BREAKINGVIEWS-New rules may tether stablecoins' American growth

By Stephen Gandel

NEW YORK, March 13 (Reuters Breakingviews) - The GENIUS Act is failing to live up to its name. The law passed by Congress last year that cleared the way for the wider adoption of stablecoins may end up doing the opposite, at least in the United States. A top banking regulator has proposed rules that would ban in nearly all instances retailers from partnering with issuers and offering rewards to encourage usage of the digital tokens, which are backed by U.S. dollars. That would limit their allure for consumers, leaving the stablecoin market far short of its multi-trillion dollar potential.

When President Donald Trump signed the GENIUS Act into law last July, Goldman Sachs and others dubbed 2025 the "Stablecoin summer." However, the law's passage kicked off an acrimonious fall for banks and crypto firms. Though the legislation bans issuers of stablecoins from paying interest to holders of the tokens, the crypto industry argues that this prohibition does not apply to third parties. For example, Coinbase Global COIN.O currently pays a 3.5% "reward" on balances of Circle Internet's CRCL.N USDC coin held at the crypto exchange. Banks call the workaround a loophole. An attempt to close that loophole stalled in Congress earlier this year along with the rest of a subsequent crypto bill called the Clarity Act.

Now the Office of the Comptroller of the Currency, which has been tasked with implementing the GENIUS Act, has stepped in. The regulator in late February released a draft of rules which ban interest payments on stablecoins, both directly and indirectly through partnerships. The OCC rules are subject to a 60-day public comment period and could still change. But as drafted they are likely to discourage the uptake of stablecoins.

Users have $321 billion parked in stablecoins, according to CoinMarketCap, with about 80% of it in Tether's USDT and Circle's USDC. Crypto traders use the tokens to trade in and out of cryptocurrencies like bitcoin. One potential growth area is as an alternative to credit cards and other forms of bank-backed payment. Such a shift would be advantagous for retailers, because stablecoins bypass traditional payment networks, lowering processing costs. Getting consumers to switch is a challenge, however, because credit and debit cards pay rewards to users.

There is some wiggle room in the OCC rules. A retailer like $1 trillion Walmart WMT.O, which according to media reports has been looking into a stablecoin partnership, could give customers paying with the digital tokens a discount, much as U.S. restaurants or gas stations already offer to patrons paying in cash. Stablecoins may also keep gaining traction outside the United States by appealing to users seeking dollar-backed tokens which can easily cross borders.

Nevertheless, by restricting the potential growth of stablecoins, the OCC's rules could dampen much of the enthusiasm surrounding the tokens — and dull a competitive threat to U.S. banks.

Follow Stephen Gandel on LinkedIn and X.

CONTEXT NEWS

The Office of the Comptroller of the Currency on February 25 released its gameplan for implementing the GENIUS Act, which Congress passed in 2025 to fully legalize the use of stablecoins in the U.S. Under the law, the OCC was tasked with putting the GENIUS Act into action. Among the OCC's proposed rules is one that would ban retailers from paying rewards to users of any self-branded stablecoins. The OCC's proposed rules are subject to a 60-day comment period.