The crypto industry’s stablecoin operations, such as the arrangement between issuer Circle and leading exchange Coinbase, could be under severe pressure in the US Office of the Comptroller of the Currency’s newly proposed set of stablecoin rules.
Even as OCC chief Jonathan Gould testified before the US Senate on topics that included crypto oversight on Thursday, people in the industry said they have been trying to understand his agency’s 376-page proposal to regulate domestic issuers under the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which became law last year. The approval of stablecoin dividends and rewards has not only been central to the GENIUS Act, but it has also been a main negotiating point in the more important follow-up legislation known as the Digital Asset Market Clarity Act.
Close financial ties between issuers and crypto platforms handling their tokens “would make it highly likely that the issuer’s payments of returns or interest would be made to the holder through an intermediary or an attempt to circumvent the GENIUS Act’s prohibition on interest and return payments,” the OCC proposal suggested.
The companies can rebut that presumption, the OCC said, “given that the issuer provides sufficient evidence to the contrary.”
On the controversial point of rewards, the industry has been working under the assumption that the GENIUS Act’s ban on returns or rewards offered by stablecoin issuers does not extend to third parties that may offer their own rewards programs on those issuers’ tokens, such as at Coinbase. But the OCC’s proposed language assumes that the law’s prohibition would be circumvented in certain third-party situations, though the details are still being studied by crypto lobbyists and lawyers.
Industry insiders, who requested anonymity, acknowledged that this opening effort looks bad and they will line up to try to get it changed, but some suggest the agency’s wording may leave enough room for continued rewards to be handled.
Todd Phillips, a former attorney at the Federal Deposit Insurance Corp. and Georgia business professor who tracks digital asset policy agreed that the proposed language doesn’t seem like a hard no.
“I think there is some play in the joints of what the OCC has proposed,” Phillips told CoinDesk on Thursday. He said the opening language seems uncertain as to whether it means “closing all permutations of stablecoin rewards.”
“The OCC has clearly gone beyond what the statute requires,” Phillips said, adding that the scope of the restriction “is open to debate.”
The agency did not immediately respond to questions from CoinDesk.
The crypto industry’s primary political goal in Washington is to advance the Clarity Act’s rules for the overall US digital asset markets. In the regulatory debate, this issue of stablecoin dividends has become one of the leading points of contention, with US bankers arguing that such dividends threaten their fundamental reliance on customer deposits. During these conversations, the crypto site has repeatedly argued that the GENIUS Act, as it stands, allows third-party crypto companies to offer rewards on stablecoin holdings and activities.
One of the insiders to the negotiations told CoinDesk on Thursday that the OCC’s action should undermine banks’ lobbying, because what’s the point of carving out the stablecoin dividend in additional legislation when the banking regulator has already taken it up as a proposed rule? Despite that, they also said the OCC overreached and the industry is likely to fight the proposed rulemaking even as the Clarity Act continues its way through Congress.
Meanwhile, the proposals made by Gould — a former legal chief at Bitfury who has otherwise been strongly supportive of the crypto industry — cast some doubt on the industry’s confidence that GENIUS will protect stablecoin rewards programs, which represent significant business at Coinbase. The US crypto exchange has yet to make any public statements, and a spokesperson for the company declined to comment.
The proposed rulemaking from the OCC, which charters and oversees national banks and trusts in the United States, is preliminary, opening the ideas to a public comment period that would later be followed by a final rulemaking process. With controversial rules, this process usually requires months of discussion and review.
If the OCC cuts off the ability of crypto platforms to extend stablecoin dividends to customers, it could eliminate one of the Clarity Act prongs, though other conditions also still stand in the way of the bill. Democratic lawmakers, for example, have insisted that the legislation address potential conflicts of interest raised by high-ranking officials, such as President Donald Trump, who personally benefit from the crypto industry.
At a Thursday hearing before the Senate Banking Committee, stablecoin rewards came up frequently as a business that spooks the banking industry. Regulators suggested they have yet to see a flight of deposits from banks.
“We need to take these concerns, the concerns of local banks, especially seriously,” said Senator Angela Alsobrooks, a Democrat who tried to negotiate a compromise in the Clarity Act to ban the crypto industry from rewards on stablecoin holdings in a way similar to a deposit account. So far, the negotiations between the political parties, the banks, the crypto industry and the White House have not yet reached a compromise that can come to a vote in the Senate.
Read more: OCC lays out stablecoin rules as US Senate holds banking hearing, where crypto stars
