GENIUS Act Yield Fight: OCC Softens Stablecoin Rewards Rule in Final Text

October 23, 2026 MM Crypto Team

Stablecoin Rewards Ban: What the OCC’s Final Rule Actually Says

The Office of the Comptroller of the Currency has finalized its core rules under the GENIUS Act, and the most contested question — whether stablecoin holders can still earn rewards — came out softer than banks wanted and better than crypto firms feared. The final rule keeps the statutory ban on issuers paying interest or yield to holders, but it drops a proposed restriction that would have presumed many third-party rewards arrangements were illegal evasions of that ban. Instead, the OCC will review issuer arrangements with third parties on a case-by-case basis.

That single change is the heart of the yield fight. The GENIUS Act itself prohibits stablecoin issuers from paying holders interest or yield simply for holding the coins, but it does not explicitly prohibit third-party rewards. In the draft rule, the OCC had proposed a presumption that certain issuer arrangements with third parties violated the yield ban, which would have forced issuers to rebut the presumption or shut programs down. The final version deleted that presumption entirely. The OCC said it will pursue violations and attempts to evade the statutory ban, but each arrangement will be judged individually.

The ruling leaves the banking industry’s core complaint unresolved. Banks had sought tighter restrictions on rewards paid for holding stablecoins, warning that high-yield crypto payments could drain deposits from the banking system. They argued that deposit losses could weaken lending, and rewards became a central issue during the Clarity Act negotiations. After that bill failed in the Senate in September, banking groups turned to the OCC for tighter rules, targeting rewards on account balances rather than stablecoins used for transactions. Brooke Ybarra, a senior vice president at the American Bankers Association, confirmed that position in a recent Crypto in America interview. Banking groups have described the distinction between issuer payments and third-party rewards as a loophole that undermines Congress’s intent.

The OCC, for its part, is declining to draw bright lines. An agency official declined to say whether existing exchange rewards programs comply with the GENIUS Act rule. “We will just let the market develop and address it as it comes,” the official said. The agency could issue additional guidance as the market develops, but it also rejected requests to exempt programs that were established before the law — meaning even long-running rewards programs will face the case-by-case review.

Coinbase, Kraken and PayPal Keep Paying: How Third-Party Rewards Survive

The practical winners are the platforms that pay users for holding stablecoin balances. Under the final rule, Coinbase, Kraken and PayPal can continue to pay rewards on stablecoin balances, because the ban applies to issuers — the companies that mint the stablecoins — not to exchanges, wallets or fintech apps that distribute them. The OCC will check whether issuers are secretly routing interest payments by disguising them as third-party rewards, but the rewards themselves are not banned.

This matters because rewards have become a major competitive weapon. Coinbase pays rewards on USDC balances to keep users inside its ecosystem; Kraken and PayPal use similar programs to attract deposits and transaction volume. For these platforms, rewards are a customer-acquisition cost, not an issuer obligation — and that legal distance is exactly what the OCC’s case-by-case approach preserves. As long as an exchange’s rewards program is funded by the exchange and not secretly paid by the issuer, it falls on the permitted side of the line, at least under the current reading.

The banks’ counterargument is that the distinction is artificial. If a stablecoin issuer benefits from wider distribution because exchanges pay rewards on its token, banks argue, the economic effect is the same as the issuer paying yield directly: money that would sit in bank deposits earning modest interest migrates to stablecoins earning higher rewards. Ybarra’s criticism reflects a deeper fear — that stablecoin rewards function as an unregulated deposit substitute, siphoning the funding base that banks use for lending. Crypto firms respond that competition for deposits is healthy, that users should earn on their balances, and that the GENIUS Act’s text only bans issuer-paid yield.

The “we will just let the market develop” stance means this dispute will be settled in enforcement actions, not rulemaking. Issuers and exchanges now operate in a gray zone where their programs are legal until the OCC says otherwise — a posture that preserves business models today but creates regulatory risk tomorrow, since the agency explicitly reserved the right to pursue evasion.

Reserve Rules Eased: Longer Treasuries and Faster Surplus Withdrawals

The final rule also gave issuers significant relief on the balance-sheet side. The OCC dropped a proposed 20-day weighted-average maturity limit on reserve assets, which allows issuers to hold longer-dated eligible investments, including long-term, high-yield U.S. Treasuries. It also replaced the proposal’s monthly withdrawal limit with a rule letting issuers withdraw surplus reserves at any time. Both changes let issuers earn more on the reserves backing their stablecoins — the primary revenue engine for issuers like Circle and Tether, which keep the interest on reserve assets while the statutory ban stops them from passing it to holders.

