On Thursday, the U.S. Federal Reserve proposed two regulatory rules to complete the work of building a regulatory framework for stablecoin issuers required by the (Guiding and Establishing National Innovation for U.S. Stablecoins) (GENIUS Act).
These two proposals are currently in a 60-day public comment period.
The relevant rules will provide a legal regulatory framework for stablecoin issuance, and establish specific procedures for banks supervised by the Federal Reserve to issue stablecoins.
The GENIUS Act passed last year requires U.S. bank regulators and the Treasury Department to draft relevant regulatory rules by July 2026. This means that, although the various regulatory bodies have already exceeded the statutory deadline, the relevant departments have made significant progress in recent months.
Restrictions on stablecoin rewards
The Federal Reserve’s regulatory proposal also echoes the related rules previously proposed by the Office of the Comptroller of the Currency (OCC).
The OCC’s proposal focuses on one provision in the GENIUS Act: prohibiting stablecoin issuers from paying interest or returns to users who hold stablecoins.
In the proposal, the Federal Reserve said:
“Under this proposal, certain arrangements involving third parties will be presumed to constitute conduct that is prohibited from paying interest or making returns.”
The Federal Reserve says its regulatory approach is consistent with the OCC.
Although the final rules have not yet been set, it appears that regulators are currently allowing crypto platforms to provide incentives to stablecoin users in ways that are extremely limited, similar to credit card reward programs.
For example, users may receive rewards for using a particular service, but they cannot simply obtain returns similar to deposit interest based on the size of their holdings of stablecoins.
The stablecoin rewards issue is also one of the core points of contention in recent negotiations that failed to pass (the Digital Asset Market Clarity Act), known as the CLARITY Act.
One point of contention is how much in rewards an entity such as Coinbase can provide to stablecoin users.
At present, because the CLARITY Act has not modified the relevant provisions, the GENIUS Act remains the main legal basis for regulating stablecoin rewards.
The rule proposed by the Federal Reserve on Thursday still needs to go through a public comment period.
Regulators typically adjust the rules based on comments, and then release the final version.
This process usually takes several months, sometimes even longer.
The Federal Reserve’s first proposal: capital and reserve requirements
The Federal Reserve’s first rule proposed on Thursday mainly concerns capital requirements and reserve requirements for stablecoin issuing institutions.
Its goal is to ensure that the amount of stablecoins issued can be fully supported by highly liquid assets; and that issuing institutions still have robust operational capacity during periods of market pressure.
The proposal also specifies the types of stablecoin-related activities that banks regulated by the Federal Reserve may conduct, and includes provisions regarding stablecoin reward mechanisms.
The Federal Reserve’s second proposal: procedures for banks to issue stablecoins
The second set of rules also lays out the process that regulated banks must follow to issue their own stablecoins.
Banks must submit, 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 value in all kinds of situations.”
He added: “This includes periods of market pressure—when the value of government bonds that were originally more liquid comes under pressure; it also includes when a single issuing institution, or its affiliated entities, faces operating pressure.”
Multiple departments advance GENIUS Act implementation
Last month, the U.S. Department of the Treasury proposed related plans to implement the GENIUS Act, mainly clarifying: what actions constitute the issuance of U.S. stablecoins; and which entities must comply with the law’s requirements.
The Federal Deposit Insurance Corporation (FDIC) started relevant rulemaking last December, making it one of several federal agencies that need to translate legal requirements into regulatory rules.
This June, multiple regulators also proposed that stablecoin issuers, when identifying users’ identities, should adopt standards similar to those used by other regulated financial institutions.
