The Stablecoin Issuer's Dual-Framework Roadmap: How GENIUS Act PPSI Compliance Interacts with the Pending CLARITY Act Yield Compromise

I. Bill on the Verge: The Tillis-Alsobrooks Compromise Sits in a Senate Banking Manager’s Amendment That Hasn’t Been Reconciled

The GENIUS Act is law. The President’s Working Group’s 2021 stablecoin report had recommended Congress require issuers to be insured depository institutions.¹ Congress chose differently. The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, Pub. L. No. 119-27, was enacted July 18, 2025, and built a dual-track Permitted Payment Stablecoin Issuer (“PPSI”) framework that runs federal-charter and state-charter pathways in parallel.² For issuers, that statute is today’s live regulatory floor — not theory, not a proposed rule, not a discussion draft.

The CLARITY Act is not law. The Digital Asset Market Clarity Act of 2025, H.R. 3633, passed the House on July 17, 2025.³ The Senate Banking Committee’s manager’s amendment — dated May 12, 2026, advanced 15-9 on May 14, 2026 — added a new stablecoin-yield compromise authored by Senators Tillis and Alsobrooks.⁴ That compromise sits in a Senate-side text that has not been reconciled with the House bill. Floor vote, conference, and Presidential signature still wait. Expected enactment is roughly August 2026, with measurable reconciliation risk before then.

The bill-section disambiguation matters. H.R. 3633’s House-passed Section 404 governs CFTC registration of digital commodity exchanges — a Title IV provision affecting exchanges, not stablecoin issuers. The Tillis-Alsobrooks stablecoin-yield compromise sits in the Senate Banking manager’s amendment, also numbered Section 404, in a Senate version still unreconciled. Articles conflating the two are mis-citing the statute. I will refer to the Senate Banking provision as “Senate Banking Sec. 404” or “the Tillis-Alsobrooks compromise” throughout this piece; “House Sec. 404” refers to the exchange-registration provision.

This article is the dual-framework roadmap. GENIUS Act PPSI compliance is the live floor today. CLARITY Senate Banking Sec. 404 is the yield/rewards overlay that may or may not land in roughly its current form. Stablecoin issuers building rewards products need an architecture that survives both regimes — and the reconciliation fight that follows. The frame I use throughout is “the Three Archetypes”: Pure Payment Stablecoin (PPS), Activity-Reward Stablecoin (ARS), and Wrapped Yield-Bearing Instrument (WYBI). These are analytical labels, not statutory categories. The point of the taxonomy is product-design clarity, not regulatory classification.

II. The Three-Layer Stack: GENIUS Issuer-Level Prohibition, OCC Regulatory Extension, CLARITY Statutory Overlay

The trade-press shorthand frames this as a two-layer problem: GENIUS as the yield-silent floor, CLARITY Sec. 404 as the sole yield overlay. That framing is materially incomplete. GENIUS already prohibits issuer-direct yield. The live controversy is what happens at the exchange-intermediary tier, where Circle pays Coinbase roughly 50% of reserve income and Coinbase passes a yield-equivalent rate (recently advertised in the 4.1-4.5% range) to USDC holders as “rewards.” Whether that arrangement evades GENIUS or violates it is the question driving every NPRM the federal banking agencies have published since February 2026.⁵ The correct frame is a three-layer stack.

Layer 1 — GENIUS § 4(a)(11) issuer-level prohibition (the statutory floor). GENIUS § 4(a)(11) prohibits “any form of interest or yield… solely in connection with the holding, use, or retention” of a payment stablecoin paid by the issuer or a foreign payment stablecoin issuer.⁶ This is not silence. The provision is in force today. An issuer that pays holders directly for holding the stablecoin violates the statute. The question is reach, not existence.

Layer 2 — OCC NPRM regulatory extension to third-party arrangements (the regulatory layer). The OCC’s notice of proposed rulemaking, “Implementing the GENIUS Act for Entities Subject to OCC Jurisdiction,” published March 2, 2026, proposes to extend the issuer-level prohibition to “arrangements with third parties in which issuers could achieve the payment of yield to payment stablecoin holders.”⁷ The comment period closed May 1, 2026. The FDIC paired with its own NPRMs in December 2025 and April 2026, the second of which adopted a 40% single-IDI concentration cap on PPSI reserves and tracked the OCC framework.⁸⁹ FinCEN and OFAC issued a joint NPRM on April 10, 2026 establishing the first stablecoin-specific AML/CFT and sanctions program and carving PPSIs out of the money-services-business definition.¹⁰ Treasury issued an advance notice on September 19, 2025 setting the $10B threshold for state-versus-federal oversight,¹¹ and NCUA issued a credit-union-service-organization NPRM in February 2026.¹² The Federal Reserve has not proposed a rule as of this writing — a planning gap for bank-affiliated PPSI issuers (JPMorgan Onyx and any BHC-issued stablecoin coming to market).¹³ This is the active live regulatory layer, and it is where the exchange-intermediary loophole is being litigated through notice-and-comment.

Layer 3 — CLARITY Senate Banking Sec. 404 statutory overlay (the legislative layer). The Tillis-Alsobrooks compromise reaches further than either GENIUS or the OCC NPRM by purporting to legislate a clean line between prohibited bank-deposit-equivalent yield and permitted activity-based rewards. The compromise sits in a Senate Banking manager’s amendment text that has not cleared the floor, has not been reconciled with the House bill, and has not been signed. The 12-month joint SEC/CFTC/Treasury rulemaking on the carveout’s definitional contours is a separate cliff after enactment. The structural mechanic to watch is whether Layer 3 supersedes Layer 2 by codification, or whether Layer 2 stays alive as an OCC-side belt-and-suspenders restriction on bank-chartered issuers. Neither outcome is foreclosed today.

The Rule 2a-7 analogy is the closest extant model. The SEC’s 2014 money-market-fund amendments unbundled the “money-market” marketing claim from operational reality by tightening NAV-stability and liquidity mechanics around what a fund could call itself.¹⁴ GENIUS is doing the analogous thing for “stablecoin”: separating the marketing label from the 1:1 reserve discipline a holder is entitled to expect. The OCC NPRM extends the discipline to third-party rewards-channel marketing. Senate Banking Sec. 404 would extend it further into product design. The architecture is recognizable.

