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 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 truly promote the mainstream adoption of stablecoins, a solid foundation still needs to 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 approach that can help build reliable stablecoin contracts while verifying key Compliance requirements. This article will focus on the following directions:

• Fully understanding the regulatory requirements of stablecoins is crucial for all stablecoin issuers;
• When launching a stablecoin project in the United States, the "GENIUS Act" is an essential 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 regarded as a bridge connecting traditional financial systems and the Web3 world. The traditional financial system generally has issues such as high latency, 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 inclusion, allowing anyone to easily participate.

The electronic money (E-Money) regulatory framework launched as early as 2009 was not originally designed for Web3 scenarios, but has 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 related solutions. 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" (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 basic requirement for compliance but also a key safeguard for enhancing the security of user asset transactions.

Introducing formal verification methodologies can help prove the key attributes of stablecoin smart contracts. By utilizing rigorous mathematical derivations and machine-checkable logical proofs, it ensures that the code meets compliance and security requirements under any boundary conditions.

From Legal Texts 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 specifications, only some are related to the Formal Verification process of the smart contract phase. In the following example, we constructed a case based on the Solana stablecoin system and conducted Formal Verification on its specifications.

Solana stablecoin program example: How to implement the invariants required by the GENIUS Act

We have built a streamlined version of the Solana stablecoin program, demonstrating 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 results, we are able to successfully perform a Formal Verification of the invariant: total supply ≤ total reserves, where

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

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

Why Formal Verification is Not "Just a Bonus" but a Compliance Necessity

Formal Verification is not a "nice-to-have" feature. It is crucial for the Compliance of stablecoins in protecting the funds and confidence of every participant. Any vulnerabilities in the actual code implementation can 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. 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: When code is iterated, its handling contract will automatically generate proof, avoiding potential risks caused by regression issues.

3. Improve audit efficiency: As financial and technical proofs are checked 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 banks, merchants, and other partners such as DeFi platforms, becoming an important support for brand reputation and partnership expansion.

In addition, being able to say to the board, community, or regulatory agencies when promoting your stablecoin: "Our protocol has undergone Formal Verification in accordance with the requirements of the GENIUS Act, and there are no unresolved proof obligations," will turn 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 (Approval, Entering Regulatory Sandbox)
• Enterprise-level integration (completeness proof required by banks and payment service providers)
• DeFi Partnerships (Oracles and lending platforms are more inclined to trust mathematically verified protocols)

Next Step: Launch More Securely and Quickly

As global regulators continue to 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.

A self-developed Formal Verification framework, specifically built for real blockchain application scenarios. This approach breaks through the abstract models at the academic level and is capable of generating 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.

As a security company in the Web3 field, we are always committed to the mission of "Full Line Protection, Achieving Extraordinary Results". Whether you are looking to meet the Compliance requirements of the GENIUS Act or aiming to create a globally trusted stablecoin, we can safeguard your project and assist it in launching safely and efficiently.

The services provided include:

• Customized Formal Verification framework tailored to your 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 you in smoothly responding to OCC, the Federal Reserve, and state-level regulatory reviews.

Difference from traditional Formal Verification products:

• Implement hierarchical verification: ensure that the source code complies with the specifications, not just the abstract level model of the protocol.
• Proprietary attribute verification: Validates the unique properties of customized code, surpassing conventional generic attributes.
• Complex reasoning ability: Through automated reasoning, it can verify any complex code and properties, far surpassing the level that developers, auditors, and even Formal Verification engineers can achieve through manual reasoning.
• Production-oriented: Code suitable for actual production environments that can be verified without large-scale refactoring, as opposed to formal verification solutions limited to prototypes or academic research.

As a leader in Formal Verification and blockchain security, with over $530 billion in digital asset security experience, we have safeguarded more than 5,000 blockchain projects and laid a solid foundation for the Compliance and security of stablecoin projects.

We welcome further communication and can arrange a technical seminar on concept verification auditing to discuss how to assist your stablecoin project in achieving compliance and high reliability in its launch and operation through systematic and provably secure methods.