WHEN CODE MEETS THE BANKRUPTCY CODE:
THE GENIUS ACT, STABLECOINS, AND THE LIMITS OF BANKRUPTCY LAW

This Article examines the GENIUS Act’s amendments to the Bankruptcy Code and argues that while the Act promises consumer protection for stablecoin holders, its bankruptcy provisions are structurally unworkable.

 

The Act attempts to protect holders by excluding required stablecoin issuer reserves from the bankruptcy estate, granting holders priority, and creating an expedited path to redemption. But those protections conflict with the Code’s existing framework for property, priority, and administration. The Act removes reserves from the estate while still asking bankruptcy courts to control and distribute them, promises priority without accounting for secured creditors and other superior claims, and creates a fast redemption process without explaining how the bankruptcy case will be funded.

 

Drawing on Lawrence Lessig’s modalities-of-regulation framework, this Article concludes that the Code is not fundamentally incapable of regulating stablecoins in bankruptcy, instead the issues with the unworkable amendments come from poor legislative drafting. The Bankruptcy Code can accommodate stablecoins, but Congress needs to revise the Act’s amendments so protections for stablecoin holders work in practice versus remaining lip service only.

 

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