The compliance map under all three layers: GENIUS handles issuance (reserve composition, monthly attestations, AML/CFT, sanctions, federal/state dual track); the banking-agency NPRMs handle the regulatory extension to third-party arrangements; Senate Banking Sec. 404, if enacted, handles the statutory definition of what counts as permitted activity-based rewards. Each layer adds, none replaces. An issuer in 2027 will live under all three simultaneously.

III. The Tillis-Alsobrooks Compromise: What “Economically or Functionally Equivalent to a Bank Deposit” Actually Means

The Senate Banking manager’s amendment language does the work in two clauses. The disqualifier prohibits stablecoin yield that is “economically or functionally equivalent” to a bank deposit. The carveout permits “bona fide” activity-based and transaction-based rewards that are “calculated by reference to balance, duration, tenure, or any combination of the foregoing.”¹⁵ The verbatim text is Q-PENDING for attorney verification against a clean manager’s-amendment text — the version circulating publicly via Senate Banking’s PDF is machine-compressed and difficult to OCR cleanly. The phrase quoted here is reproduced from the Consumer Federation of America’s contemporaneous critique, which captured the carveout language directly from the manager’s amendment text.¹⁶

The “economically or functionally equivalent” disqualifier and the “balance, duration, tenure” carveout sit in tension. A reward calculated by reference to balance is, at the limit, a deposit-rate formula. The CFA characterizes the prohibition as “illusory” on that ground.¹⁶ The Bank Policy Institute and the broader ABA/BPI/ICBA coalition frame the carveout as functionally identical to deposit interest and as the on-ramp for the $6.6 trillion in transactional bank deposits Treasury has identified as at risk of stablecoin substitution.¹⁷¹⁸ The Council of Economic Advisers, on the other side, published an April 2026 paper arguing the yield prohibition increases bank lending by only $2.1 billion (a 6.6 cost-benefit ratio against the prohibition) and opposes the categorical rule.¹⁹ Senate Banking advanced the compromise 15-9 over those objections. The disagreement is real, and the carveout’s reach is the litigated question.

My first-cut definitional framework. Passive yield: the holder receives a return without taking any holder-specific action, calculated solely as a function of balance and time. Activity-based: the holder must do something specific — execute a transaction, participate in governance, attest to identity verification at a higher KYC tier, supply liquidity, validate — to earn the reward. The line is doing enormous work, and Senate Banking Sec. 404 does not define either term. The 12-month joint SEC/CFTC/Treasury rulemaking is where the rule’s real shape will appear.

The enforcement backdrop is unforgiving. In re BlockFi Lending LLC set the $100 million floor — $50 million to the SEC and $50 million to state regulators — for selling crypto-backed interest accounts as unregistered securities, applying the Reves family-resemblance test for notes alongside Howey.²⁰ SEC v. Celsius Network applied both Howey and Reves to the Earn Interest Program.²¹ The SEC’s April 4, 2025 staff statement on stablecoins is the operative guidance: “Covered Stablecoins” are not securities under Howey or Reves, but the statement explicitly excludes yield-bearing stablecoins from that non-security determination.²² The SEC’s existing posture is that yield on a stablecoin reaches the security framework. Senate Banking Sec. 404 would carve a narrow lane out of that posture for activity-based rewards. The carveout’s contours have to survive both statutory drafting and the joint rulemaking’s regulatory interpretation.

Reves v. Ernst & Young, 494 U.S. 56 (1990), is the doctrinal anchor.²³ The family-resemblance test asks whether a note resembles instruments commercial parties would naturally treat as investments rather than as commercial paper or as short-term consumer financing. A yield-bearing stablecoin held in a wallet for the yield is structurally close to the BlockFi Interest Account — the same instrument the SEC and the states valued at $100 million in penalties. That is the doctrinal floor under any rewards-product design. Senate Banking Sec. 404 does not eliminate that floor; it carves a defined exception out of it. The architecture of the exception is what the 12-month joint rulemaking will define.

IV. The Three Archetypes: Pure Payment Stablecoin; Activity-Reward Stablecoin; Wrapped Yield-Bearing Instrument

A taxonomy disclosure before the substance. “The Three Archetypes” is an analytical taxonomy, not a statutory classification. PPS maps to GENIUS Act PPSI status. WYBI maps to Investment Company Act § 3(a)(1) and Securities Act § 2(a)(1). ARS is the product-design space the Tillis-Alsobrooks carveout opens — it does not name a statutory category. The taxonomy is useful because it sorts products by which compliance stack applies to them. Treating it as a statutory classification would be wrong.

A. Pure Payment Stablecoin (PPS)

The PPS is the GENIUS Act PPSI baseline. No yield to holders. No rewards. Full reserve composition (1:1 U.S. dollar deposits, short-term Treasuries, or central-bank reserves). Monthly public attestations. AML/CFT program under the FinCEN/OFAC joint NPRM. OFAC sanctions screening as a stablecoin-specific program — the first such program for any entity type. Federal regulator (OCC, Federal Reserve, FDIC) or state equivalent for non-bank issuers under the $10 billion threshold.¹¹ USDC, operated as a pure payment vehicle, sits squarely in this archetype today.

The SEC April 2025 staff statement is the doctrinal predicate: a “Covered Stablecoin” — one that holds 1:1 reserves, redeems on demand, pays no yield — is not a security under Howey or Reves.²² That non-security determination is staff guidance, not Commission action; it is advisory. It is the cleanest existing read of how the SEC treats the PPS archetype.

Compliance cost band: moderate. This is the floor every PPSI issuer incurs regardless of product mix. The economics work because the issuer keeps the float income on reserves — the Treasury-bill yield that holders never see. Revenue derives from float plus transaction fees plus, in the bank-backed model, custody and ramp fees. Design constraint: zero yield economics to holders.

Reconciliation risk: low. GENIUS is enacted law. Senate Banking Sec. 404 adds nothing to the PPS archetype because the PPS by definition does not pay holders anything that could be characterized as yield. The PPS issuer’s exposure to reconciliation outcomes is indirect — it runs through whether and how the rewards-product market opens for competitors.

