The crypto industry’s stablecoin operations, such as the deal between issuer Circle and major exchange Coinbase, could come under serious pressure under the new set of stablecoin rules proposed by the US Office of the Comptroller of the Currency.
Even as OCC chief Jonathan Gould testified before the U.S. Senate on Thursday on issues including crypto oversight, people in the industry said they were trying to understand his agency’s 376-page proposal to regulate domestic issuers under the Guiding and Establishing National Innovation for American Stablecoins (GENIUS) Act that became law last year. The allocation of stablecoin yield and reward has not only been at the heart of the GENIUS Act, but it was also a main negotiating point in the more significant follow-up legislation known as the Digital Asset Market Clarity Act.
Close financial ties between issuers and the crypto platforms that manage their tokens “would make it very likely that yield or interest payments from the issuer are made to the holder through an intermediary or an attempt to circumvent the GENIUS Act’s prohibition on interest and yield payments,” the OCC proposal suggests.
Companies can rebut this presumption, the OCC said, “provided the issuer provides sufficient evidence to the contrary.”
On the controversial point of rewards, the industry has assumed that the GENIUS Act’s ban on yield or rewards offered by stablecoin issuers does not extend to third parties who may offer their own rewards programs on those issuers’ tokens, such as at Coinbase. But the OCC’s proposed language assumes that the law’s ban would be improperly circumvented in certain third-party relationships, although the details are still being studied by lobbyists and crypto lawyers.
Industry insiders who requested anonymity acknowledged that this openness effort looks bad, and they will be lining up to try to get it changed, but some suggest the agency’s language could leave enough room that continued rewards could be manageable.
Todd Phillips, former attorney for the Federal Deposit Insurance Corp. and business professor in Georgia who follows digital asset policy, agreed that the proposed language does not appear to be a resounding no.
“I think there is some play in the joints of what the OCC has proposed,” Phillips told CoinDesk on Thursday. He said the opening language seems uncertain about whether it means “stopping all permutations of stable rewards.”
“The OCC clearly went above and beyond what the law requires,” Phillips said, adding that the extent of the restriction “is open to debate.”
The agency did not immediately respond to questions from CoinDesk.
The crypto industry’s primary policy goal in Washington is to advance Clarity Act regulations for all U.S. digital asset markets. In these legislative negotiations, the issue of stable coin yield has become one of the main points of contention, with U.S. bankers arguing that this yield threatens their fundamental dependence on customer deposits. During these discussions, the crypto side has repeatedly argued that the GENIUS Act, in its current form, allows third-party crypto companies to offer rewards on stablecoin holdings and activities.
One of the players involved in the negotiations told CoinDesk on Thursday that the OCC’s action should undermine bank lobbying, because what’s the point of imposing a stable currency yield in new legislation when the banking regulator has already adopted it as a proposed rule? Despite this, they also said the OCC was going too far and that the industry would likely oppose the proposed regulations even if the Clarity Act continues to make its way through Congress.
Meanwhile, the proposals put forward by Gould – a former Bitfury chief legal officer who has otherwise strongly supported the crypto industry – cast doubt on the industry’s confidence that GENIUS will protect stablecoin rewards programs, which represents significant business for Coinbase. The US crypto exchange has yet to make any public statement and a company spokesperson declined to comment.
The proposed rulemaking from the OCC, which charters and supervises national banks and trusts in the United States, is preliminary, opening ideas to a public comment period that is then expected to be followed by a final rulemaking process. With controversial rules, this process typically requires months of discussion and review.
If the OCC removes crypto platforms’ ability to extend stablecoin yield to customers, it could eliminate one of the Clarity Act’s sticking points, although other issues still stand in the way of the bill. Democratic lawmakers have insisted – for example – that legislation address potential conflicts of interest posed by high-ranking government officials, such as President Donald Trump, who personally profit from the crypto industry.
At a hearing Thursday before the Senate Banking Committee, stablecoin rewards were often discussed as an activity that scares the banking industry. Regulators have suggested they have yet to see any leakage of bank deposits.
“We need to take these concerns, the concerns of community banks, particularly seriously,” said Sen. Angela Alsobrooks, a Democrat who sought to negotiate a compromise in the Clarity Act to prohibit the crypto industry from receiving rewards on stablecoin holdings in a way that resembles a custodial account. So far, negotiations between political parties, banks, the crypto industry and the White House have yet to result in a compromise that can be voted on in the Senate.
Read more: OCC Proposes Stablecoin Rules as US Senate Holds Banking Hearing In Which Crypto Stars
