Financial Literacy Month is a time where we get to learn and celebrate the things credit unions are doing to improve the financial education of their members and communities. Here at CUSO Magazine, we feel that education should not stop with members, though.

We don’t want our members to feel embarrassed about what they don’t understand, and nor should we feel ashamed of our own blind spots. And so, years back, I set out to publish articles for the people running credit unions to better understand the industry we work for.

From the ratios executives use, or how to read a financial statement (among many others!), we have covered and learned a lot. Today, I am diving into a confusing, but increasingly trendy topic: stablecoins.

Setting the stage

Before we dive into the nitty-gritty of what a stablecoin is, let’s define a few key terms:

Blockchain: In simple terms, blockchain is a transaction ledger. Except where your credit union’s ledger is centralized, blockchain is a decentralized and distributed ledger of transactions, shared among a large network of peers. Each “block” contains transactional data, which is then added to the end of the “chain” of transactions chronologically. Since that chain of blocks is shared across a decentralized network, it makes fraud extremely difficult, as there’s no single source to target for changing a prior transaction. We see this technology most widely used for transactional ledgers, such as with cryptocurrencies, but its application is wider than that, and can be used to maintain a secure record of other kinds of data exchange.

Cryptocurrency: A digital currency without associated physical coins or notes. Since it uses a decentralized network to record transactions, it does not use a central issuing or regulatory authority (i.e., a government or bank). Due to the nature of how transactions are recorded, it makes it virtually impossible to counterfeit. Since cryptocurrencies like Bitcoin (BTC) are not pegged to a commodity or other currency, they can experience high volatility. For example, BTC was below $1,000 USD per coin in 2017. In October 2025, BTC’s price peaked at over $122,000.

Holding value

Due to the volatility of many cryptocurrencies, they became of more interest to investors rather than for use as an actual currency. Imagine buying pizzas with 10,000 BTC, which at the time were worth $41, only to have those coins be worth over one billion dollars years later.

But the underlying use case is still there. Cash can’t be used in online transactions, but many digital payment solutions and credit cards are acting as the man in the middle, charging fees and surcharges. What’s needed is a cryptocurrency that’s not going to be leave you with regret for having spent it a week later.

Enter stablecoin, a cryptocurrency that is designed to maintain a stable value and that can move quickly and inexpensively across existing financial infrastructure.

Stablecoins come in a couple flavors: fully reserved (also referred to as collateralized or fiat-backed) and algorithmic. The key difference being in how their value is maintained.

A collateralized stablecoin holds its value by being backed 1:1 with another asset, typically a fiat currency like the U.S. dollar (but could also be a commodity like gold or even another cryptocurrency), by the issuer. In this way, stablecoin becomes more like a traditional financial currency with a centralized issuer, but still enjoys the technological benefits of cryptocurrencies.

Algorithmic stablecoins are trickier in that they are not backed by an asset. As opposed to relying on reserves to maintain its value, these coins use a self-correcting system to keep them near their pegged value, minting or “burning” coins to inflate or deflate the value back to its target. For example, if the target value were $1, and the value of the coin increased, more coins would be issued to drive the value back down. But if the value drops, coins could be removed from circulation to increase its value.

In essence, they rely on scarcity to keep close to home. Due to their decentralized nature and lack of a reserve, these are considered riskier. For the purposes of the remainder of the article, I will focus on fiat-backed stablecoins.

Should credit unions care?

Now that we understand what a stablecoin is (more or less), we need to understand how it might impact individuals, and thus credit unions. For the most part, talk around stablecoin involves its application for back-end processing: exchange settlement, trading, etc. But what if merchants start incentivizing the average shopper to use stablecoins to reduce their fees?

As consumers become increasingly familiar with digital wallets, the means to acquire and use stablecoins in a typical transaction might not be far off. Merchants already pay significant fees for accepting cards. As it stands, they can eat those charges or pass them on to consumers. If a payment platform were created to accept a digital currency like stablecoins, then merchants might guide buyers in that direction.

From the credit union standpoint, this impacts them in two primary ways: deposit leakage and reduced interchange. Firstly, if credit unions don’t provide a means of holding stablecoins, members may move funds out of their financial institutions and into cryptocurrency exchanges for the purposes of exchanging their dollars for digital currency. The second hit could potentially then come from stablecoins replacing cards as members’ preferred method of payment, impacting interchange revenue.

Is it likely to eliminate credit cards any time soon? Unlikely. Adoption of new technologies often comes slowly, the existing consumer payment infrastructure is convenient, and there are obviously many other incentives credit unions provide to maintain wallet share. But if ignored, it could pose a fractional loss that’s tough to overcome.

The GENIUS Act 

In July 2025, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was signed into law with the goal of establishing a regulatory framework for payment stablecoins.

Per the United States Senate Committee on Banking, Housing, & Urban Affairs, “At its core, the GENIUS Act is a consumer protection bill. GENIUS establishes a first-of-its-kind federal framework to regulate payment stablecoins; a payment product that is already offered in the U.S. with little regulatory oversight. Without this framework, consumers face risks like unstable reserves or unclear operations from stablecoin issuers.”

The impetus for the Act was to address past failures of stablecoins that were insufficiently backed or tied to risky assets, increasing volatility and risk of collapse. GENIUS addresses these by requiring 1:1 backing; interest rate risk management; capital, liquidity, and risk management standards; and prohibiting risky reserve assets.

Stablecoins must also provide monthly public disclosures of their reserve composition, and annual audited financial statements for issuers with more than $50 billion in market capitalization.

By prioritizing stability, transparency, and accountability, the Act could pave the way for more use cases and practical applications. And since non-financial companies will be able to issue or distribute stablecoin-based payment options, it could pave the way for large retailers to develop solutions themselves, speeding up innovation.

Act or wait? 

With all that said, the question for credit unions is whether the move is to wait to see how things shake out, especially with NCUA expected to provide guidance yet this year, or if they should already start working towards ways to incorporate stablecoin in their strategic plans.

Regardless of what your credit union decides is the best course of action for stablecoins, it’s become increasingly clear that it is not a topic that can be ignored entirely.