For an issuer choosing the PPS archetype: build the GENIUS PPSI compliance stack to spec, do not commercialize any rewards layer at the issuer level, and accept that revenue comes from float rather than from rewards-product premium pricing.

B. Activity-Reward Stablecoin (ARS)

The ARS is the product-design space the Tillis-Alsobrooks compromise opens. The architecture: GENIUS Act PPSI issuance plus a rewards layer keyed to specific holder activity — governance participation, transaction frequency, attestation tier, merchant adoption, liquidity provision. This is the archetype most stablecoin issuers want to commercialize. It is also the archetype carrying the highest reconciliation risk in the bill.

The ARS sits at the intersection of two prohibitions and one carveout. GENIUS § 4(a)(11) prohibits issuer-direct yield to holders.⁶ The OCC NPRM proposes to extend that prohibition to third-party arrangements where the third party passes yield onto holders.⁷ Senate Banking Sec. 404 carves a defined exception for activity-based and transaction-based rewards. The carveout sits inside the same legislative package that strengthens the underlying prohibitions. An ARS product designed to the broadest reading of the carveout — balance-and-tenure rewards calculated like a deposit rate — collides with the underlying issuer-level prohibition and with the OCC’s proposed extension of that prohibition to exchange-channel arrangements. The product survives only if the carveout’s activity-nexus requirement is satisfied at every layer the regulator examines.

Concrete candidates. RLUSD (Ripple) is the publicly-discussed candidate for an ARS product line. PYUSD (Paxos/PayPal) sits adjacent if the bank-distribution model layers in transaction-volume rewards. The exchange-intermediary model — Circle’s 50% reserve-income share with Coinbase, passed to USDC holders as 4.1-4.5% “rewards” — is the live disputed example that the OCC NPRM targets.⁵ Whether Circle/Coinbase under the current arrangement survives the OCC NPRM, the Tillis-Alsobrooks carveout, or both, is the question hanging over the entire archetype.

Compliance cost band: high. The ARS issuer carries the full GENIUS PPSI stack plus Senate Banking Sec. 404 activity-reward documentation plus the 12-month joint SEC/CFTC/Treasury rulemaking comment-period engagement plus, depending on charter, the OCC NPRM third-party-arrangement compliance layer. Three overlapping legal regimes, each with its own examination cycle. Design constraint: rewards must be defensibly activity-based, not de facto passive.

My hard-edged opinion. The SEC and CFTC will read “activity-based” narrowly in the joint rulemaking. The agencies sit downstream of the BlockFi and Celsius enforcement precedents and downstream of the SEC’s April 2025 staff statement explicitly excluding yield-bearing stablecoins from the non-security determination. The institutional posture is risk-averse. An issuer designing to the broadest “balance, duration, tenure” reading of the carveout is designing to the regulator’s least-likely interpretation.

Reconciliation risk: medium-high. The Tillis-Alsobrooks compromise is the bill’s hottest fault line. The ABA/BPI/ICBA coalition is pushing to tighten the carveout to a House-style near-total ban; the bank-deposit-substitution argument is the coalition’s strongest single piece of leverage. The CEA’s April 2026 paper is the executive-branch counterweight, but the CEA does not sit at the conference table. My forecast (developed in Section IX): 35-45% probability of House-like tightening in the final law.

For an issuer choosing the ARS archetype: design every reward category to survive the narrowest plausible reading of the carveout. Document the activity nexus at the moment of accrual, not retrospectively. Build the comment-period engagement into the rulemaking calendar from day one.

C. Wrapped Yield-Bearing Instrument (WYBI)

The WYBI passes through yield from underlying reserve assets — Treasury bills, repo, money-market instruments. The yield characteristic is built into the instrument, not bolted on as a rewards layer. That structural difference puts the WYBI outside the stablecoin regulatory perimeter. The instrument is a security under Securities Act § 2(a)(1) and an investment company under Investment Company Act § 3(a)(1) unless it fits a defined exemption.²⁴²⁵ Senate Banking Sec. 404 does not reach the WYBI archetype. The SEC and Investment Company Act framework does.

The sub-paths are doctrinally distinct, and the choice among them is the most consequential WYBI design decision.

The § 3(c)(7) qualified-purchaser path (BUIDL). BlackRock’s USD Institutional Digital Liquidity Fund, with more than $2.5 billion in assets under management, sits under Investment Company Act § 3(c)(7), the qualified-purchaser exemption, distributed under Securities Act Rule 506(c).²⁶ Institutional-only. No retail access. The path works for an institutional WYBI and only an institutional WYBI.

The Rule 2a-7 path (FOBXX/BENJI). Franklin Templeton’s FOBXX, branded BENJI, is a 1940 Act registered government money-market fund operated under Rule 2a-7 with $435 million in assets across eight chains.²⁷²⁸ This is the cleanest WYBI path for retail distribution. The instrument is a money-market fund. It is sold as one, regulated as one, reported as one. The blockchain wrapper is operational, not definitional.

The sunset path (Mountain USDM). Mountain Protocol’s USDM was Bermuda-regulated and tokenized Treasury exposure for non-U.S. holders. The product wound down post-GENIUS through an Anchorage Digital acquisition.²⁹ USDM is the cleanest real-world evidence that “sunset” is a viable path for issuers who concluded the registration or restructuring cost was higher than the residual U.S.-facing economics. Ondo USDY occupies a similar non-U.S.-only posture, structured as a tokenized note secured by short-term Treasuries with U.S. persons excluded by the offering terms.³⁰

The § 3(c)(1) path (limited). Investment Company Act § 3(c)(1)‘s 100-holder ceiling does not fit broadly-distributed WYBI tokens. The exemption is available but operationally unusable at any commercially relevant scale.

The migration question for issuers currently marketing yield-bearing tokens as stablecoins is structural. Three paths exist: register the WYBI as a security and operate within the chosen exemption framework; restructure as an ARS under the GENIUS-plus-CLARITY stack; or sunset U.S. customer access. Each path has materially different cost bands and timelines. The migration itself raises an additional regulatory question — issuer-initiated conversion of an outstanding token from one regulatory category to another may itself require Securities Act § 5 registration of the conversion transaction. That conversion-mechanics question sits outside the scope of this article and warrants companion analysis.

