potential risks caused by regression issues.
3. Improve Audit Efficiency: As financial and technical proofs are examined simultaneously, security audits and CPA audits can be conducted in parallel.
4. Achieving Market Differentiation: The "provable Compliance" statement can effectively enhance the trust of partners, becoming an important fulcrum for brand reputation and collaboration expansion.

In addition, when introducing the stablecoin to the board, community, or regulatory authorities, being able to say: "Our protocol has undergone Formal Verification in accordance with the requirements of the GENIUS Act, and there are no outstanding proof obligations," transforms compliance risk into a competitive advantage.

This not only enhances the credibility of the project but also significantly accelerates several key processes, including:

• Regulatory Approval Timeline (Review Approved, Enter Regulatory Sandbox)
• Enterprise-level integration (completeness proof required by banks and payment service providers)
• DeFi Partnerships (Oracles and lending platforms tend to trust mathematically verified protocols)

Conclusion

As global regulators deepen their 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 global expansion, stablecoin projects need to build a reliable security foundation from the ground up.

The Formal Verification framework is specifically built for real 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 theoretical exploration, but a reliable guarantee aimed at actual 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 and help it launch safely and efficiently.