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

Abstract

With the ongoing development of Web3 applications, more and more central banks and institutions are developing digital asset products, with stablecoins being one of the key directions. Stablecoins combine the efficiency and transparency 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, a solid foundation still needs to be established 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 batch of cryptocurrency stablecoin projects in 2014, stablecoins have been viewed as a bridge connecting traditional financial systems and the Web3 world. Traditional financial systems generally suffer 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

• Broader financial inclusion, allowing anyone to participate easily.

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

Currently, multiple regulatory agencies, including the Abu Dhabi Global Market and the Hong Kong Monetary Authority, have started testing related schemes. The US 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 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 safeguard for enhancing the security of user asset transactions.

From Legal Provisions 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 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 chosen verification framework.

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

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

We have built a stablecoin system case based on Solana and formally verified its specifications. This example demonstrates how to meet its core invariants in all operations on the chain.

Why Formal Verification is Essential for Compliance

Formal Verification is crucial for protecting the funds and confidence of every participant. Any flaws in the actual code implementation can lead to significant asset losses, regulatory penalties, and even long-term negative impacts on the brand.

Following the best practices of Formal Verification will bring additional advantages to stablecoin protocols:

1. Gain Regulatory Trust: Regulatory authorities can directly refer to compliance proofs verified by machines.

2. Reduce Risk: During code iteration, its handler contracts will automatically generate proofs, avoiding potential risks arising from regression issues.

3. Enhance audit efficiency: As financial and technical proofs are checked simultaneously, security audits and CPA audits can be conducted in parallel.

4. Achieving market differentiation: A "provable Compliance" statement can effectively enhance the trust of partners and become an important support for brand reputation and cooperation expansion.

In addition, when introducing stablecoins to the board, community, or regulatory bodies, 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, turns compliance risks into competitive advantages.

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)

Next Step: Launch Safer and Faster

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

Industry-leading security companies provide professional Formal Verification frameworks specifically built for real blockchain application scenarios. These methods can generate on-chain machine-verifiable security proofs that directly correspond to Compliance requirements. This is not a 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, professional security companies can safeguard the project, helping it to launch safely and efficiently.

They usually provide:

• Customized Formal Verification framework, tailored for system architecture;

• Compliance consulting services for the GENIUS Act, ADGM, MAS, HKMA, and other regulations;

• End-to-end security audit, covering threat modeling, penetration testing, on-chain Formal Verification, and other aspects;

• Regulatory communication services to assist in smoothly responding to OCC, Federal Reserve, and state-level regulatory reviews.

Leading Formal Verification products typically have the following characteristics:

• Implement hierarchical verification: Ensure that the source code complies with the specifications, not just the abstract hierarchical model of the protocol.

• Proprietary Attribute Verification: Verifies the unique attributes of customized code, surpassing conventional generic attributes.

• Complex reasoning ability: Through automated reasoning, it can verify any complex code and properties, far exceeding the level that developers, auditors, and even Formal Verification engineers can achieve through manual reasoning.

• Production-ready: Code suitable for actual production environments that can be validated without large-scale refactoring, as opposed to formal verification schemes limited to prototypes or academic research.

With the continuous development of the stablecoin market, Formal Verification will play an increasingly important role in ensuring Compliance and security, laying a solid foundation for the long-term success of stablecoin projects.