Compliance cost band: highest. SEC registration as a security, money-market fund structuring under Rule 2a-7, ongoing reporting, qualified-purchaser verification (in the § 3(c)(7) sub-path), or the operational cost of restricting U.S. access (in the sunset sub-path). Each carries materially different ongoing-compliance economics.

Reconciliation risk: independent of Senate Banking Sec. 404 outcome. The WYBI sits outside the stablecoin regulatory perimeter regardless of how the carveout fight resolves. The reconciliation risk that does affect the WYBI runs through the SEC/CFTC taxonomy and any future amendments to the Investment Company Act framework — separate fights, separate calendars.

For an issuer with an existing WYBI product line: pick the registration path that fits the investor base, plan the migration to that path with explicit § 5 registration analysis for the conversion transaction, and recognize that the WYBI is not a stablecoin no matter what the marketing materials say.

V. Why the Bill-Section-Number Matters: H.R. 3633 Sec. 404 vs. Senate Banking Sec. 404

Two different Section 404s sit in two different texts. H.R. 3633’s House-passed Section 404 is the “Registration of digital commodity exchanges” provision in Title IV — a CFTC provision affecting exchanges, not stablecoin issuers.³ The Tillis-Alsobrooks stablecoin-yield language sits in the Senate Banking Committee’s manager’s amendment, also numbered Section 404, in a Senate-side text still unreconciled with the House bill.⁴ Trade press has conflated the two repeatedly; Big Law client alerts have started to make the same conflation. An issuer reading “Section 404” without context cannot tell whether the reference is about exchange registration or stablecoin yield.

The practical implication. Until reconciliation lands, every “Section 404” reference in a compliance memo, board deck, or counsel email needs the parenthetical: House Sec. 404 (exchange registration) or Senate Banking Sec. 404 (stablecoin yield). The final enrolled bill may renumber the Tillis-Alsobrooks provision or merge it into a different section entirely. Citation hygiene now prevents rework later. I call this “Sec. 404 disambiguation” so it has a name.

VI. The “Bona Fide Activities” Carveout: Payments, Transfers, Market-Making, Staking, Governance, Loyalty

The 12-month joint SEC/CFTC/Treasury rulemaking will sort the candidate activity categories. The candidates: payments (transaction-frequency rewards), transfers (peer-to-peer activity), market-making (liquidity provision), staking (protocol participation, interacting with Sec. 309’s DeFi exemption framework), governance (voting and proposal participation), and loyalty (merchant adoption tiers and KYC upgrades). Each category sits at a different distance from the “economically equivalent to a bank deposit” disqualifier.

Staking is the highest-risk category. The intuition is simple: locking tokens to earn a yield is, from the regulator’s vantage point, structurally close to passive balance. The holder must do something — commit to a lock-up — but the “doing” is sustained passivity rather than discrete activity. The SEC’s posture on crypto staking-as-a-service has been adversarial; the doctrinal line between “staking is a security under Howey” and “staking is activity-based reward under Sec. 404” is thin. An issuer building a staking-based ARS product should expect the joint rulemaking to read the staking carveout narrowly and should design for that reading.

Merchant cashback is the cleanest distinguishing case. Interchange-funded cashback — the credit-card model, where the reward is paid out of merchant-side interchange revenue — is analytically outside the disqualifier because the funding source is not the holder’s balance. The reward is consideration for activity (the transaction itself), funded by a third-party economic flow. Float-funded cashback — where the reward is sourced from interest the issuer earns on holder balances — is economically the holder’s balance reformulated. That structure runs straight into the “economically equivalent” disqualifier regardless of how the marketing characterizes the reward. The same product can fall on either side of the line depending on its funding architecture.

The Reiners critique frames the exchange-intermediary loophole sharply. Circle and Coinbase split reserve income 50/50; Coinbase passes a yield-equivalent rate to USDC holders as “rewards”; the issuer-level GENIUS § 4(a)(11) prohibition is technically respected because the issuer is not paying yield directly.⁵ The structure is a regulatory-arbitrage architecture: substitute an exchange-channel intermediary for what would otherwise be issuer-direct yield, and the prohibition collapses into a form-over-substance question. The OCC NPRM’s proposed extension of the prohibition to “potential arrangements between permitted payment stablecoin issuers and third parties” targets exactly this structure.⁷ Whether the joint rulemaking imports the OCC’s third-party-arrangement framing into the Sec. 404 carveout is the second-order question for the ARS product designer.

My hard-edged opinion. The SEC and CFTC will read “activity-based” narrowly. Issuers should design for the narrow reading, not the broad one. The 12-month rulemaking is where the rule’s real shape appears. Issuers who design to the manager’s-amendment language without anticipating regulatory narrowing will rebuild. The asymmetric-downside analysis is explicit in Section IX — the rebuild cost on a tight-rulemaking surprise exceeds the over-engineering cost on a broad-rulemaking surprise.

VII. The Bank-Side Path: OCC Letters 1170 / 1172 / 1174 (Reaffirmed by 1183) and the WYBI’s Investment Company Act Exposure

A. The OCC Interpretive Letter Stack

The OCC built the bank-side crypto-asset legal infrastructure across four interpretive letters. IL 1170 (July 2020) authorized national banks to provide crypto-asset custody services.³¹ IL 1172 (September 2020) confirmed that national banks may hold reserves backing stablecoin issuances.³² IL 1174 (January 2021) authorized national banks to use distributed ledger technology and stablecoins to facilitate payments.³³ IL 1183 (March 7, 2025) rescinded IL 1179’s supervisory-non-objection requirement and reaffirmed the authorities granted in 1170, 1172, and 1174.³⁴ Q-PENDING: the full IL 1183 text is published in a binary PDF format; substance verified via Sullivan & Cromwell, Arnold & Porter, Mayer Brown, and Clifford Chance summaries.

The bank-side stablecoin issuance path runs through national-bank charter, OCC supervision, and federal preemption of state banking law. The non-bank PPSI path under GENIUS runs through dual-track registration (federal or state-side, depending on the $10 billion threshold) with parallel state money-transmitter survival. The two paths are not interchangeable. The bank-side path carries higher capital and supervisory cost; it also carries the strongest single-track federal preemption package. The non-bank path carries lower capital cost but exposes the issuer to fifty-state money-transmitter compliance.

