Stablecoin Regulation and Formal Verification: Building the Compliance Foundation

With the continuous development of Web3 applications, more and more central banks and institutions are developing digital asset products, among which stablecoins are an important direction. Stablecoins combine the efficiency and transparency of blockchain with the stability of traditional finance, having the potential 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 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 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 latency, lack of transparency, and high costs. To address these shortcomings, stablecoins have introduced:

• Real-time Settlement

• Immutable records

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

• Greater financial inclusion, allowing anyone to participate easily.

The electronic money (E-Money) regulatory framework introduced as early as 2009 was not initially designed for Web3 scenarios, but has now gradually extended to cover Web3-compatible solutions, including stablecoins.

Currently, multiple regulatory agencies, including the Abu Dhabi Global Market (ADGM) and the Hong Kong Monetary Authority (HKMA), have their central banks testing relevant solutions. 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, which helps to reduce regulatory fragmentation and provides 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.

Many 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 Verification lemmas will become proof obligations in the selected verification framework (TLA⁺, Coq, K, Isabelle, or Why3).

However, among these regulations, only a portion is related to the Formal Verification process of the smart contract phase. Below, we will build a case based on the Solana stablecoin system and conduct a Formal Verification of its regulations.

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

We have built a streamlined version of a Solana stablecoin program that demonstrates how all operations on the chain satisfy its core invariants.

Example Output of Formal Verification for Solana Stablecoin Program

The following is a simplified version of the Solana stablecoin program, demonstrating how to enforce core invariants on-chain.

In the complete result, we were able to successfully perform a formal verification of the invariant: total supply ≤ total reserve, where

• Total Supply (total_supply) = ∑~i~Account[i].amount

• Total Reserve (total_reserve) = ∑~k~Bank[k].reserve

Once all proof obligations have been demonstrated, the above Solana stablecoin program example can be rigorously proven mathematically 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 protecting the funds and confidence of every participant. Any vulnerabilities in the actual code implementation can lead to severe 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 the stablecoin protocol:

1. Gain regulatory trust: Regulatory agencies do not need to review a large number of legal documents or audit reports one by one, but can directly refer to compliance certificates verified by machines.

2. Reduce Risk: During code iteration, its handler contract will automatically generate proof, avoiding potential risks caused by regression issues.

3. Improve auditing efficiency: As the financial and technical proofs are checked simultaneously, security audits and CPA audits can proceed in parallel.

4. Achieving market differentiation: The "provable compliance" statement can effectively enhance the trust of partners such as banks, merchants, and DeFi platforms, becoming an important leverage for brand reputation and collaboration expansion.

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

This not only enhances the credibility of the project but can also significantly accelerate 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 More Securely and Quickly

As global regulators' focus on stablecoins deepens, 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.

Currently, there are formal verification frameworks specifically built for real blockchain application scenarios in the market. These methods break through the abstract models at the academic level and can generate on-chain security proofs that can be machine-verified, directly corresponding 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 trustworthy stablecoin for the global market, Formal Verification can safeguard the project and help it launch safely and efficiently.

The formal verification services on the market typically include:

• Customized formal verification framework tailored for system architecture;

• Compliance consulting services aimed at 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.

High-end Formal Verification services typically have the following characteristics:

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

• Proprietary Attribute Verification: Can verify 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 achievable by developers, auditors, and even Formal Verification engineers through manual reasoning.

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

Through systematic and provably secure methods, stablecoin projects can achieve compliance and operate with high reliability.