Fed Proposes Rules to Contain Stablecoin Liquidation Runs

The Federal Reserve has proposed rules for payment stablecoin issuers that it supervises. The rules aim to prevent large-scale liquidation runs by giving issuers a 24-hour window to notify the Fed and submit a plan to restore full backing if their reserves fall below the value of outstanding tokens.

If the issuer fails to close the gap or does not receive direction from the Fed, it must begin liquidating reserves and redeeming tokens within 48 hours. However, issuers can continue minting new tokens during this period, provided they are publicly visible on-chain.

The proposal also requires reserve assets to equal or exceed outstanding tokens at all times. Issuers must record the fair value of their reserves daily, and if they fail to meet this requirement, a breach clock starts ticking, requiring them to liquidate within 48 hours.