Summary of Key Points from the U.S. Stablecoin Regulatory Draft: Criticism of the Ban on “Yield-Generating Stablecoins” for Favoring Industry Giants

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Summary of Key Points on Stablecoin Legislation

Why Prohibit Yield-Bearing Stablecoins?

The following is a summary shared by Nick Cannon, Vice President of Growth at Gauntlet:

1. Prohibition of Yield-Bearing Stablecoins
   The legislation stipulates that stablecoins cannot offer yields, meaning that stablecoin issuers cannot pay returns to users based on interest or other earnings generated from holding assets such as Treasury bills.
2. Authorized Issuers of Stablecoins
   Only banks, credit unions, and approved nonbank institutions can issue stablecoins. This means that only financial institutions that meet regulatory requirements can participate in the stablecoin market.
3. 1:1 Reserve Requirement
   Stablecoins must maintain reserves on a 1:1 basis, with reserve assets limited to cash, short-term Treasury bills (with maturities of less than 93 days, T-bills <93d), or other highly liquid and safe assets. This ensures the stable value of stablecoins and reduces redemption risks.
4. Potential Interoperability Standards Requirement
   The legislation may require stablecoins to adhere to interoperability standards, ensuring compatibility and interaction between different stablecoins, thereby enhancing market efficiency and user experience. Additionally, having unified technical standards would help regulators better oversee the stablecoin market, reduce systemic risks, and ensure that stablecoins comply with regulatory requirements on a global scale.
5. State-Level Stablecoin Frameworks
   States can certify their own stablecoin regulatory frameworks, but these frameworks must meet or exceed federal standards. This grants state governments some flexibility while still adhering to federal minimum requirements.
6. Two-Year Ban on Algorithmic Stablecoins
   The legislation imposes a two-year ban on algorithmic stablecoins, which are stablecoins that maintain price stability by adjusting supply through algorithms. The goal is to reduce the systemic risks associated with such stablecoins.
7. Two-Year Registration Grace Period
   The legislation provides a two-year grace period for stablecoin issuers to register, allowing existing issuers time to comply with new regulatory requirements.

Among these, the most discussed point is the “prohibition of yield-bearing stablecoins,” a provision viewed by many community members as benefiting issuers like Tether and Circle, as these large companies do not pass on earnings to users. Once the government gives the green light, these issuers may face significant competition.

However, Bridget Harris, a partner at Founders Fund, believes that this provision is actually protecting traditional banks and certain fractional reserve systems: “The regulation will prohibit yield-bearing stablecoins. Because if anyone can obtain almost the entire risk-free interest rate without lending funds for mortgages, businesses, etc., who would still use a regular bank? And if people stop using regular banks, the fractional reserve model would collapse.”