Circle and Paxos are testing new tech to stop fake stablecoins and boost trust in digital payments.
Key Takeaways
- Circle and Paxos launched a pilot program to verify stablecoin issuers and prevent counterfeit tokens using blockchain cryptography.
- The system was developed with Bluprynt, a fintech startup led by Georgetown professor Chris Brummer.
- The initiative supports compliance with the GENIUS Act, the first U.S. law setting federal rules for stablecoins.
- It allows real-time tracking of token origin, aiming to reduce fraud and increase investor and regulator trust.
What Happened?
Circle and Paxos have started testing a blockchain-based system to verify the authenticity of stablecoins. Developed in partnership with Bluprynt, the new tool embeds cryptographic issuer verification directly into each token, allowing companies and regulators to trace a token’s origin at any point. The move comes as part of a broader effort to align with the newly enacted GENIUS Act and clean up the growing risks around counterfeit digital assets.
Fighting Counterfeits in a $273 Billion Market
Stablecoins like Circle’s USDC and Paxos-issued PYUSD have become vital tools in the digital economy. However, their growing adoption has attracted security threats, particularly counterfeit tokens that imitate legitimate stablecoins without proper backing or approval.
To combat this, Circle and Paxos have introduced a “know-your-issuer” (KYI) model that embeds proof-of-issuer credentials into stablecoin transactions. This pilot system, developed with Bluprynt, lets anyone trace a token to its legitimate origin, providing much-needed transparency and reducing reliance on third-party audits.
Chris Brummer, Bluprynt’s founder and a Georgetown Law School professor, said the new system provides “provenance upfront, reducing complexity, and providing regulators and investors with the transparency they need.” He added that the technology could reduce losses from counterfeit tokens and impersonation attacks.
What does that mean?
— Chris Brummer (@ChrisBrummerDr) August 27, 2025
For the first time, with our KYI token origin can be cryptographically verified—on-chain, in real time, and bound to verified identity. Issuers can protect their tokens from fakes and counterfeits that undermine trust and on-chain finance.
Key Benefits of the Pilot System
- Enables real-time verification of token issuers.
- Supports compliance with U.S. regulation, including the GENIUS Act.
- Reduces the need for external audits and middleware.
- Works across multiple blockchains, aiding DeFi integration and cross-chain liquidity.
- Could eventually support other stablecoins backed by tokenized U.S. Treasuries, like USDtb and frxUSD.
Regulatory Alignment with the GENIUS Act
The pilot is seen as a strong step toward meeting the requirements of the GENIUS Act, the U.S.’s first comprehensive framework for dollar-backed stablecoins. With this legislation in place, companies like Circle and Paxos are preparing to operate under federal regulatory supervision.
Paxos, for example, recently reapplied for a national trust bank charter to expand beyond its New York-based license, signaling its intent to be a leader in the regulated stablecoin space.
Lawmakers hope the new law will drive adoption and potentially push stablecoin usage into the trillions of dollars, especially as traditional finance players look for blockchain-integrated payment solutions.
Circle Expands with Finastra Partnership
In a related move, Circle also announced a new partnership with Finastra to help traditional banks integrate USDC into cross-border payments. By using Finastra’s payment hub, financial institutions will be able to settle transactions in USDC, even when both ends of the transaction are in fiat.
Expanding the future of cross-border payments with @FinastraFS and @USDC.
— Circle (@circle) August 27, 2025
The collaboration will enable USDC settlement to Finastra’s established network of financial institutions that currently process over $5 trillion in daily cross-border transactions.… pic.twitter.com/jOFsvh5B8T
This could simplify global payments by eliminating the need for complex foreign exchange and clearing systems, as long as issuer verification can guarantee trust.
Chainalysis Flags Ongoing Risks
Blockchain security firm Chainalysis warned in a recent report that fake stablecoins and impersonation remain a growing concern. The firm’s research aligns with the motivation behind the Circle and Paxos pilot, which aims to proactively address these threats before they escalate further.
CoinLaw’s Takeaway
Honestly, this feels like a long overdue step. In my experience, one of the biggest red flags in crypto has always been the lack of clarity around who issued what. The “Know Your Issuer” system is exactly the kind of transparency layer that makes stablecoins feel more like actual money and less like internet coupons. I found it particularly encouraging that this solution works across multiple blockchains and doesn’t require extra audits. It shows real maturity in the space and gives both investors and regulators a reason to breathe easier. If adopted widely, this could become the gold standard for stablecoin security.