The bank-chartered ARS paradox. The intuition is that bank-chartered issuers face less Sec. 404 risk than non-bank issuers because banks already know how to pay deposit interest under Reg DD. The intuition is wrong. The Tillis-Alsobrooks disqualifier’s reference instrument is a bank deposit; the carveout is drafted against precisely the economic relationship a bank-chartered issuer is built to operate. A bank-chartered ARS path is paradoxically harder, not easier, because the disqualifier’s “economically or functionally equivalent” comparator pulls the bank-chartered issuer’s product directly into the prohibition’s center of gravity. Senate Banking Sec. 404 does not contain a bank-charter exception. The Federal Reserve’s absence from the federal banking agency NPRM stream is a planning gap here: bank-affiliated PPSI issuers (JPMorgan Onyx, any BHC-issued stablecoin) have no FRB-side regulatory text to study yet.¹³

The charter-type sensitivity is real. National-bank-chartered issuers operate under the OCC NPRM and the OCC interpretive-letter stack. FDIC-supervised IDI subsidiaries operate under the December 2025 and April 2026 FDIC NPRMs.⁸⁹ Credit-union-affiliated issuers operate under the February 2026 NCUA NPRM.¹² State-chartered issuers under the $10 billion threshold operate under state regulators with a “substantially similar” certification standard. Wyoming has built a Special Purpose Depository Institution charter that issued FRNT, the first state-issued stablecoin, in August 2025; state-issued stablecoins are exempt from the PPSI definition under GENIUS.³⁵ The competitive-distortion frame is that state-issued stablecoins escape the federal PPSI framework entirely while non-bank federal-track issuers shoulder the full FinCEN/OFAC AML/CFT load.

B. The Wrapped Yield-Bearing Instrument’s 1940 Act Exposure

Investment Company Act § 3(a)(1) classifies an issuer holding investment securities — Treasury bills, repo, money-market instruments — as an investment company.²⁴ The exemptions: § 3(c)(1) (fewer than 100 holders), § 3(c)(7) (qualified purchasers only), § 3(c)(11) (employee benefit plans). The BUIDL and FOBXX examples in Section IV.C map onto § 3(c)(7) and Rule 2a-7 respectively.

The SEC’s April 2025 staff statement is the controlling read on which side of the security/non-security line a yield-bearing stablecoin falls. The statement applies Howey and Reves to “Covered Stablecoins” — 1:1-reserved, redeemable on demand, non-yielding — and concludes they are not securities. It explicitly excludes yield-bearing stablecoins from that non-security determination.²² A yield-bearing token marketed as a stablecoin is, on the staff’s read, a security. The architectural question for the issuer is which exemption framework it operates under.

Reves is the doctrinal anchor for tokens structured as notes. Reves v. Ernst & Young, 494 U.S. 56 (1990), tests whether a note resembles instruments commercial parties would treat as investments rather than as commercial paper.²³ A tokenized note paying Treasury-bill yield to holders, marketed for the yield, falls comfortably on the investment side of the line. Ondo USDY’s structural choice — non-U.S. persons only — concedes that conclusion and operationalizes the sunset path. BUIDL’s § 3(c)(7) qualified-purchaser path and FOBXX’s Rule 2a-7 path operationalize the same conclusion through different exemption routes.

The remaining structural options for an issuer currently marketing a yield-bearing token as a “stablecoin”: register the WYBI as a security under Securities Act § 2(a)(1), structure as a money-market fund under Rule 2a-7,¹⁴ or restructure away from yield-bearing economics entirely (the migration to ARS, with the § 5 conversion-mechanics caveat noted earlier).²⁵

VIII. Reserve Custody and the Sec. 310 Banking Treatment: What Changes for Issuer-Side Compliance

The trade-press CLARITY Act explainers lead with Senate Banking Sec. 404 because it is politically loud. The structurally more important provision for stablecoin issuers is Section 310, and the trade press has buried it. I call this “the quiet revolution.” But the framing needs a correction the trade press has not made either: the quiet revolution started January 23, 2025, when the SEC issued Staff Accounting Bulletin 122 and rescinded SAB 121.³⁶ Section 310 does not invent the change. Section 310 codifies it into statutory law and extends it past the population SAB 122 reached.

The pre/post comparative is the right way to read the architecture. Pre-SAB 122 (before January 2025): SEC-reporting entities that held custodied crypto assets had to recognize a corresponding balance-sheet liability under SAB 121. The accounting treatment made bank custody of digital assets economically punishing at scale because capital and liquidity calculations ran against the gross balance-sheet figure rather than the underlying custody relationship. SAB 122 (January 2025-present): the SEC rescinded the balance-sheet-liability requirement for SEC-reporting entities. Bank custody of crypto assets moved into roughly the same accounting treatment as traditional securities custody for SEC-reporting filers. Section 310 (post-enactment): the legislative codification extends the same treatment to non-SEC entities — non-public bank holding companies, credit unions, state-chartered banks not SEC-reporting. SAB 122 covered the SEC-reporting universe. Section 310 closes the remaining gap and makes the treatment permanent through statute rather than staff bulletin.³⁷

The Federal Reserve’s silence in the regulatory implementation stream matters here. The OCC, FDIC, FinCEN, OFAC, NCUA, and Treasury have all issued proposed rules implementing GENIUS. The Federal Reserve has not.¹³ For bank-affiliated PPSI issuers — JPMorgan Onyx, any future BHC-issued stablecoin — that absence is a planning uncertainty for the bank-side custody path. The Section 310 codification will reach those issuers; the FRB-side implementing rules are not yet on the calendar.

The interaction with GENIUS Act reserve requirements is the practical effect. GENIUS requires PPSI reserves held at FDIC-insured banks or qualified custodians.² SAB 122 made the bank-side path commercially viable for SEC-reporting filers two years ago. Section 310 extends that to non-SEC entities and locks it into statute. For issuers currently using non-bank custodians (Anchorage Digital, BitGo, Fireblocks): the bank-side market has been quietly expanding since January 2025 and will expand further when Section 310 enacts. Re-paper toward bank custody when the contracts make commercial sense. For issuers already bank-custodied: revisit pricing and SLA terms because the bank-side market grew. The bank-backing route reframed for the post-SAB 122 / post-Section 310 world runs through OCC-chartered banks operating under the IL 1170/1172/1174/1183 stack.^31323334

The competitive repricing for non-bank custodians is the second-order effect. Anchorage, BitGo, and Fireblocks built businesses against the pre-SAB 121 / SAB 121 / SAB 122 regulatory architecture. The Section 310 codification expands the bank-side competitor pool and stabilizes the bank-side cost basis. Non-bank custodians will respond — by competing on technology, by competing on regulatory speed, by competing on niche product features — but the bank-side market just expanded.

