Fed Cracks Down on Stablecoin Yields in Sweeping New Rules

The Federal Reserve has proposed new rules for stablecoin issuers under the revived GENIUS Act. The draft regulations demand that supervised stablecoins be fully backed by approved reserves, such as short-term US Treasuries and repurchase agreements. This means that stablecoin issuers will no longer be able to offer yields to holders, a practice that has been common in the industry.

The rules also establish reserve segregation, daily attestations, and tight limits on cash, T-Bills less than 93 days, and overnight repos collateralized by Treasuries. The Fed presumes rewards paid by affiliates or third parties to be prohibited yield if offered to encourage holding, placing the burden on issuers and partners to prove a program is not interest.

The proposed rules have significant implications for the stablecoin industry, which has grown rapidly in recent years. Stablecoins now settle over $2 trillion per month across various blockchain networks. The ban is designed to prevent arbitrage where a stablecoin becomes a money-market fund without prudential supervision.