The U.S. Federal Reserve delayed for a year before proposing two drafts of rules for the GENIUS Act stablecoin, requiring full reserve backing and a bank application process, with a 60-day public comment period.
(Prior context: Fed advances the GENIUS Act: Stablecoin issuers must hold reserves to mitigate risk, with liquidation if redemptions are not honored within 2 days)
(Background: Establish Stablecoin Rules! U.S. Treasury Advances Implementation of the GENIUS Act, Reaffirming Dollar Dominance)
The U.S. Federal Reserve (Fed) has finally released a concrete draft of the stablecoin rules under the GENIUS Act, announcing two proposals this week that require stablecoin issuers to be fully backed by reserve assets and establish a banking application process, with a 60-day public comment period.
Proposal 1: Full Reserve + Standardized Capital Requirements
According to the Federal Reserve's official announcement, the first proposal requires regulated payment stablecoin issuers to maintain “full backing,” with reserve assets limited to short-term U.S. Treasury securities and other high-quality, highly liquid assets. This regulation tightly ties the asset side of stablecoins to the Treasury market, excluding higher-risk instruments such as cryptocurrencies, corporate bonds, or private placements.
The proposal simultaneously standardizes capital requirements, establishing uniform standards for credit risk and operational risk, and implementing risk management guidelines. This means that stablecoin issuance will no longer be sufficient with just an "asset ratio"; issuers must maintain capital buffers and internal control mechanisms like banks.
Proposal 2: Bank Application Process + Appeal Mechanism
The second proposal focuses on "who can issue." Banks wishing to issue payment stablecoins must submit a business plan and financial information, and can only proceed after approval by the Federal Reserve. The proposal also clearly establishes appeal, hearing, and final decision procedures to ensure a transparent and rule-based application process.
This process is essentially paving the way for traditional banks to enter the market. The business plan review means regulatory authorities can examine aspects such as issuance scale, dividend distribution, liquidity management, and customer protection individually—not just granting a license outright. In contrast, existing non-bank stablecoin issuers (such as Circle and Tether) must also meet similar application and audit standards if they wish to continue operating under the GENIUS Act framework.
Behind the One-Year Delay: Challenges in Regulatory Coordination
The GENIUS Act was signed into law by President Trump on July 18, 2025, becoming the United States' first comprehensive federal regulatory framework for stablecoins. The bill originally required rules to be finalized within one year, but the Federal Reserve and other regulatory agencies failed to issue final regulations before the deadline.
Over the past year, multiple regulatory agencies have indeed drafted proposals and gathered public feedback, but no consensus has been reached. This stems from several core tensions: the banking system seeks to raise barriers to protect existing interests, non-bank stablecoin issuers (such as Circle) advocate for a flexible framework to maintain their innovation advantage, and the crypto industry fears that overly strict rules could push stablecoins toward decentralized or offshore platforms.
The two draft proposals put forward by the Fed represent, to some extent, a compromise that meets banks' expectations for the application process while leaving room for non-bank issuers to comply.
Market Impact: Stablecoin Landscape Restructuring
If these two proposals are approved, their impact on the stablecoin ecosystem will be profound. Full reserve and capital requirements will increase operational costs, making it difficult for smaller or undercapitalized issuers to sustain operations, further increasing market concentration. At the same time, opening up the banking application process gives Wall Street the opportunity to issue stablecoins directly, blurring the boundaries between traditional finance and crypto.
Notably, the Fed is using a "request for comments" rather than issuing final rules directly. The 60-day public comment period will be a window for industry lobbying and negotiation, and the final rule is likely to differ from the current draft.
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