The Office of the Comptroller of the Currency published its proposed rulemaking to regulate stablecoins under the GENIUS Act, raising questions about whether it would ban payouts from crypto companies.
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The narrative
The Office of the Comptroller of the Currency (OCC), a federal banking regulator, published a Notice of Proposed Rulemaking under the GENIUS Act explaining how it may oversee stablecoins. Most of it seems straightforward, but the part that addresses the dividend seems ambiguous and possibly even controversial.
Why it matters
The OCC released its first proposed rulemaking under the GENIUS Act, the first step toward turning the 2025 Act into actual, enforceable rules for crypto companies to comply with. Controversially, it appears to propose creating new restrictions around how stablecoin issuers and their partners can offer return payments to end users.
To break it down
Just to get this out of the way: Most of this 376-page proposal seems pretty straightforward. Provisions address custody controls, capital requirements and other prosaic regulatory details that one would expect from a proposal seeking to govern the US stablecoin sector. This newsletter may touch on these details in a future edition.
The most controversial part seems to be the sections dealing with the stablecoin dividends and how issuers and affiliates can handle them. Those sections also appear to be ambiguous, according to several people tracking that process, speaking on condition of anonymity to discuss an active draft rule. One person said the OCC appeared to be asserting the authority to ban third parties from offering dividends from holding stablecoins, exceeding its authority in the process. But two others said the proposal fit the language of the law defined in GENIUS and that they were not concerned about the dividend being unilaterally banned.
What the regulations can do is put restrictions on how stablecoin issuers’ partner companies can pay out interest on stablecoin deposits, the returns we’ve referred to here.
“[The] proposed [section] provides that permitted payment stablecoin issuers may not pay the holder of any payment stablecoin any interest or return (whether in cash, tokens or other consideration) solely in connection with the possession, use or retention of such payment stablecoin,” the proposal states. “The OCC understands that issuers may attempt to make prohibited payments to payments or holders of stableyiel coins with third parties who have received interest payments.”
The section went on to list some of those third-party arrangements, but said “it would not be possible to identify in detail all, or even most, of the potential arrangements.”
However, the proposal said the OCC would assume those payments are solely for return purposes if there was a contract to that effect, and third parties would be defined as entities that pay returns as a service.
Companies would be able to push back and “rebut the presumption” if they have evidence that their contractual relationship does not meet these conditions, the proposal said.
Companies like Coinbase and Circle may have to adjust the terms of their relationships to comply with the terms of the proposal, as companies like PayPal and Paxos, the issuer of PayPal’s PYUSD stablecoin, may be, two people told this section.
Matthew Sigal, head of digital assets research at VanEck, also shared this view, saying on X (formerly Twitter) that companies like Coinbase would have to make their deals look more like loyalty programs than interest payments.
A confusing part of the proposal, one person said, is the definition of an “associate”. A company can be an issuer or an associate, where associates may not be able to issue returns solely to hold deposits, but the proposal appears to create a third category based on ownership interests. If an issuer has a stake of 25% or more in a third party, they will not be able to offer payments on returns, which could open the door to third parties that have no such stake concerns.
Similarly, wording addressing “white-label relationships” could prevent dividend payments, but that would depend on the terms of the contract between the issuer and the company associated with the stablecoin, the person said. This is the kind of setup PayPal and Paxos have.
To further add to the confusion, the stablecoin dividend is also one of the issues holding back the progress in market structure legislation that the crypto industry continues to hope for. Two people said the OCC proposal could mean Congress doesn’t have to address the dividend at all in the market structure bill, but others said there’s no chance Congress will skip that part of the bill.
Dividends aren’t the only issue holding up the bill—ethics regulations regarding President Donald Trump and his family’s crypto activities, as well as anti-money laundering and know-your-customer rules still need to be worked out—but if the market structure bill becomes law, it will once again reshape how stablecoins can operate in the U.S.
As a result, it is likely that this portion of the OCC proposal will not be implemented as is.
If the market structure bill becomes law before the OCC can finalize its rules, the regulator will have to issue an interim proposal to remain in compliance with the new law. Otherwise, there will be a whole separate rulemaking process later on.
On the market structure bill itself, individuals said there is some updated draft language circulating among lawmakers, but there is no agreement yet between the banking industry and the crypto industry.
This week
- There are no government hearings or meetings scheduled as of press time addressing crypto-related issues.
If you have thoughts or questions about what I’ll be discussing next week or any feedback you’d like to share, feel free to email me at [email protected] or find me on Bluesky @nikhileshde.bsky.social.
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See you next week!
