Stablecoins are becoming increasingly popular, especially after the GENIUS Act was passed in 2025.

A stablecoin is a cryptocurrency pegged to stable assets like the U.S. dollar, designed to maintain a consistent value and enable fast, low-cost payments, trading and transfers without the typical crypto volatility.

The GENIUS Act gave a lot of regulatory clarity regarding stablecoin and its issuance, which in turn has increased its appeal.

But former Vice Chair of the Federal Reserve Michael Barr warned that the fast-growing sector of stablecoins could pose risks to financial stability and illicit finance if not properly regulated.

Related: Trump signs GENIUS Act into law

As per Bloomberg, he said the structure of stablecoin reserves remains a key vulnerability.

“The quality and liquidity of stablecoin reserve assets are critical to their long-run viability,” Barr said. “At the same time, stablecoin issuers have an incentive to maximize the return on their reserve assets by extending the risk spectrum as far out as possible.”

Despite the warnings, Barr recognized that stablecoins offer tangible advantages. They can streamline treasury operations for firms and significantly improve cross-border payments.

Compared to traditional wire transfers, which can take several business days, stablecoins enable near-instant settlement, a feature that has driven growing adoption across both crypto-native and traditional finance sectors.

This dual nature, innovation paired with risk, is shaping how policymakers approach the asset class.

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Barr emphasized that strict oversight, including capital, liquidity and supervisory requirements, could enhance stability and make stablecoins more viable as payment instruments.

However, he cautioned that outcomes will depend heavily on how these rules are implemented.

Related: Stablecoin adoption accelerates as businesses embrace real-time transactions

This story was originally published by TheStreet on Apr 1, 2026, where it first appeared in the Federal Reserve & FOMC News section. Add TheStreet as a Preferred Source by clicking here.