The Office of the Comptroller of the Currency released its proposed rulemaking to regulate stablecoins under the GENIUS Act, raising questions about whether it was banning performance payments from crypto companies.
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the narrative
The Office of the Comptroller of the Currency (OCC), a federal banking regulator, published a notice of proposed rulemaking under the GENIUS Act that explains how it could oversee stablecoins. Most of it seems straightforward, but the part that addresses performance seems ambiguous and possibly even controversial.
Why is it important
The OCC released its first version of rulemaking under the GENIUS Act, the first step in turning the 2025 law into real, enforceable rules that crypto companies must comply with. Controversially, it appears to propose placing new restrictions on how stablecoin issuers and their partners can offer performance payments to end users.
breaking it
Just to clarify this: most of this 376-page proposal seems pretty straightforward. The provisions address custody controls, capital requirements, and other prosaic regulatory details one would expect from a proposal seeking to govern the US stablecoin sector. This bulletin may address those details in a future issue.
The most controversial part seems to be the sections addressing the performance of stablecoins and how issuers and affiliates can handle them. According to several people who follow this process and spoke on condition of anonymity to candidly discuss a proposed active rulemaking, these sections also appear to be ambiguous. One person said the OCC appeared to be claiming the authority to prohibit third parties from offering returns on stablecoin holdings, exceeding its authority in the process. But two others said the proposal conformed to the language of the law defined in GENIUS and that they were not concerned about the performance being unilaterally banned.
What the provisions could do is impose restrictions on how associated companies of stablecoin issuers can pay interest on stablecoin deposits, the yield we have referred to here.
“[The] proposed [section] provides that issuers of permitted payment stablecoins must not pay to the holder of any payment stablecoin any interest or return (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin,” the proposal said. “The OCC understands that issuers may attempt to make prohibited payments of interest or return to holders of payment stablecoins through arrangements with third parties.”
The section listed some of these third-party relationships, but said that “it would not be possible to identify in detail all, or even most, of the potential arrangements.”
However, the proposal said that the OCC would assume that these payments are solely for performance purposes if a contract to that effect existed and third parties would be defined as entities that pay performance as a service.
Companies would be able to reject and “rebut the presumption” if they have evidence that their contractual relationship does not meet those terms, according to the proposal.
Companies like Coinbase and Circle may have to modify the terms of their relationship to comply with the terms of the proposal, as will companies like PayPal and Paxos, the issuer of PayPal’s PYUSD stablecoin, two people said about this section.
Matthew Sigal, head of digital asset research at VanEck, also shared this view, saying on X (formerly Twitter) that companies like Coinbase would have to make their deals look more like loyalty programs than interest payments.
A confusing part of the proposal, one person said, is in the definition of “affiliate.” A company could be an issuer or a subsidiary, where subsidiaries may not be able to issue returns solely to hold deposits, but the proposal appears to create a third category based on ownership stakes. If an issuer has a 25% or more stake in a third party, it would not be able to offer performance payments, which could open the door to third parties that do not have such ownership stake concerns.
Similarly, language addressing “white label relationships” may prohibit performance payments, but it would depend on the terms of the contract between the issuer and the company associated with the stablecoin, the person said. This is the type of setup that PayPal and Paxos have.
To further add to the confusion, the performance of stablecoins is also one of the issues holding back the advancement of market structure legislation that the cryptocurrency industry is still waiting for. Two people said the OCC proposal could mean Congress does not need to address performance at all in the market structure bill, but others said there is no chance Congress will omit this part of the bill.
Performance isn’t the only issue holding the bill back (ethics provisions regarding President Donald Trump and the crypto activities of President Donald Trump and his family, as well as anti-money laundering rules and know-your-customer rules, still need to be resolved), but if the market structure bill becomes law, it will once again reshape the way stablecoins can operate in the US.
As a result, this part of the OCC proposal will likely not be implemented as is.
If the market structure bill becomes law before the OCC can finalize its rules, the regulator will have to issue an interim proposal to remain in compliance with the new law. Otherwise, there will be a whole separate rulemaking process later.
As for the market structure bill itself, the people said that there is an updated draft circulating among lawmakers, but that there is no agreement between the banking industry and the crypto industry yet.
This week
- As of press time, there are no scheduled hearings or government meetings addressing cryptocurrency-related issues.
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