The Office of the Comptroller of the Currency has released its proposed rulemaking to regulate stablecoins under the GENIUS Act, sparking questions about whether it would ban yield payments from crypto companies.
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The story
The Office of the Comptroller of the Currency (OCC), a federal banking regulator, has issued a notice of proposed rulemaking under the GENIUS Act, explaining how it could oversee stablecoins. Most of it seems simple, but the part dealing with performance seems ambiguous, even controversial.
Why it matters
The OCC has released its first draft of rulemaking under the GENIUS Act, the first step toward turning the 2025 Act into real, enforceable rules that crypto companies must follow. Controversially, he appears to propose putting in place new restrictions on how stablecoin issuers and their partners can offer yield payments to end users.
Break it down
Just to set the record straight: Most of this 376-page proposal seems pretty straightforward. The provisions cover custody controls, capital requirements, and other prosaic regulatory details one might expect from a proposal to govern the U.S. stablecoin sector. This newsletter may cover these details in a future edition.
The most controversial part seems to be the sections dealing with the performance of stablecoins and how issuers and affiliates can manage them. According to several people following this process, speaking on the condition of anonymity to candidly discuss a proposed active regulation, these sections also appear ambiguous. One person said the OCC appeared to claim the authority to prohibit third parties from offering yield by holding stablecoins, overstepping its authority in the process. But two others said the proposal matched the language of the law set out in GENIUS and that they had no concerns about unilaterally banning the yield.
These provisions could impose restrictions on how partner companies of stablecoin issuers can pay interest on stablecoin deposits, the yield we are referring to here.
“[The] propose [section] provides that issuers of authorized payment stablecoins shall not pay to the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or custody of that payment stablecoin,” the proposal states. “The OCC understands that issuers may attempt to make prohibited interest or yield payments to holders of payment stablecoins through third-party arrangements.”
The section then lists some of these third-party relationships, but states that “it would not be possible to identify in detail all, or even most, potential arrangements.”
However, the proposal stated that the OCC would presume that these payments are solely for performance purposes if there was a contract for that purpose and that third parties would be defined as entities paying performance as a service.
Companies could respond and “rebut the presumption” if they have proof that their contractual relationship does not respect these conditions, the proposal states.
Companies like Coinbase and Circle might have to change the terms of their relationship to meet the terms of the proposal, as might companies like PayPal and Paxos, the issuer of PayPal’s PYUSD stablecoin, two people said about the section.
Matthew Sigal, head of digital assets research at VanEck, also shares this view, arguing on X (formerly Twitter) that companies like Coinbase should make their deals more like loyalty programs than interest payments.
A confusing part of the proposal, one person said, is the definition of an “affiliate.” A company could be an issuer or an affiliate, with affiliates unable to issue returns solely for holding deposits, but the proposal appears to create a third category based on holdings. If an issuer has a 25% or more interest in a third party, it will not be able to offer performance payments, which could open the door to third parties who do not have such ownership concerns.
Similarly, language addressing “white label relationships” may prohibit yield payments, but that would depend on the terms of the contract between the issuer and the company associated with the stablecoin, the person said. This is the kind of setup that PayPal and Paxos have.
To further add to the confusion, stablecoin yield is also one of the issues holding back the advancement of market structure legislation that the crypto industry continues to hope for. Two people said the OCC proposal could mean Congress would not need to address yield at all in the market structure bill, but others said there was no chance Congress would ignore that part of the bill.
Yield isn’t the only issue holding up the bill — ethics provisions regarding the crypto activities of President Donald Trump and his family, as well as anti-money laundering and know-your-customer rules, still need to be worked out — but if the Market Structure Bill becomes law, it will once again reshape how stablecoins can operate in the United States.
As a result, it is likely that this part of the OCC proposal will not be implemented as is.
If the Market Structure Bill becomes law before the OCC can finalize its rules, the regulator will need to issue an interim proposal to remain compliant with the new law. Otherwise, there will be a whole other rule-making process later.
Regarding the market structure bill itself, individuals said that an updated draft text was circulating among lawmakers, but that there was no agreement yet between the banking sector and the crypto industry.
This week
- As of press time, no government hearings or meetings have been scheduled to address crypto-related issues.
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See you next week!