The guardrails remain strict where it counts. Issuers must continue backing outstanding stablecoins at least one-to-one with reserves, even after withdrawing any surplus. Liquidity requirements, counterparty exposure limits and stress-testing obligations stay in place, though the agency eased certain limits on exposures to individual counterparties while retaining safeguards. In other words, issuers gained flexibility on how they invest reserves but not on whether reserves exist: the 1:1 backing is non-negotiable.

Redemption mechanics also changed. The final rule removes automatic extensions of redemption deadlines during surges in withdrawal requests — a provision that could have let issuers slow-walk redemptions in a crisis. Instead, issuers must notify the OCC within 24 hours when redemption requests received within a single 24-hour period exceed 10% of a stablecoin’s outstanding value. That threshold creates an early-warning tripwire for regulators: a run on a major stablecoin would surface at the OCC within a day, giving supervisors time to act before confidence collapses.

Why It Matters: The Bank-Versus-Crypto Deposit War

This rulemaking is the regulatory aftershock of the Clarity Act’s failure. Rewards were one of the central battlegrounds in the market-structure negotiations, with the banking lobby fighting the crypto industry over whether stablecoin yield would drain deposits. When the cloture vote failed in September, the fight moved from Congress to the OCC — and the banks lost this round. The final rule is a compromise that keeps the statute’s issuer ban intact while refusing to extend it by regulatory presumption into the third-party rewards economy.

Comptroller Jonathan Gould framed the package as a milestone, saying the framework sets standards for reserve backing, redemptions and risk management and calling it a clear and practical framework. He described the rule as the first step in overhauling the U.S. stablecoin system. The final rule spans more than 700 pages, making the OCC the first federal banking regulator to finalize its core rules under the law. The Federal Reserve and the Federal Deposit Insurance Corporation have issued proposals but not final rules, while Treasury continues separate regulatory work — so the OCC’s interpretation will shape the market first.

For the stablecoin business model, the message is mixed but net positive. Issuers cannot pay holders, but they can invest reserves in longer-dated Treasuries and pull out surplus profits faster — a meaningful boost to issuer economics. Exchanges keep their rewards programs, preserving a key growth lever. Banks get the 24-hour redemption tripwire and strict 1:1 backing, but not the rewards crackdown they demanded. The deposit war, in short, continues — now under rules that favor the status quo.

Outlook: January 18, 2027 and the Unfinished Agenda

The rules take effect on January 18, 2027, giving issuers and platforms just under 15 months to align their operations. But two major pieces are missing. The OCC has not announced when issuer applications will open, leaving companies that want federal stablecoin charters without a timeline. And anti-money laundering and sanctions compliance rules remain pending, with the OCC and Treasury addressing those requirements through separate rulemaking under the GENIUS Act — a significant gap, since illicit-finance controls are among the most operationally demanding parts of any stablecoin regime.

Expect the next phase to be fought on two fronts: the application queue, once the OCC opens it, and the case-by-case rewards reviews the agency promised. Each enforcement decision will effectively write the law the rulemaking declined to spell out. For exchanges, that means rewards programs are safe for now but built on regulatory forbearance rather than a clear safe harbor. For banks, it means the deposit-drain argument moves to the AML rulemaking and the Fed and FDIC proposals still to come. The yield fight is not over — it has just moved to quieter rooms.

FAQ

Does the GENIUS Act ban all stablecoin rewards?

No. The law bans stablecoin issuers from paying interest or yield to holders, but it does not explicitly ban third-party rewards. The OCC’s final rule kept that distinction: exchanges like Coinbase, Kraken and PayPal can continue paying rewards on stablecoin balances, subject to case-by-case review.

What did the OCC drop from the draft rule?

The draft proposed a presumption that certain issuer arrangements with third parties violated the yield ban, forcing issuers to rebut it. The final rule deleted that presumption. The OCC will instead review each arrangement individually and pursue cases it considers evasion of the statutory ban.

How did reserve rules change?

The OCC dropped the proposed 20-day weighted-average maturity limit, letting issuers hold longer-term, higher-yield U.S. Treasuries, and replaced the monthly surplus-withdrawal limit with anytime withdrawals. The 1:1 reserve backing requirement remains, and redemptions exceeding 10% of outstanding value in 24 hours must be reported to the OCC within 24 hours.

When do the rules take effect?

January 18, 2027. The OCC has not said when issuer applications will open, and AML and sanctions compliance rules are still pending through separate rulemaking with the Treasury.

Source: The Block

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