OCC Takes Action on Crypto Yields: New Stablecoin Regulation Proposal Under the GENIUS Act

The OCC, the U.S. federal banking regulator, recently released a regulatory proposal regarding the GENIUS Act, with the most notable part involving restrictions on stablecoin yield payments. This 376-page proposal appears to translate the 2025 passed GENIUS Act into concrete, actionable rules, but the sections concerning yield payments have sparked widespread industry controversy—some believe the OCC may be exceeding its authority, while others worry it could reshape the entire crypto yield ecosystem.

As the primary federal banking regulator in the U.S., the OCC has, in recent weeks, introduced its first attempt to establish a regulatory framework for the GENIUS Act. The GENIUS Act is a significant legislation set for 2025, aiming to create a unified regulatory standard for stablecoins. Most of the proposal content is straightforward—covering custody controls, capital requirements, and other routine regulatory details. However, the real controversy centers on the clauses related to how stablecoin yield payments are handled.

Legal Language and Core Restrictions in the Proposal

The proposal indicates that the OCC intends to impose new restrictions on stablecoin yield payments. It explicitly states that licensed stablecoin issuers and their partners may not offer any form of interest or yield payments—whether in cash, tokens, or other forms—related to the holding, use, or retention of the stablecoin.

The key point hinges on the phrase “based solely on holding.” The OCC further clarifies that it understands issuers might attempt to circumvent this restriction by using third-party agreements to provide the prohibited yields indirectly, which could broaden the scope of the restriction significantly.

Ambiguity Around Yield Payments and Third-Party Relationships

This raises the question: what exactly constitutes a “third party”? The OCC’s proposal attempts to define this as any external entity that pays interest to holders for providing yield services. However, in practice, this definition becomes highly complex.

Industry insiders are divided in their interpretation. Some believe the OCC may be overstepping—using the GENIUS Act’s provisions to ban third-party yield payments, which could go beyond its authority within the broader legislative framework. Others, including two informed sources, argue that the wording aligns with the legal provisions of the GENIUS Act itself, and see no issue with it.

Particularly confusing is the definition of “affiliation.” According to the proposal, if a stablecoin issuer owns 25% or more of a third party, that third party cannot offer yields solely because of ownership. This effectively opens the door for certain third parties without such ownership stakes. Additionally, the language around “white-label” arrangements could also restrict yield payments, though this often depends on the specific contractual terms between issuers and partners. For example, PayPal’s partnership with Paxos exemplifies such a structure.

Matthew Sigal, Head of Digital Asset Research at VanEck, recently commented that companies like Coinbase might need to restructure their relationship agreements to resemble loyalty programs rather than direct interest payments. This reflects industry concerns that the existing yield ecosystem may need to be redesigned.

Who Will Be Affected? Challenges for Coinbase, PayPal, and Others

Once these rules take effect, major exchanges like Coinbase and Circle, as well as stablecoin issuers like PayPal and Paxos, may need to revise their partnership terms. For platforms that already have yield mechanisms, this could mean either restructuring contracts or repositioning their services.

Companies have the right to deny and “defend” against OCC’s claims if they can provide evidence that their contractual relationships do not meet the proposed restrictions. However, the success of such defenses will depend heavily on how the phrase “for the sole purpose of yield” is interpreted.

The Market Structure Bill and the Regulatory Battle: Will OCC’s Proposal Survive?

Interestingly, the issue of stablecoin yields is also one of the major hurdles in advancing the U.S. Market Structure Bill. Some industry insiders believe OCC’s proposal might mean Congress won’t need to address yield issues separately within the bill. Others argue that Congress is unlikely to bypass this clause altogether.

The bill’s progress faces additional obstacles, including ethical provisions related to Donald Trump and his family’s cryptocurrency activities, as well as anti-money laundering (AML) and Know Your Customer (KYC) rules. If the Market Structure Bill becomes law, it will once again reshape how stablecoins operate in the U.S.

This suggests that some parts of the OCC proposal may not be implemented as-is. If the bill passes before OCC finalizes its regulations, the regulator may need to issue interim rules to align with the new law, or face subsequent separate regulatory procedures.

Currently, a new draft of the Market Structure Bill is circulating among legislators, but consensus between banking and crypto industries has yet to be reached. Negotiations on key provisions are ongoing.

Key Takeaways for This Week

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