The crypto industry’s stablecoin operations, such as the deal between issuer Circle and leading exchange Coinbase, could come under serious pressure in the new set of stablecoin rules proposed by the US Office of the Comptroller of the Currency.
Even as OCC chief Jonathan Gould testified in the US Senate on issues including cryptocurrency oversight on Thursday, people in the industry said they have been trying to understand his agency’s 376-page proposal to regulate domestic issuers under the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which was signed into law last year. Granting the performance and reward of stablecoins has not only been central to the GENIUS Act, but has also been a primary negotiating point in the larger follow-up legislation known as the Digital Asset Market Clarity Act.
Close financial ties between issuers and the crypto platforms that handle their tokens “would make it highly likely that interest or yield payments from the issuer were made to the holder through an intermediary or an attempt to evade the GENIUS Act’s prohibition on interest and yield payments,” the OCC proposal suggested.
Companies can rebut that presumption, the OCC said, “provided the issuer provides sufficient evidence to the contrary.”
On the controversial point of rewards, the industry has worked under the assumption that the GENIUS Act’s prohibition on performance or rewards offered by stablecoin issuers does not extend to third parties that can offer their own rewards programs on those issuers’ tokens, such as at Coinbase. But the OCC’s proposed language assumes that the law’s prohibition would be improperly circumvented in certain third-party relationships, although crypto lawyers and lobbyists are still studying the details.
Industry insiders who requested anonymity acknowledged that this opening effort looks bad and will be lining up to try to change it, but some suggest the agency’s wording may leave enough room to make continued rewards manageable.
Todd Phillips, a former attorney for the Federal Deposit Insurance Corp. and a business professor in Georgia who follows digital asset policy, agreed that the proposed language doesn’t sound like a hard no.
“I think there is some play in the articulations of what the OCC has proposed,” Phillips told CoinDesk on Thursday. He said the opening language seems uncertain about whether it means “closing all permutations of stablecoin rewards.”
“The OCC has clearly gone beyond what the statute requires,” Phillips said, adding that the scope of the restriction “is open to debate.”
The agency did not immediately respond to CoinDesk’s questions.
The crypto industry’s main political goal in Washington is to promote Clarity Act regulations for all US digital asset markets. In that legislative negotiation, this issue of stablecoin performance has become one of the main points of contention, with US bankers arguing that such performance threatens their fundamental dependence on customer deposits. During those conversations, the crypto side has repeatedly argued that the GENIUS Act, as it stands, allows third-party crypto companies to offer rewards for stablecoin holdings and activities.
One of the participants in the negotiation told CoinDesk on Thursday that the OCC’s action should undermine the banks’ lobbying, because what is the point of discussing the performance of stablecoins in additional legislation when the banking regulator has already adopted it as a proposed rule? Despite that, they also said the OCC overreached and the industry will likely fight the proposed rulemaking even as the Clarity Act continues its way through Congress.
Meanwhile, proposals put forth by Gould, a former Bitfury chief legal officer who has otherwise been a strong supporter of the crypto industry, cast some doubt on the industry’s confidence that GENIUS will protect stablecoin rewards programs, which represent a major business at Coinbase. The US crypto exchange has yet to make any public statement and a spokesperson for the company declined to comment.
The regulations proposed by the OCC, which establishes and supervises national banks and trusts in the United States, are preliminary and open the ideas to a public comment period that would then have to be followed by a final rulemaking process. With controversial rules, this process typically requires months of discussion and review.
If the OCC cuts off crypto platforms’ ability to extend stablecoin performance to customers, it may eliminate one of the Clarity Act’s sticking points, although other issues also stand in the bill’s way. Democratic lawmakers have insisted, for example, that the legislation address potential conflicts of interest raised by top government officials, such as President Donald Trump, who personally benefit from the cryptocurrency industry.
In a Thursday hearing before the Senate Banking Committee, stablecoin rewards often emerged as a scary deal for the banking industry. Regulators suggested they have not yet seen an outflow of deposits from banks.
“We have to take these concerns, the concerns of community banks, especially seriously,” said Sen. Angela Alsobrooks, a Democrat who tried to negotiate a compromise in the Clarity Act to prohibit the cryptocurrency industry from rewarding stablecoin holdings in a way that resembles a deposit account. So far, negotiations between political parties, banks, the cryptocurrency industry and the White House have not yet moved towards a compromise that could be voted on in the Senate.
Read more: OCC unveils rules for stablecoins as US Senate holds banking hearing involving cryptocurrencies
