Introduction
This week, the Office of the Comptroller of the Currency (OCC), a principal division of the Treasury Department, unveiled its preliminary regulatory framework for the implementation of the GENIUS Act, aimed at stablecoin operations. This announcement has prompted a divide among industry experts regarding the potential implications for one of the leading stablecoin reward programs in the United States.
Details of the Proposal
The comprehensive 376-page proposal, released Thursday, stems from legislation signed into law by former President Donald Trump last summer. One notable feature of these prospective regulations, which are open for public feedback for the next 60 days, is the inclusion of specific prohibitions on certain stablecoin rewards. According to these proposed regulations, arrangements where third parties facilitate yields for stablecoin holders tied to their usage or retention of these tokens may become illegal.
Impact on Existing Programs
An example that could be affected by these changes is the collaboration between Circle, the issuer of the USDC stablecoin, and Coinbase. Currently, these companies share profits from interest earned on USDC reserves, allowing Coinbase to provide users an approximate 4% return on USDC deposits, akin to interest payments.
Experts in cryptocurrency regulation shared with Decrypt their concerns that the OCC’s proposed regulatory language might disrupt Coinbase’s existing USDC rewards structure, while also stressing the intricacies associated with the rules, which may allow for circumvention strategies. Observers believe that amendments to Coinbase’s rewards program were likely inevitable following the enactment of the GENIUS Act, though Coinbase has yet to provide commentary on this issue.
Industry Reactions
Last year, Coinbase reported substantial earnings of $1.3 billion tied to stablecoin revenue, with its USDC rewards program identified as a primary catalyst for growth heading into 2025. However, not all stakeholders view the OCC’s proposal negatively. Scott Johnsson, a legal expert in financial services, believes the rules will alter the USDC rewards program, yet anticipates challenges and adjustments before any final regulations are set.
Conversely, executives at Circle welcomed the proposed rules, framing them as essential for the U.S. to maintain leadership in evolving economic structures based on the internet. Circle’s CEO, Jeremy Allaire, expressed optimism regarding the regulations, stating they contribute to a necessary transformation.
Concerns from the Banking Sector
Despite some positive industry reactions, a source within the banking sector conveyed apprehension about the adequacy of the OCC’s announcement. Banking representatives have long advocated for restrictions on stablecoin yields that compete with low-interest traditional bank accounts. The source indicated that the OCC’s proposals may not adequately address these concerns, hinting at ongoing loopholes and the potential for future pivoting of the regulations.
Future Outlook
Ongoing negotiations between the banking sector and cryptocurrency leaders over stablecoin yields have intensified as they seek to address issues related to a stalled marketplace structure legislation, with hopes for a consensus that is now unlikely. Academic experts like Todd Phillips have commented that the OCC’s framework does not resolve existing tensions between competing parties, suggesting further discord is to be expected as deliberations continue.
