OCC Proposes Stablecoin Rules, Threatening Rewards Programs and Sparking Industry Pushback

The U.S. Office of the Comptroller of the Currency (OCC) has proposed a new set of rules governing stablecoin operations, potentially disrupting the current landscape of yield and reward programs offered by issuers like Circle and impacting partnerships with exchanges such as Coinbase. The proposal, stemming from the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, has ignited debate within the crypto industry and drawn scrutiny from traditional banking advocates.

OCC Concerns Over Yield and Third-Party Relationships

The OCC’s 376-page proposal focuses on the potential for circumvention of the GENIUS Act’s prohibition on interest and yield payments. The agency suggests that close financial ties between stablecoin issuers and crypto platforms offering rewards could be an attempt to evade these restrictions. Although firms can rebut this presumption with sufficient evidence, the initial language has raised concerns.

Specifically, the OCC’s proposal casts doubt on the assumption that the GENIUS Act’s ban on yield doesn’t extend to third parties offering rewards programs on stablecoin tokens, a practice common on platforms like Coinbase. The agency’s language suggests these third-party relationships could be seen as a way to improperly evade the law’s restrictions.

Industry Response and Legal Interpretation

Industry insiders acknowledge the OCC’s opening effort is likely to face strong opposition and attempts to be revised. However, some believe the agency’s wording may leave enough room for continued rewards programs. Todd Phillips, a former lawyer at the Federal Deposit Insurance Corp. And business professor, suggests the proposed language isn’t a definitive “no” on stablecoin rewards, stating, “I think there’s some play in the joints of what the OCC has proposed.” He added that the extent of the restriction “is open to debate” and that the OCC “has clearly gone beyond what the statute requires.”

Impact on the Digital Asset Market Clarity Act

The OCC’s action comes as the industry lobbies for the passage of the Digital Asset Market Clarity Act. The issue of stablecoin yield has become a central point of contention in negotiations, with U.S. Bankers arguing that such yield threatens their reliance on customer deposits. Crypto firms have maintained that the GENIUS Act allows third-party rewards programs. One industry insider suggested the OCC’s move could undermine the banks’ lobbying efforts, but also acknowledged the industry will likely fight the proposed rulemaking.

Gould’s Stance and Industry Confidence

The proposals are being advanced by Jonathan Gould, the Comptroller of the Currency, who previously served as chief legal officer at Bitfury and has generally been supportive of the crypto industry. His actions have cast some doubt on industry confidence that the GENIUS Act will protect stablecoin rewards programs, a significant revenue stream for companies like Coinbase, which has yet to publicly comment on the matter.

Next Steps and Public Comment Period

The OCC’s proposed rulemaking is preliminary and will be followed by a public comment period and a final rulemaking process, which typically takes months. If the OCC restricts the ability of crypto platforms to offer stablecoin yield, it could eliminate a key sticking point in the Clarity Act negotiations, though other issues remain unresolved. Democratic lawmakers have also raised concerns about potential conflicts of interest involving government officials and the crypto industry.

Banking Concerns and Senate Hearings

During a recent Senate Banking Committee hearing, stablecoin rewards were identified as a concern for the banking industry. Regulators indicated they haven’t yet observed a significant outflow of deposits from banks, but Senator Angela Alsobrooks emphasized the need to address concerns, particularly from community banks, and proposed a ban on crypto rewards that resemble deposit accounts.

Negotiations between political parties, banks, the crypto industry, and the White House have yet to yield a compromise that can be brought to a vote in the Senate.