Preparing Credit Unions for Digital Currency
A New Regulatory Landscape for Stablecoins
Stablecoins, digital assets pegged to stable values like the U.S. dollar, are rapidly moving from the fringes of finance into the mainstream. In early 2025, U.S. policymakers introduced major legislation to regulate stablecoins, underscoring a new focus on integrating digital assets into the financial system. In February 2025, the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act was introduced in the U.S. House, and the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was introduced in the Senate. Both aim to create a federal framework for payment stablecoins, reflecting recognition that these digital currencies – which offer fast, low-cost transactions – need clear rules to ensure safety and stability. By April 2025, the House Financial Services Committee had advanced the STABLE Act in a 32–17 vote, moving it closer to a full House vote. And in July 2025, President Trump signed the GENIUS Act into law, marking a historic milestone in U.S. digital asset policy.
For credit unions, these new stablecoin regulations present both opportunities and challenges. On one hand, stablecoins could revolutionize payments and financial access, offering members instant transactions on an “internet-native” dollar rail. On the other, credit unions must navigate compliance requirements, risk management, and strategic questions about their role in the evolving digital currency ecosystem. This whitepaper provides a comprehensive overview of the new stablecoin regulatory landscape and offers guidance on how credit unions can prepare for and capitalize on digital currency in a prudent, member-centric way.
The Emergence of Stablecoin Regulation
Stablecoins are cryptocurrencies designed to maintain a stable value by being pegged to an asset like the U.S. dollar. They combine the efficiency of crypto (24/7 instant transfers, near-zero fees) with the stability of fiat currency. This makes stablecoins attractive for payments, remittances, and as a bridge between traditional finance and the crypto markets. By 2023, dollar-backed stablecoins had grown to over $200 billion in circulation, and Citi analysts estimate up to $5 trillion in assets could move into stablecoins and digital money by 2030. Such growth potential has drawn intense regulatory interest – especially after events like the May 2022 collapse of TerraUSD, an algorithmic stablecoin that briefly de-pegged even major stablecoin Tether and wiped out tens of billions in value. That incident prompted global watchdogs to warn consumers about crypto risks and galvanized lawmakers to act on stablecoin oversight.
Legislative action in 2025: U.S. lawmakers responded with bipartisan efforts to create guardrails for stablecoins. The House’s STABLE Act and the Senate’s GENIUS Act each propose that issuers of payment stablecoins be subject to prudential regulation and supervision. A key principle is that issuers maintain 1:1 reserves of high-quality, liquid assets (like cash or U.S. Treasuries) for all outstanding stablecoins, to ensure redeemability and prevent runs. The bills also introduce the concept of a “permitted payment stablecoin issuer” – entities authorized to issue stablecoins under either a bank charter or a special federal license. Notably, the legislation defines “insured depository institution” to include credit unions, and designates the National Credit Union Administration (NCUA) as the primary federal regulator for credit union-issued stablecoins. In other words, the framework explicitly puts credit unions on equal footing with banks in the stablecoin space, ensuring regulatory parity for credit unions to compete in digital asset markets.
Regulatory clarity and dollar dominance: Policymakers see regulated stablecoins as a way to harness innovation while mitigating risk. Treasury Secretary Scott Bessent remarked that “stablecoins represent a revolution in digital finance…the dollar now has an internet-native payment rail that is fast, frictionless, and free of middlemen”, which can reinforce U.S. dollar leadership globally. The GENIUS Act’s enactment in 2025 provided much-needed clarity to the fast-growing stablecoin market, aiming to grow it into a “multitrillion-dollar industry” under robust oversight. At the same time, the law – alongside parallel House measures – makes clear that stablecoins are not “deposits” insured by the FDIC or NCUA. Consumers will not have federal deposit insurance for stablecoin holdings, so regulatory focus is on preventing issuer failures through asset backing, audits, and capital requirements, rather than insurance.
