OCC Launches Controversial Proposal to Limit Stablecoin Yields Under GENIUS Act

The Office of the Comptroller of the Currency (OCC), the U.S. federal banking regulator, recently released a comprehensive proposed regulation aimed at governing stablecoins under the GENIUS Act. While most provisions appear clear and well-structured, the section discussing yields to users raises significant questions. Industry analysts have differing views on what the OCC is truly proposing — some say the proposal exceeds the regulator’s authority, while others believe it aligns with the legislative intent of the GENIUS Act.

Basic Structure of the OCC Proposal: What’s Clear and What’s Not

The OCC’s 376-page proposal covers various aspects that are fairly straightforward. The document discusses custody controls, capital requirements for stablecoin issuers, and other standard regulatory requirements expected in efforts to regulate the U.S. stablecoin sector. However, when it comes to how yields can be offered to stablecoin holders, the language used by the OCC becomes much more convoluted and open to multiple interpretations.

Industry observers speaking anonymously note that they themselves have differing understandings of what is actually being proposed. One person claims that the OCC seems to be trying to ban third parties from offering yields altogether, exceeding the authority granted by the GENIUS Act. However, two other observers say that the language in the proposal aligns with the intent of the GENIUS Act and does not indicate concern over a unilateral yield ban.

Yield Provisions: Restrictions and Ambiguity

The core of the OCC’s proposal is a section explicitly addressing how stablecoin issuers and their partners can handle interest payments or yields. The proposal states that “permitted stablecoin issuers shall not pay any form of interest or yield (whether in cash, tokens, or other consideration) to stablecoin holders that is solely related to the ownership, use, or retention of the stablecoin payment.”

However, the OCC also acknowledges that issuers might attempt to circumvent this restriction through agreements with third parties — for example, via services offered by trading platforms like Coinbase or Circle. The section attempts to identify various third-party relationship structures that could be used, but the OCC admits that “it is not possible to identify in detail all, or even most, of these arrangements.”

According to the proposal, the OCC will consider such payments as prohibited yields if the contract explicitly states so, and if the third party is defined as an entity offering yields as a primary service. However, companies can dispute this classification with evidence that their contractual relationships do not meet these criteria.

Impact on Crypto Companies and Business Models

Major firms like Coinbase, Circle, PayPal, and Paxos will likely need to adjust their service agreements to remain compliant with these new rules. Matthew Sigal, head of digital asset research at VanEck, indicated on social media that companies like Coinbase might need to restructure their offerings to make loyalty programs appear different from traditional interest payments — a change that is technically and legally complex.

One of the most confusing aspects of the proposal is the definition of “affiliates.” The proposal seems to create a third category where if the issuer owns 25% or more of a third party, yield payments become prohibited. This opens the door for third parties without significant ownership stakes. Similarly, the language around “white-label relationships” — structures used by PayPal and Paxos — could impose restrictions on yield payments, but this depends on the specific contractual terms between the involved parties.

Interaction with the Market Structure Bill and Future Regulation

Ironically, the OCC’s proposal on stablecoin yields is also a major factor delaying progress on the Market Structure Bill, a long-awaited piece of legislation for the crypto industry. Analysts say the OCC’s proposal might address yield issues without further congressional action, but others believe Congress will not pass up the opportunity to debate this topic in the market structure legislation.

Other issues still blocking the Market Structure Bill include ethical provisions related to President Trump and his family’s crypto activities, as well as anti-money laundering and know-your-customer rules. If the Bill is enacted before the OCC finalizes its regulation, regulators will be forced to issue interim proposals to comply with the new law, or separate rulemaking processes will follow.

Sources involved in the legislative process indicate that some recent draft language is circulating among Congress members, but there is no consensus yet between the banking industry and the crypto industry on yield issues and other related matters.