Shadow Banking via Stablecoins: Evidence from the GENIUS Act

Abstract

As of October 2025, about 98% of stablecoins by value are pegged to the U.S. dollar, yet more than 80% of stablecoin transactions occur outside the United States. As off-bank dollar liabilities, stablecoins may intensify digital dollarisation and deposit substitution, with implications for bank funding and financial stability. I study the GENIUS Act using a short-horizon event study of listed banks, relating abnormal equity returns around enactment to cross-country measures of weak money, bank fragility, and crypto adoption. These measures proxy for cross-country conditions where incentives and frictions to substitute domestic deposits into dollar stablecoins are strongest. I document that crypto adoption is positively associated with weak monetary conditions in emerging market and developing economies (EMDEs). I find no statistically significant evidence that short-horizon abnormal bank returns are more negative around enactment in countries with higher exposure or higher crypto adoption. I provide an early benchmark of how markets priced stablecoin-related risks at the time of the GENIUS Act, and a reference point for interpreting future policy shocks.