What did the Fed propose?
The US Federal Reserve (Fed, the central bank of the USA) has published a draft set of rules for issuers of so-called payment stablecoins, which it would oversee. A stablecoin is a cryptocurrency pegged to the value of another asset, typically the US dollar, and it is supposed to be fully backed by reserves.
According to CryptoSlate, the core of the proposal is an emergency countdown measured in hours. If the value of an issuer's reserves falls below the value of the tokens it has in circulation, a chain of deadlines is triggered.
What does the countdown look like step by step?
| Step | Deadline according to CryptoSlate |
|---|---|
| Notify the Fed and submit a plan to restore full backing | within 24 hours |
| If the issuer fails to close the gap or the Fed does not approve the plan's approach | it must begin liquidating reserves and redeeming tokens |
| Start of liquidation | by 5:00 p.m. the next business day |
According to CryptoSlate, the Fed states that in many cases this entire window works out to less than 48 hours. The proposal runs to 392 pages.
What is contentious about the proposal?
CryptoSlate points out one detail: during this window, the issuer could keep minting new tokens. This is exactly the point that has prompted headlines to talk about the risk of a liquidation run. If the market discovers that backing is insufficient and the countdown is running, pressure for mass redemption may arise, in other words the equivalent of a bank run, only compressed into two days.
We note that at this stage the very word run describes a scenario, not a proven event. No such run has happened yet, because this is a proposal in the comment phase.
What legal framework is this emerging in?
According to Cointelegraph, the Fed requested comments on two proposals for stablecoin issuers under the GENIUS Act. Cointelegraph also states that US regulatory agencies missed the deadline for creating rules under this law, and that is a year after the law was signed. So these are rules that are arriving late relative to the original timeline.
How does this differ from what is happening in Europe?
Europe is also addressing stablecoins in parallel, but with a different lever. According to The Defiant, in its response to the European Commission on September 24 the European Banking Authority (EBA, the European supervisory authority for banking) proposed a ban on crypto service providers in the EU intermediating or enabling the lending and borrowing of stablecoins that are not authorized under the MiCA regulation (Markets in Crypto-Assets, the European framework for crypto).
The difference is in the angle. The US proposal targets an issuer's crisis behavior and its reserves. The European proposal targets what market intermediaries may do with unauthorized stablecoins. Both are still at the proposal and comment stage.
Where does the stablecoin market stand today?
Regulation is arriving in an environment where Tether (USDT) is battling Circle's USDC for dominance. According to CoinDesk, Circle's five-year deal with Binance could strengthen USDC's reach in emerging markets, although analysts speaking to CoinDesk add that Tether's liquidity lead is hard to erase. This is context, not a consequence of the proposed rules: the sources do not document any connection between the Fed's specific proposal and this deal.
What to watch out for with this type of news?
- This is a proposal, not a rule in force. The text is going through the comment process and may change.
- The detail about being able to keep minting tokens during the crisis window is a matter of the proposal, not a proven market impact.
- The "48 hours" figure is the Fed's estimate for many cases, not a fixed universal deadline.
- Worth watching are the final wording of the rules, the outcome of the comments, and whether similar crisis logic appears in European regulations as well.