The U.S. Federal Reserve on Thursday introduced two regulatory proposals aimed at completing the framework for supervising stablecoin issuers as required by the Guiding and Establishing National Innovation for U.S. Stablecoins Act, commonly known as the GENIUS Act.
These two proposals have now entered a 60-day public comment period.
The rules would provide a legal and regulatory framework for stablecoin issuance and establish specific procedures for banks under Federal Reserve supervision to issue stablecoins.
The GENIUS Act, passed last year, required U.S. banking regulators and the Treasury Department to develop the relevant regulatory rules by July 2026.
This means regulators have already passed the statutory deadline, but in recent months the relevant agencies have made considerable progress.
Stablecoin Yield Restrictions
The Federal Reserve's latest regulatory approach also echoes related rules previously proposed by the Office of the Comptroller of the Currency, or OCC.
The OCC's plan focuses on a provision in the GENIUS Act that prohibits stablecoin issuers from paying interest or yield to users who hold stablecoins.
In its proposal, the Federal Reserve said: "Under this proposal, certain arrangements involving third parties would be presumed to constitute prohibited payments of interest or yield."
The Federal Reserve said its regulatory approach is consistent with that of the OCC.
Although final rules have not yet been determined, it currently appears that regulators are allowing crypto platforms to offer very limited incentives to stablecoin users that resemble credit card reward programs.
For example, users might receive rewards for using a particular service, but they cannot simply earn something akin to deposit interest based on the size of their stablecoin holdings.
The issue of stablecoin yield is also one of the core disputes in negotiations over the Digital Asset Market Clarity Act, or CLARITY Act, which recently failed to pass.
One point of contention is how much in rewards companies like Coinbase can offer to stablecoin users.
Currently, because the CLARITY Act failed to amend the relevant provisions, the GENIUS Act remains the primary legal basis for regulating stablecoin yield.
The rules proposed by the Federal Reserve on Thursday still need to go through a public feedback phase.
Regulators typically adjust rules based on comments and then issue a final version.
This process usually takes several months, and sometimes even longer.
First Federal Reserve Proposal: Capital and Reserve Requirements
The first rule proposed by the Federal Reserve on Thursday mainly concerns capital requirements and reserve requirements for stablecoin issuers.
Its goal is to ensure that the volume of stablecoins issued can be fully backed by highly liquid assets, and that issuers remain capable of operating soundly during periods of market stress.
The proposal also specifies stablecoin-related activities that banks under Federal Reserve supervision may engage in, and includes provisions regarding stablecoin reward mechanisms.
Second Federal Reserve Proposal: Procedures for Banks to Issue Stablecoins
The second rule sets out the process that supervised banks must follow to issue their own stablecoins.
Banks would need to submit items including a business plan, financial information, relevant policies, operating procedures and other necessary documents.
Federal Reserve Governor Michael Barr said: "Stablecoins are truly stable only when they can be reliably and promptly redeemed at par under all circumstances."
He added: "This includes periods of market stress, even when the value of otherwise highly liquid government bonds comes under pressure, and also when an individual issuer or its affiliated entities face operational stress."
Multiple Agencies Advance GENIUS Act Implementation
Last month, the U.S. Treasury Department proposed a plan to implement the GENIUS Act, mainly clarifying what conduct constitutes issuing a U.S. stablecoin and which institutions must comply with the law.
The Federal Deposit Insurance Corporation, or FDIC, began its related regulatory drafting work in December last year, becoming one of several federal agencies that need to translate the law's requirements into regulatory rules.
In June, multiple regulators also proposed requiring stablecoin issuers to adopt standards similar to those of other regulated financial institutions when identifying users' identities.
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