Federal Reserve Proposes Stablecoin Regulatory Framework Under GENIUS Act
The U.S. Federal Reserve has announced two proposed rules to implement the regulation of payment stablecoins as mandated by the GENIUS Act signed in July 2025. The first rule requires issuers supervised by the Board to fully back their tokens with permitted reserve assets, such as short-term U.S. Treasury securities and other high-quality liquid assets, along with standardized capital requirements, risk management standards, and reserve custody rules. The second rule establishes application, appeal, and hearing procedures for stablecoin issuance by banks supervised by the Board through subsidiaries. The public comment period will last for 60 days after publication in the Federal Register.
Board member Michael Barr issued a supportive statement, emphasizing that stablecoins can only be considered stable if they can be redeemed at par value in a timely manner during stressed market conditions and when the issuer is under pressure. He welcomed reserve restrictions and transparent capital requirements, specifically mentioning that interest rate and foreign exchange risks, as well as universal redemption rights, need to be clearly addressed in the final draft. He also called for the final draft to address anti-money laundering supervision thresholds: the Board should not take supervisory or enforcement action solely based on defects unless they reach a "material or systemic" level. The GENIUS Act treats licensed payment stablecoin issuers as financial institutions under the Bank Secrecy Act, prohibiting them from paying interest or returns to token holders, with an effective date of January 18, 2027, or 120 days after the final draft is issued, whichever is earlier.
At the federal level, the regulatory framework has been fragmented among multiple agencies: in June, the Federal Reserve and FinCEN jointly proposed customer identification requirements; in August, the Treasury defined what constitutes issuance or sale in the U.S.; the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation had previously sought comments on 1:1 reserves and two-day redemption for bank issuers. The New York State Department of Financial Services has also proposed state regulations to achieve "substantially equivalent" certification from the Treasury, thereby retaining state oversight over issuers with circulation below $10 billion. Large redemptions exceeding 10% of circulation must be reported to the supervisory authority.
Mechanically, the purchase involves a dollar token channel accepted by the banking system, while the sale involves unlicensed, interest-bearing, reserve-backed structures containing credit assets. The driving event is the central bank filling in the implementation details left for the Federal Reserve to supervise under the GENIUS Act, rather than establishing a new law. Funds are being shifted from commercial paper and crypto collateral to short-term debt and cash equivalents; benefiting are licensed bank subsidiaries and short-term debt custodians, while pressured are the issuance models relying on reserves for interest margins and distributing returns to token holders, as well as non-bank issuers that do not meet capital and redemption standards. The rules will not take effect before the end of the comment period, and whether cross-border issuance counts as "issuance in the U.S." still depends on the Treasury's parallel text.
Source: Public Information
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The GENIUS Act establishes legislation first, followed by detailed rules from various regulators. The two texts from the Federal Reserve govern banks and state member banks under its supervision, rewriting stablecoins from crypto products into payment liabilities subject to capital constraints. The 1:1 short-term debt removes operational profits from the reserve portfolio, and the prohibition on paying interest cuts off the narrative of "on-chain money market funds." Barr's call for universal redemption rights and payable under stressed scenarios effectively defines issuers as narrow banks: liabilities are immediate, and assets can only be cash and short-term debt. The anti-money laundering "material or systemic" threshold is another battleground: if set too high, enforcement may struggle to intervene in a timely manner; if set too low, the account opening process returns to traditional banking costs.
The capital pathway is the migration of reserves. Demand for short-term debt rises with the scale of compliant stablecoins, as issuers shift from commercial paper spreads to licensing fees and transaction charges. Once the bank application process is streamlined, custody and clearing can remain within the deposit system, while non-bank issuers must either apply for licenses or cede U.S. users to licensed competitors. State regulation retains its territory for issuers below $10 billion through "substantially equivalent" certification, creating a tiered system where large accounts are federally regulated and mid-sized accounts remain under state oversight. With the countdown to the January 2027 effective date, the 60-day comment period will determine whether the final draft can be completed before the statutory date.
Comparing to money market fund reforms that pushed stable net asset value funds into government funds, and payment licenses that incorporate electronic wallets into reserve and redemption disciplines: both regulate tools that "look like deposits" as deposits. The difference is that stablecoins can be transferred on public chains, and redemption rights must be executable in off-chain bank end-of-day settlements. The industry phase shifts from "whose coin can move on-chain" to "whose reserves can be redeemed at par during interest rate hikes and runs." Whoever first accesses the Federal Reserve application channel will define the institutional entry for U.S. dollar stablecoins.
Structural judgments belong to regulatory changes. Pricing power shifts from reserve portfolio spreads to licensing and redemption commitments. The mechanism is that once a payment tool is legislated as a legal payment channel, it can no longer survive on credit assets and floating yields; short-term debt is the only fuel permitted by regulation. The draft rules open a window for banks while timing non-banks.
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Once stablecoins are written as payment liabilities, reserves can no longer rely on interest margins for sustenance.
Redemption at par value, faster than on-chain transfers, will determine who can survive.
After licensing stratification, large accounts will fall under federal oversight, while mid-sized accounts will remain with the states.