Credit union advocacy: The credit union industry, through organizations like America’s Credit Unions (formerly CUNA and NAFCU), has been supportive of a balanced stablecoin framework. In a June 2025 letter to Congress, CEO Jim Nussle emphasized support for legislation that gives NCUA oversight of credit union stablecoin activities and holds nonbank issuers to equivalent anti-money laundering and safety/soundness standards. The industry successfully advocated for language in the STABLE Act and GENIUS Act that explicitly allows Credit Union Service Organizations (CUSOs) to be the issuing entities for credit union stablecoins. This means a credit union could potentially issue a stablecoin via a CUSO subsidiary, creating a new avenue for innovation while leveraging the cooperative model. Nussle noted this approach as an appropriate vehicle, but he also raised critical concerns for lawmakers to address as discussed below.
Opportunities and Benefits for Credit Unions
For credit unions, the integration of stablecoins into financial services offers several potential benefits:
Faster, cheaper payments: Properly regulated stablecoins could enable near-instant P2P transfers, remittances, and merchant payments at minimal cost, bypassing the slow, fee-laden legacy payment networks. Credit unions could offer members real-time digital dollar payments (e.g., sending money to family or paying bills) that settle in seconds without intermediary fees. This can be especially valuable for defense credit unions serving military families globally or community credit unions supporting unbanked members needing low-cost remittances.
Financial inclusion and access: As mobile and digital payment tools, stablecoins might help serve underbanked populations by providing dollar-denominated value storage and transfer without a traditional account. Treasury Secretary Bessent highlighted that stablecoins can “expand access to the dollar economy for billions globally” by leveraging widespread mobile and internet connectivity. Credit unions, with their mission to serve member needs, could leverage stablecoin-based services to extend affordable financial services to those who rely on cash or are poorly served by banks.
Competitive edge and member retention: Credit unions have already observed members transferring funds out to crypto exchanges to buy digital assets. Offering in-house stablecoin services (or partnering to do so) lets credit unions keep those funds in the cooperative system. NCUA Vice Chair Kyle Hauptman noted in late 2021 that letting credit unions facilitate crypto purchases gave them a new revenue stream and a chance to “adapt” rather than lose members to outside fintechs. Even a simple buy/sell service for crypto or stablecoins – provided with proper education and disclosures – can attract tech-savvy younger members and reinforce the credit union’s role as their primary financial institution. Early adopters like Idaho Central Credit Union, which launched a bitcoin trading service via a fintech partner in 2021, reported thousands of members using the service and increased engagement with the credit union’s app.
Strategic role in digital currency issuance: With new legislation, credit unions could choose to become stablecoin issuers themselves. By issuing a stablecoin fully backed by member deposits or other assets, a credit union (likely through a CUSO consortium) could play a direct role in the digital currency arena. This could open new business lines – for example, providing a credit-union-issued stablecoin for local business transactions or international remittances within the cooperative network. It also ensures credit unions are not cut out of a future where payments might increasingly flow via private digital currencies rather than traditional bank wires or card networks.
Dollar stability and public purpose: From a policy perspective, regulators see stablecoins as a way to bolster the U.S. dollar’s dominance in global finance. Credit unions, as member-owned institutions, can contribute to this goal in a manner aligned with consumer protection and democratic access. By proactively embracing well-regulated stablecoins, credit unions can help shape a trustworthy, inclusive digital currency ecosystem, ensuring that community-based financial institutions remain central in the next evolution of money.
Risks and Challenges to Consider
While the upside is significant, credit unions must enter the stablecoin arena with eyes open to the risks. New regulations impose serious responsibilities and there are inherent challenges that need careful management:
Regulatory compliance and oversight: If a credit union becomes a stablecoin issuer, it will fall under additional supervision. The NCUA would oversee its stablecoin issuance activities, likely in coordination with the Federal Reserve. This means rigorous examinations of reserve adequacy, liquidity, cybersecurity, and compliance controls specific to the stablecoin program. Even simply offering stablecoin-related services through a third party will draw scrutiny to ensure compliance with consumer protection, Bank Secrecy Act (BSA/AML), and anti-fraud rules. Credit unions will need to invest in compliance expertise and potentially new systems (for blockchain analytics, smart contract audits, etc.) to meet these expectations.
