- Circle and Paxos tested a cryptographic system to trace stablecoins back to verified issuers.
- The pilot aligns with the U.S. GENIUS Act on dollar-backed stablecoin regulation.
- The system aims to reduce counterfeit tokens and increase transparency for investors.
Circle Internet Financial and Paxos Trust Company have begun testing a system designed to confirm the authenticity of stablecoins. The project, launched with fintech startup Bluprynt, embeds issuer verification into transactions. By providing real-time traceability, the initiative aims to reduce counterfeit tokens and improve trust in digital assets.
How the Verification Pilot Works
The two companies partnered with Bluprynt, a fintech startup founded by Georgetown law professor Chris Brummer, to build the tool. The system embeds cryptographic proof-of-issuer credentials directly into stablecoin transactions, ensuring each token can be traced back to its verified source.
During testing, the system was applied to USD Coin (USDC), PYUSD, and USDP. By validating issuers at the time of issuance, the tool prevents the creation of “copycat” tokens that mimic legitimate stablecoins without proper backing.
The approach eliminates the need for separate audits and helps regulators and investors confirm token provenance. Brummer said it provides “provenance upfront, reducing complexity, and providing transparency for regulators and investors.”
Regulatory Context and Future Applications
The initiative comes as the United States enacts the GENIUS Act, the first federal law governing dollar-backed stablecoins. Lawmakers expect the act will accelerate adoption and potentially expand stablecoin use to trillions of dollars.
Both Circle and Paxos are preparing to operate under federal oversight. Earlier this month, Paxos reapplied for a national trust bank charter to expand beyond its state-level license. Circle, which manages the second-largest stablecoin by market value, also continues building partnerships to integrate stablecoins into traditional finance.
Experts believe the KYI model could extend to other tokenized assets, including U.S. Treasury-backed stablecoins such as USDtb and frxUSD. Chainalysis has previously warned about fake stablecoins, noting that impersonation and counterfeits remain a persistent risk. This pilot is designed to address those concerns directly.
