The 104-page proposal, published in the Federal Register on September 29, begins turning the GENIUS Act from legislation into an operating rulebook for federally supervised stablecoin businesses.
At its core is a simple requirement with unusually severe consequences: reserve assets must be worth at least as much as the outstanding stablecoins they back, at all times. Break that 1:1 rule, and the clock starts ticking toward liquidation.
A reserve shortfall starts a 24-hour clock
If a Fed-supervised issuer’s reserves fall below the par value of its outstanding tokens, it has 24 hours to report the shortfall and submit a plan to restore full backing.
If the issuer hasn’t fixed the problem, and the Fed hasn’t approved a remediation plan, it must begin liquidating reserves and redeeming stablecoins by 5 p.m. the following business day, in the time zone of its supervising Reserve Bank.
During that liquidation window, the issuer can’t charge redemption fees or issue new stablecoins. It can only sell reserves and pay holders out.
One important distinction: the trigger is a failure of the issuer’s actual reserve assets to maintain 1:1 backing, not a market-price depeg. If a $1 stablecoin briefly trades at 98 cents on an exchange while its issuer still holds at least $1 in reserves per coin, the automatic liquidation mechanism doesn’t kick in.
The Fed has separately asked whether a sustained secondary-market depeg should eventually trigger its own set of measures, but that isn’t part of the current rule.
Redemptions: two days, no exceptions issuers can grant themselves
Outside of a crisis, the proposal sets a standard redemption right. Issuers must publish a clear redemption policy, and the maximum normal turnaround is two business days from a valid request, issuers can promise faster, never slower.
Issuers can set a minimum redemption amount below one token, but generally must allow redemption of at least one stablecoin at a time, subject to standard customer screening.
Only the Fed can extend that window, for safety-and-soundness concerns, financial-stability risk, or “the public interest.” Issuers get safe-harbor protection for delays caused by required Bank Secrecy Act, sanctions or anti-money-laundering checks, but they can’t unilaterally impose their own redemption gates.
Built for a run, not just a bad quarter
The proposal is explicitly designed around what happens when a large number of holders want their money back at once, a scenario the Fed has already watched play out.
In March 2023, Circle disclosed that $3.3 billion of USDC reserves, about 8% of the total at the time, was stuck at Silicon Valley Bank after regulators seized the lender. USDC lost its dollar peg on secondary markets before recovering once U.S. authorities guaranteed SVB depositors.
No reserves were permanently lost, but the episode exposed the gap between owning safe assets and being able to turn them into cash fast enough during a panic.
The Fed’s proposal tries to close that gap: issuers won’t just need to hold approved reserves, they’ll need to prove they can actually access and liquidate them on short notice.
“Stablecoins can only remain stable if holders can reliably and promptly redeem them at par even during stress, including periods when otherwise liquid government securities are under pressure,” Fed Governor Michael Barr said.
What counts as a reserve, and what doesn’t
Eligible reserves are limited to cash and Fed balances, insured-bank demand deposits, short-dated U.S. Treasuries, specified repo and reverse-repo transactions, qualifying government money-market funds, and other similarly liquid federal assets the Fed approves, including some tokenized versions, provided they carry the same legal rights as the underlying asset.
Reserves must be kept identifiable and segregated from the issuer’s other assets, shielded from ordinary creditors, with the Fed also requiring issuers to monitor concentration risk, a direct lesson from SVB, where the reserves were held mattered almost as much as how much was held.
Monthly public reports, weekly private ones
Each Fed-supervised issuer would have to publish a monthly report on the number of stablecoins outstanding and the fair value and composition of its backing assets, including the average tenor of reserve categories and where they’re custodied.
A registered public accounting firm would examine the report, and the issuer’s CEO and CFO would have to personally certify its accuracy.
Behind the scenes, issuers would file confidential reports weekly and financial-condition reports quarterly. Issuers with more than $50 billion in outstanding stablecoins, and not already subject to SEC reporting, would face additional annual audited-financial-statement requirements.
No paying holders just for holding
Under the GENIUS Act framework, Fed-supervised issuers can’t pay holders interest or yield simply for holding, using or retaining the stablecoin. The proposal also targets the obvious workaround: routing rewards through an affiliate or closely connected third party.
Certain arrangements between an issuer, an affiliate and stablecoin holders would be presumed to violate the yield ban unless the issuer can prove otherwise, a section likely to draw heavy pushback from exchanges and fintechs that use stablecoin rewards to attract balances. Independent merchants can still offer discounts for paying in stablecoins.
A payment vehicle, not a bank
The Fed’s model is deliberately narrow. A supervised issuer can issue and redeem stablecoins, manage reserves and provide related custody services, but it can’t lend stablecoins out or issue them as loan proceeds.
Reserve assets face strict limits on pledging, rehypothecation or reuse. The result looks more like a tightly controlled payment vehicle than a fractional-reserve bank.
A separate, slower clock applies to capital (rather than reserve) shortfalls: an issuer generally gets until the end of the following quarter to restore its minimum capital level before liquidation becomes mandatory. New issuers also face a three-year “de novo” period with a $5 million capital floor, indexed to nominal U.S. GDP growth.
This doesn’t touch USDT or USDC directly
One of the easiest ways to misread this proposal is to assume the Fed has just imposed these rules on every dollar-pegged stablecoin. It hasn’t.
The rule applies specifically to Board-supervised “permitted payment stablecoin” issuers, subsidiaries of insured state member banks approved to issue stablecoins, plus certain state-qualified uninsured depository issuers that opt into the Fed’s framework.
The OCC, FDIC and NCUA are separately writing their own GENIUS Act rules for issuers under their jurisdiction; the frameworks share core features since they implement the same law, but the supervisory path matters.
The Fed says 703 insured state member banks were under its supervision at the end of 2025, meaning subsidiaries of those banks could apply to enter the stablecoin business under the new regime. A separate Fed proposal spells out exactly how.
The Treasury-market wildcard
There’s a bigger financial-market question buried in the proposal. If regulated stablecoins grow into the hundreds of billions or trillions of dollars, holding much of that in short-term government securities, issuers could become major players in the Treasury and repo markets.
The Fed acknowledges this could deepen ties between stablecoin issuers, primary dealers and other Treasury-market participants.
That creates a genuine tension: Treasury-heavy reserves make individual stablecoins safer, but in a large enough run, issuers may need to dump significant amounts of those securities fast to meet the two-day redemption standard, potentially spilling instability into the broader market the rule is trying to protect.
What happens next
None of this is final. The Fed is accepting public comments through November 30, 2026, and has specifically asked for feedback on the two-day redemption window, reserve-shortfall treatment, capital requirements, and how regulators should handle unusually large redemption events.
But the direction is already clear. The GENIUS Act created the legal category of a federally regulated payment stablecoin. The Fed is now answering the harder question: what actually happens when one of those “stable” dollars stops being fully backed. Under this proposal, the answer is no longer “wait and see”, it’s a short window to fix the problem, and then the reserves start selling and the stablecoin starts winding down.
