Fed Proposes Rules for Stablecoin Issuers with Crisis Clock Triggering Liquidation

The Federal Reserve has proposed new rules for payment stablecoin issuers it supervises. The proposal includes a crisis clock measured in hours, which would require an issuer to notify the Fed and submit a plan to restore full backing if its reserves fall below the value of its outstanding tokens.

According to the proposal, an issuer must begin liquidating reserves and redeeming tokens by 5 p.m. on the next business day unless it closes the gap or the Fed directs it to proceed with the plan.

The rules also allow issuers to keep minting new tokens during the rescue window, but this choice is tied to the public nature of blockchains. An abrupt halt in issuance would be visible on-chain and could tip holders off to the problem, speeding up the very run the rules exist to contain.

The proposal requires reserve assets to equal or exceed outstanding tokens at all times, with issuers formally recording the fair value of those reserves at least once a day at 5 p.m. in their supervising Federal Reserve Bank's time zone.