Fed Cracks Down on Payment Stablecoin Yield Bans

The Federal Reserve has introduced new rules for payment stablecoins under the revived GENIUS Act. The draft regulations require full 1:1 backing of stablecoins with approved reserves, such as short-term US Treasuries and repurchase agreements.

The proposal also includes a stablecoin yield ban, which prohibits issuers from paying interest to holders. This is aimed at preventing arbitrage where stablecoins become money-market funds without prudential supervision.

The rules will apply to supervised stablecoin issuers and have sparked controversy in the industry. Exchanges like Coinbase and Kraken may need to prove that their programs are not pass-through interest, as affiliate rewards would be presumed illegal under the new regulations.