IX. How Likely Is This to Change Before It Becomes Law: The ABA-vs-Crypto Reconciliation Fight Forecast

A forecast-weighting note before the probabilities. The ABA/BPI/ICBA coalition gets disproportionate weight in my forecast not because the May 8 letter is doctrinally stronger than the Senate Banking 15-9 markup vote is procedurally settled, but because the depository-institution coalition historically wins federal banking-policy reconciliation fights when alignment is tight, and because Senator Reed’s tightening amendment captures Democratic responsiveness to the bank-side argument. Committee vote signals and conference vote signals are not the same.

Senate Banking Sec. 404 (Tillis-Alsobrooks): medium-high probability of material change in conference (40-50%). The ABA, the Bank Policy Institute, and ICBA filed a joint trades letter on May 8, 2026 formally rejecting the compromise, on the ground that activity-based rewards are economically identical to deposit interest.¹⁷ BPI’s complementary public analysis frames the carveout as the on-ramp for $6.6 trillion in transactional deposit substitution.¹⁸ Senator Reed (D-RI) filed an amendment to tighten. Counter-pressure from Circle, Paxos, and Ripple is real but structurally weaker — the stablecoin-issuer coalition does not have the depository-institution coalition’s depth in the conference room. Most likely outcome: Tillis-Alsobrooks survives the Senate floor but faces tightening pressure in conference. My single-point estimate of House-like tightening in the final law sits at 35-45%.

Section 310 bank custody: low probability of material change (10%). Banking and crypto industries are aligned on Section 310. The SAB 122 codification framing in Section VIII makes it harder, not easier, to roll the provision back in conference; that the rescission is already operational in the SEC-reporting universe takes the political wind out of any move to narrow Section 310. Expect Section 310 to survive substantially intact.

Section 308 state preemption: medium-high probability of narrowing (35-45%). The state-side opposition is two-pronged. NASAA filed a March 12, 2026 letter from 31 state securities regulators opposing NSMIA preemption of state antifraud authority.³⁸ The Conference of State Bank Supervisors filed a November 4, 2025 letter on the $10 billion threshold and the “substantially similar” certification standard.³⁹ California DFAL, New York BitLicense, and Wyoming SPDI authorities sit on the state side of that fight. The blue-state narrowing pressure is real and runs through Democratic conferees in both chambers.

Now the engagement with the minority position the analysis has been resisting. Call this Theory 1: “Yield-Not-Banned.” The argument is that Senate Banking Sec. 404 permits yield broadly, that the “economically or functionally equivalent” disqualifier is a narrow exception around bank-deposit-substitute structures, and that the political signal from the 15-9 markup reflects genuine institutional support for a meaningful carveout — support the joint SEC/CFTC/Treasury rulemaking will respect. On this read, activity-based rewards, transaction-volume rewards, and governance rewards sit comfortably outside the disqualifier; issuers with high risk-tolerance and rapid restructuring capacity can rationally choose the broader-reading design space; Big Law clients building to that broader reading are not under-engineered, they are correctly calibrated to political and regulatory reality.

Theory 1 is not unreasonable. The Senate Banking 15-9 vote is a meaningful institutional signal. The CEA’s April 2026 paper opposing the categorical prohibition reflects executive-branch alignment with the broader read.¹⁹ Regulators do follow political signals over time, and the 12-month joint rulemaking is a long enough window for political pressure to shape the agencies’ interpretive frame. An issuer with the operational flexibility to launch under a broader reading and restructure quickly if the rule narrows can rationally choose to capture early-mover advantage at acceptable rebuild risk.

I disagree with Theory 1 for asymmetric-downside reasons, not because I think the broader reading is doctrinally wrong. The probability distribution is what controls. The 35-45% probability of House-like tightening is roughly a 1-in-3 to 1-in-2 chance of a rebuild requirement. The rebuild cost on a tight-rulemaking surprise — pulled-back product launches, comment-period-driven restructuring under examination, regulatory enforcement risk during the transition — exceeds the over-engineering cost on a broad-rulemaking surprise (foregone short-term reward economics, narrower product-design space than competitors temporarily). The asymmetric downside favors the conservative design. Issuers who genuinely have rapid restructuring capacity can choose otherwise; for the typical PPSI-aspirant client, the asymmetric-downside analysis points one direction.

The state-preemption Sec. 308 narrowing matters for the Theory 1 argument because it constrains the operational space even further. NASAA’s antifraud-authority defense means state-side enforcement risk survives whatever Senate Banking Sec. 404 says, and a state attorney general using Reves and Howey against an over-engineered ARS product can run that case to settlement independent of the federal carveout’s reach. The federal carveout is not a state-level shield.

The translation for issuer counsel: do not commit to a reward-product architecture that fails under House-style strict yield ban without a structural reason that overrides asymmetric-downside reasoning; build for the tighter scenario and treat the Tillis-Alsobrooks carveout as the ceiling, not the floor; preserve restructuring optionality at every product-design milestone.

X. If This Version Becomes Law: The Three-Archetype Compliance Playbook

The dual-framework strategy is the live compliance posture today and through whatever final form CLARITY takes. GENIUS Act PPSI compliance is the floor regardless. Senate Banking Sec. 404 layering is the overlay if and when the bill enacts in roughly the current form. The compliance calendar runs through both.

The consolidated effective-dates calendar.

The California DFAL deadline is six weeks from this article’s publication date and runs ahead of every CLARITY-related milestone on the calendar. California is the largest U.S. crypto market by user base. An issuer with California customers who has not filed for a Digital Financial Assets Law license by July 1, 2026 is operating without required authorization in the state.⁴⁰ The CLARITY Act timeline gets all the headlines; the DFAL deadline carries the more imminent enforcement risk. Plan for it now.