Reserve and liquidity impact: One concern raised by Nussle is that stablecoin reserve requirements could constrain lending for credit unions. If a credit union issues a stablecoin, every token in circulation must be backed by assets like cash or Treasuries held in reserve. Those reserves cannot be lent out or invested in higher-yield opportunities – they must remain liquid to honor redemptions. For credit unions, which rely on recycling deposits into member loans, having a chunk of funds “dormant” as stablecoin reserves could reduce the loanable funds available to serve members. This introduces a strategic trade-off: the credit union would need to balance the benefits of stablecoin issuance (fee income, innovation, member retention) against the opportunity cost of more liquid, lower-earning reserve assets. It may also need clarity on whether some portion of reserves could be counted as deposits (which could then be lent against) – an ambiguity Nussle urged Congress to address.
Safety and soundness of stablecoin itself: Unlike deposits, stablecoins are not insured, and their safety depends entirely on the issuer’s risk management. Members holding a credit union’s stablecoins are exposed if the coin were to depeg or the issuer failed. Capital buffers and liquidity are thus critical. Industry experts like attorney Randall Guynn have testified that if a stablecoin issuer holds only safe assets in reserve, has a capital buffer, and no other risky liabilities, its coins “should be as safe as insured bank deposits”. That’s a high standard to uphold. Credit unions venturing here must structure their stablecoin operations to meet or exceed the prudent standards set by law – maintaining high-quality reserves, performing regular audits and public disclosures, and possibly holding capital against operational risks. The reputation risk is also high: a failure or loss of peg could deeply erode member trust not just in the stablecoin, but in the credit union itself. This was evident in 2022 when the TerraUSD collapse shook confidence in all stablecoins. Credit unions must therefore proceed cautiously, perhaps starting with pilots or limited-scope programs.
Technological and cybersecurity demands: Supporting stablecoins requires robust technology infrastructure. Whether integrating with a blockchain network, providing member wallets, or managing digital asset custody, credit unions will face new operational complexities. They must ensure cybersecurity at every step (stablecoins could be targeted by hackers, or private keys could be compromised). They also need to consider interoperability – e.g., if a member wants to transfer a stablecoin to an external wallet, what systems and safeguards are required? Not all credit unions have expertise in distributed ledger technology, so significant training or partnership with fintech providers would be necessary. As NCUA noted in its 2021 guidance, credit unions should approach any digital asset partnership with thorough due diligence, ensuring vendors have strong controls and clear contract terms for security, liability, and compliance responsibilities.
Legal and accounting clarity: The regulatory framework is new and some questions remain. For instance, accounting treatment of stablecoin-related assets and liabilities needs clarification. Trade groups have pushed for language to ensure that when credit unions offer custody of stablecoins or crypto, those assets held in custody need not be on the credit union’s balance sheet. This avoids bloating the balance sheet with custodial assets and incurring unintended capital requirements. Early indications are that lawmakers are addressing this, but credit unions will want to confirm guidance from NCUA and the Financial Accounting Standards Board (FASB) on how to report stablecoin reserves, fees, and float. Additionally, state-level laws could come into play for state-chartered credit unions – some states may impose their own licensing for digital asset activities.
Market and competitive risk: Finally, credit unions must consider where they fit in a possibly crowded stablecoin marketplace. Today’s stablecoin field is dominated by large fintech-issued coins (like USDC or Tether). A credit-union-issued coin might struggle to gain adoption unless it offers something unique (for example, a strong community trust factor, or integration with credit union networks for easy conversions to cash). Collaborating through a CUSO could help achieve necessary scale. Conversely, credit unions could decide not to issue their own coin but rather utilize existing stablecoins to facilitate member transactions. In that scenario, they still face compliance tasks (monitoring transactions for fraud or sanctions) but without the burden of reserve management. Each credit union will need to evaluate its strategy – whether to be an issuer, an intermediary, or simply a savvy user of stablecoin technology to improve services.
