OCC's final rule to start fresh in weighing stablecoin rewards against GENIUS Act ban

The U.S. Office of the Comptroller of the Currency is the first of several federal agencies to finish writing regulations under the act.

U.S. crypto exchanges that have long been giving people rewards for usings stablecoins will have to get the agency to sign off on those existing programs, according to the U.S. Office of the Comptroller of the Currency, the first federal banking regulator to issue a final rule under the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act.

The OCC, which oversees U.S. national banks and trusts that will play a central role in the issuance of stablecoins under the law, issued a final rule on Wednesday to establish the regulations under which the firms that issue the dollar-based tokens will operate — including in their third-party relationships with the exchanges on which their stablecoins change hands.

The agency — an independent bureau of the Treasury Department — has declined to offer examples or illustrations of what type of rewards operations may run afoul of the GENIUS Act, which declared that payments to customers made "solely in connection with the holding, use, or retention of such payment stablecoin" won't be allowed. The industry, which won't get any safe harbors for existing programs, will just have to test the agency's case-by-case oversight to get a better sense of the rule, which is set to go live on January 18.

The regulator said it "will apply the language of the statute to the facts and circumstances of any particular arrangement." However, the agency did suggest that the word "solely" in the prohibition is carrying a lot of weight, and that a reward that "might be made, at least in part, for other reasons" would fall outside the ban in the GENIUS Act.

Payment stablecoins hew to the value of the U.S. dollar and are designed — as suggested by the name — to maintain a steady value in a crypto industry in which other assets are known to be famously volatile. The sector is currently led by Tether's USDT and Circle's USDC, but a number of entrants have begun crowding into the space.

Wednesday's extensive rule establishes the start-to-finish process for regulated firms and foreign companies to issue stablecoins in the U.S. and for how firms will keep custody of them. But the rule is also meant to operate alongside a number of similar rules still being worked on by other agencies, and this effort leaves aside the Bank Secrecy Act components that will be handled by other arms of the Treasury.

"The OCC’s final rule carries that landmark legislation forward, providing a clear, practical foundation for private-sector innovation, competition, and American leadership in digital assets,” said Secretary of the Treasury Scott Bessent in a statement.

But the questions of yield have long swirled at the center of stablecoin regulation.

A number of financial firms, such as U.S. exchange Coinbase, have well-established rewards programs — akin to the customer incentives associated with credit card providers. Some of the highest rates are currently offered by PayPal and Kraken.

The GENIUS Act's ban on the issuers giving anything that looks like interest directly to the holders of their tokens has been a controversial topic and drew a lot of comments to the agency after its earlier proposal.

The programs have been declared by bankers to be a dangerous competitive threat to the customer deposits at the core of their business model. The banks felt so strongly about this that they lobbied to force further changes of the GENIUS Act into the later Digital Asset Market Clarity Act, and they continued fighting the point so vigorously that the Clarity Act couldn't muster unanimous Republican support when it failed to advance in a key Senate vote last month.

Without the amendments that had long been negotiated by bankers, the crypto industry, lawmakers and the White House, the unchanged GENIUS Act remains the only standard for how exchanges such as Coinbase should govern their rewards programs. Bankers who were concerned that the law's language would undermine their deposits are still stuck with that language, though bank deposits have continued to grow after the explosion of interest in stablecoins.

The new OCC rule noted that many commenters suggested the agency needed to consider that the Clarity Act may still overhaul GENIUS on this point (though odds of further action on the markets structure bill are long). But the regulator responded, "Unless and until such legislation passes, the OCC must implement the GENIUS Act’s yield prohibition, as enacted."

When the OCC first proposed its rule earlier this year, there was some uncertainty in the industry about how the agency would police the GENIUS Act's anti-evasion language meant to keep firms from gaming the restrictions on issuers from offering yield or rewards. But the industry has since embraced what it's interpreted as an ongoing legal clearance to offer certain rewards through secondary platforms.

For instance, PayPal offers a 4% return for users of its PYUSD, Coinbase One gives 3.75% on USDC positions and Kraken+ subscribers can make as much as 4.5% on USDG accounts.

"The OCC declines to presume that rewards programs that predated the GENIUS Act comply with the GENIUS Act," according to Wednesday's rule document. "The fact that Congress may have had notice of these rewards programs does not necessarily imply that Congress endorsed them as permissible."

In the final rule, it also took out what it had called "rebuttable presumptions" that assumed specified activities that would violate the rule.

GENIUS' implementation by regulators doesn't stop at the OCC, though that agency has influenced how others are writing their own rules. Though the GENIUS Act had called for a mid-year deadline that none of the regulators met, the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. also have rulemakings underway:

The overall effective date of the GENIUS Act was supposed to arrive in January, but it's unlikely all of the required rules will be in place before then, based on the scheduled periods in which the other agencies are still taking public comments.

OCC officials told reporters that the new rule will give "opportunities for a range of institutions," including community banks, to get involved with stablecoins.

The agency said it changed its reserve requirements between the proposed rule and this final one, adopting "a principles-based approach with respect to reserve asset diversification and concentration requirements," which it said is backed by requirements to "ensure a minimum amount of daily liquidity and avoid excessive concentration with respect to a single counterparty."

Diversified RWA stablecoins sustain 5-7% yield from real credit as crypto funding compresses to ~4%. GENIUS pushes yield off-chain; TAM grows to $4B in 3 years.