Why GENIUS could leave digital dollars vulnerable to sudden blockchain network ‘bank runs’

The Guiding and Establishing National Innovation for U.S. Stablecoins Act, or GENIUS Act, is the new federal framework for payment stablecoin issuers. Its reserve rules aim to make each token a safer dollar claim, while the public blockchains moving those tokens retain their own fee markets and capacity limits.A Federal Reserve staff paper, first dated June 2, 2026, and updated Aug. 31, 2026, models how transaction congestion can destabilize even a perfectly backed digital dollar. The authors are Federal Reserve economists, and the paper carries the standard disclaimer that their views do not necessarily represent the Federal Reserve Board or Federal Reserve System.When fees climb far enough, small payments become uneconomic and a token’s usefulness can fall. The model predicts that weak payment-network effects can then turn individual exits into coordinated redemptions. In the paper’s empirical work, however, “redemption” means a drop in Ethereum circulation and can include either a cash-out to fiat or migration to another blockchain.The paper presents a latent mechanism, not a forecast of a current run. It sharpens an unresolved question as Treasury implements GENIUS: the law giv...