Day 0 (now through enactment). Finalize the GENIUS PPSI AML/CFT program against the FinCEN/OFAC joint NPRM framework — five elements (risk-based policies, independent testing, AML officer, training, customer due diligence) plus the stablecoin-specific OFAC sanctions program.¹⁰ Map reserve composition against the OCC and FDIC NPRMs.⁷⁸⁹ If state-chartered with California customers, file for the DFAL license now.

Day 90 (post-Senate floor signal). Confirm Sec. 404 reward-product structure with counsel. If the current product is “economically or functionally equivalent” to a bank deposit, prepare the transition to an activity-based architecture or to U.S. withdrawal. Document the activity nexus for each reward category to support comment-period engagement.

Day 180-270 (post-enactment runway). Prepare for the joint SEC/CFTC/Treasury rulemaking. Build the comment-letter strategy on the activity-based definition. Watch the OCC NPRM finalization for the third-party-arrangement framing. Watch FRB for any belated implementing-rule activity.

Foreign-issuer reach. A skeptical reader asks how GENIUS and CLARITY reach Tether and other foreign-issued stablecoins. GENIUS contemplates a “foreign payment stablecoin issuer” category; § 4(a)(11) reaches the foreign issuer’s yield prohibition directly.⁶ The OCC NPRM, the FDIC NPRMs, the FinCEN/OFAC joint NPRM, and the Treasury threshold ANPRM all contemplate the foreign-issuer access pathway through registration with Treasury and reciprocity determinations.¹¹ An issuer outside the United States selling to U.S. persons is inside the framework; an issuer outside the United States selling exclusively to non-U.S. persons is, on the operative read, outside it. The mechanics are technical and the implementing rules will define them more sharply.

Offshore yield products marketed via U.S. exchanges. A different skeptical reader asks about Tether or similar offshore yield-bearing tokens marketed and accessed via U.S. exchanges. The question is partially out of scope for this article — it intersects with broker-dealer registration, the SEC/CFTC taxonomy’s classification of the underlying token, and the OCC NPRM’s third-party-arrangement framework — but I flag it because issuer counsel needs to know it is a live competitive scenario. The Reiners critique of the Circle/Coinbase model applies in modified form to any offshore-issued yield product distributed through a U.S. exchange.⁵ A dedicated treatment sits on the firm’s research queue.

Key risk. Senate Banking Sec. 404 tightened in conference to a House-style near-total yield ban, with the existing ARS market collapsing into PPS or migrating to WYBI structures. Key opportunity. Senate Banking Sec. 404 holds substantially intact, the joint rulemaking respects the activity-based carveout, and ARS issuers carve viable competitive positioning against bank-deposit products. Build the product to survive both scenarios.

XI. Architecting a Stablecoin Rewards Product That Survives Both Regimes (and Reconciliation)

A. The Dual-Framework Compliance Map

Walk a hypothetical USDC-style ARS product through the compliance map.

GENIUS layer. PPSI registration on the federal track (or state track if under the $10 billion threshold). Reserve composition under the OCC and FDIC NPRMs — 1:1 backing, weighted average maturity caps, daily and weekly liquidity tiers, single-IDI concentration limits.⁷⁹ Monthly public attestations. AML/CFT program under the FinCEN/OFAC joint NPRM with the five-element architecture plus the stablecoin-specific OFAC program.¹⁰

Senate Banking Sec. 404 layer (post-enactment). Activity-based reward structure with documented activity nexus at the moment of accrual. Qualifying-activity definitions tied to discrete holder action, not to passive balance and time. A 12-month rulemaking comment-period strategy that engages the SEC, CFTC, and Treasury staff on the specific activity categories the product uses.

Section 308 layer. Federal preemption of state securities regulation for federal PPSIs under § 5(h); state money-transmitter and consumer-protection compliance survives.⁴¹ California DFAL license by July 1, 2026.⁴⁰ New York DFS Industry Letter compliance for any state-licensed PPSI under $10 billion exposing to New York customers.⁴² Wyoming SPDI interactions where applicable.³⁵

Section 310 layer. Bank-custody contract architecture under SAB 122 and the OCC interpretive-letter stack.^31323334 Repaper non-bank custody arrangements where commercial terms support the move.

The Reg DD analogy is the closest extant model for what the joint rulemaking’s ARS disclosure component will likely look like. Truth in Savings Act / Reg DD built the bank-side disclosure architecture for checking-account rewards programs, with annual percentage yield calculations, fee schedules, and material-change notifications. The joint rulemaking will almost certainly draw on Reg DD’s disclosure framework — APY-equivalent or APR-equivalent presentations, change-in-terms notification, periodic statement requirements — for the ARS rewards layer. An issuer designing a comment-period engagement strategy should expect Reg DD-pattern questions and prepare Reg DD-pattern answers.

The EU MiCA conflict is the cross-border architecture problem. MiCA Article 22(4) (asset-referenced tokens) and Article 50(3) (e-money tokens) categorically prohibit benefits related to holding duration; the rules took effect June 30, 2024.⁴³ The “balance, duration, tenure” carveout in Senate Banking Sec. 404 potentially permits exactly what MiCA categorically prohibits. A cross-border issuer (Circle, Paxos, Tether’s U.S.-facing structure) faces a simultaneous-compliance conflict. The Krause Oxford OBLB analysis is the best comparative treatment of the MiCA-versus-GENIUS-versus-CLARITY tension on yield prohibition.⁴⁴ The FSB’s high-level recommendations on global stablecoin arrangements anchor the broader regulatory-coordination question; the FSB’s October 2025 implementation review found significant gaps in U.S. alignment with the “same activity, same risk, same regulation” principle.⁴⁵ Cross-border product design has to satisfy both regimes; the carveout cannot be the architectural foundation for any product line that operates in both jurisdictions.

B. The Reconciliation-Risk Design Pattern

Design rewards programs to survive the tighter House-style scenario, not the looser Senate-style baseline. The concrete moves:

Prefer transaction-volume rewards over time-weighted rewards. Volume is discrete activity; time is passive balance.

Prefer governance participation rewards over balance-tier rewards. Voting and proposal participation are discrete action; balance tiers are passive holding gated by minimum balance.