How Credit Unions Can Prepare Now
With legislation moving forward, credit unions should be proactive in preparing for the new era of regulated stablecoins. Even before any stablecoin offering is launched, steps can be taken to ensure your institution is ready:
Stay Informed and Engage Regulators: Keep up with the latest regulatory developments and NCUA guidance. The landscape is evolving quickly. Make sure to read NCUA’s releases, participate in industry forums, and even comment on proposed rules. Open communication with regulators can help; for example, if the GENIUS Act allows credit unions to become issuers, engage with the NCUA early to understand the application process and supervisory expectations. The Defense Credit Union Council advises credit unions to “stay informed about guidance from NCUA and other relevant bodies regarding stablecoin issuance and compliance”. By building a dialogue now, credit unions can potentially help shape any forthcoming rules and ensure their concerns are heard.
Assess Eligibility and Strategy: Evaluate your credit union’s strategic interest and eligibility to participate. Not every credit union will want to issue a stablecoin – some might opt to partner or simply enable member access. Perform a candid assessment: Do we want to be a “permitted payment stablecoin issuer” under federal law? This would require meeting certain criteria (capital, expertise, governance). If yes, identify gaps to fill (e.g., hiring talent with digital asset experience). If no, determine if there’s member demand to at least facilitate stablecoin transactions or custody through partners. Understanding your role – issuer, facilitator, or observer – is a crucial first step.
Strengthen Technology and Operations: If leaning towards offering stablecoin services, start upgrading your infrastructure. Consider the technological and operational adjustments needed: Will you need to integrate a blockchain ledger or API into your core systems? How will you provide digital wallets or custody for members? Ensure your core processor or digital banking provider can support real-time crypto transactions. Begin pilots in controlled environments to test member adoption and operational readiness. For example, run a limited rollout with a select group of tech-savvy members or a specific select employee group. This allows you to observe transaction patterns, gauge demand, refine the user experience, and address compliance or technology issues before expanding.
Enhance Compliance and Risk Management: Create policies that address stablecoin-specific risks such as reserve management, redemption protocols, transaction monitoring, and smart contract audits. Update your BSA/AML program to reflect digital asset red flags and sanctions screening on blockchain activity. Establish governance for your stablecoin or digital asset program, with clear accountability for compliance, operations, and member service.
Educate Your Board, Staff, and Members: Provide targeted training for leadership so they can make informed decisions about stablecoin participation. Ensure staff understand how transactions work, required disclosures, and troubleshooting steps. Offer members clear educational materials explaining benefits, risks, and protections (or lack thereof). Transparency builds trust and reduces confusion.
Form Strategic Partnerships: Whether issuing your own stablecoin or integrating an existing one, partner with experienced fintech or blockchain providers to reduce risk and speed time-to-market. Choose partners with strong compliance programs, robust cybersecurity, and a history of working with regulated institutions. Consider joining CUSO consortia to share costs, pool expertise, and achieve adoption at scale.
Positioning Credit Unions for Stablecoin Success
The GENIUS Act’s passage and the STABLE Act’s progress mark a turning point for the U.S. financial system. For credit unions, this is both a challenge to adapt to new regulations and technology, and an opportunity to innovate while reinforcing the cooperative mission. Stablecoins are poised to become mainstream payment and value-transfer tools.
By preparing now, strengthening infrastructure, ensuring compliance readiness, and exploring strategic partnerships, credit unions can position themselves to deliver safe, efficient, member-focused digital currency services. Those that take a thoughtful, proactive approach will remain competitive and trusted in the decades ahead.
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