Prefer pro rata distribution mechanics over discretionary distributions. Pro rata against a defined activity metric is documentable; discretionary distributions invite the “economically equivalent” disqualifier.

Document the activity nexus for each reward category in advance of the joint rulemaking. Not after a comment letter. Not after an examination. In advance.

The conditional bank-side path. If the conference produces House-style tightening and Senate Banking Sec. 404 collapses into a near-total ARS prohibition, the bank-side path remains available for some activity-based reward designs under existing Reg DD-style frameworks. Bank-chartered issuers operating under OCC supervision can structure transaction-volume rewards that look like merchant interchange or cash-back programs, sourced from a clearly non-balance-funded revenue stream, with Reg DD-compliant disclosure. The path is narrower than the Sec. 404 carveout but it exists. Non-bank issuers without a charter cannot rely on this fallback.

The Theory 1 acknowledgment from Section IX applies here as well. Issuers with high risk-tolerance and rapid restructuring capacity may rationally choose the broader-reading design space. The asymmetric-downside analysis points the conservative direction for most issuers; for issuers with strong reasons to differ, the analysis is the calibration tool, not the categorical answer.

C. Closing: The Three-Archetype Diagnostic

Picking the wrong archetype today commits a stablecoin issuer to two years of restructuring. PPS, ARS, or WYBI — the choice runs through compliance cost, reconciliation risk, secondary-market posture, and the long arc of state-by-state licensing. The Tillis-Alsobrooks compromise will resolve one way or another in the next two quarters. The OCC NPRM, the FDIC NPRMs, and the FinCEN/OFAC joint NPRM are already shaping the issuance architecture today. California DFAL licensing closes July 1, 2026.

I help stablecoin issuers diagnose archetype fit, build the registration stack, and engineer the dual-framework compliance map. The diagnostic surfaces archetype fit (PPS, ARS, or WYBI), maps the regulatory layers an issuer’s specific product line crosses, and identifies the imminent compliance events (California DFAL, OCC NPRM finalization, FinCEN/OFAC effective dates) that need attention before any CLARITY Act milestone matters. Schedule a Stablecoin Rewards Product Compliance Review: Two-Regime Architecture consultation through the firm’s intake channel; the intake signal is stablecoin-archetype-diagnostic.

The cost of designing to the right archetype is measured in legal fees and product-design iteration. The cost of designing to the wrong one is measured in pulled product launches, rescission claims, and the kind of enforcement settlements BlockFi and Celsius wrote with nine-figure consequences. The architectural choice is the operative variable.

XII. Conclusion: The Live Floor, the Contested Overlay, and the Architectural Choice

GENIUS is law. Tillis-Alsobrooks Sec. 404 is not. That asymmetry is the article’s thesis, and it is also the issuer’s first design constraint. The Three-Layer Stack — GENIUS § 4(a)(11)‘s issuer-level prohibition; the OCC NPRM’s proposed extension to third-party arrangements; the CLARITY Sec. 404 statutory overlay — is the architecture every U.S.-facing stablecoin product will live inside by August 2026. None of the three layers replaces the others. Each adds.

The Quiet Revolution under Section 310 sits underneath all of this. SAB 122 started it in January 2025; Section 310 will codify and extend it. Reserve-custody economics for bank-affiliated issuers reset before any of the yield questions resolve. Build the bank-counterparty stack now.

The Three Archetypes are the design taxonomy. Pure Payment Stablecoin runs under GENIUS without a yield overlay and is the most straightforward path. Activity-Reward Stablecoin sits at the live battlefield of the OCC’s proposed third-party-arrangement extension and the still-contested Tillis-Alsobrooks carveout. Wrapped Yield-Bearing Instrument is, mostly, a securities-law question pretending to be a stablecoin product. Pick the archetype before the joint rulemaking lands. Architectural choice now is cheaper than architectural rebuild after.

Sec. 404 is the bill’s hottest fault line. The ABA/BPI/ICBA trades letter, Reed’s tightening amendment, and the 35-45% conference-tightening forecast push the conservative default toward the tighter scenario. The asymmetric-downside reasoning makes that default the right one for most issuers. Issuers with the risk tolerance and the restructuring capacity to read Sec. 404 at natural breadth are not wrong to do so — but they should know they are taking the higher-variance path against a regulatory coalition with material conference leverage.

The imminent compliance event is not CLARITY. It is California DFAL, July 1, 2026. The OCC NPRM closed its comment period May 1, 2026 and the FinCEN/OFAC joint NPRM closes June 9, 2026. CLARITY enactment is expected ~August 2026 with measurable reconciliation risk before then. An issuer building a 2026 compliance plan around CLARITY milestones alone will be late to two federal NPRMs and out of compliance with the largest state crypto market in the country. The live floor is the priority. The overlay is the planning horizon. The architecture is the decision now.

Related resources. This article is the third in the firm’s CLARITY Act series. See also: The CLARITY Act Exchange Registration Roadmap: A 180-Day Compliance Calendar (Article 1 — for CEX GCs facing the 90-day registration cliff); The DeFi Decentralization Test Under CLARITY: A Mechanics Guide to Section 309’s Control-Surface Analysis (Article 2 — for protocol teams claiming the activity exemption); SEC Innovation Exemption 2026: A Founder’s Decision Guide for the Atkins token safe-harbor framework; the SEC/CFTC token taxonomy treatment for upstream classification analysis; and the firm’s prior GENIUS Act stablecoin compliance roadmap for the pre-Tillis-Alsobrooks issuance baseline.

Footnotes

1. President’s Working Group on Financial Markets, FDIC, and OCC, Report on Stablecoins (Nov. 1, 2021) (recommending Congress require stablecoin issuers to be IDIs), available at https://home.treasury.gov/news/press-releases/jy0454. ↩

2. GENIUS Act, Pub. L. No. 119-27, 139 Stat. 419 (2025) (Permitted Payment Stablecoin Issuer framework; reserve composition requirements). See generally White House, “Fact Sheet: President Donald J. Trump Signs GENIUS Act into Law” (July 2025), available at https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-president-donald-j-trump-signs-genius-act-into-law/; Latham & Watkins, “The GENIUS Act of 2025” (2025), available at https://www.lw.com/en/insights/the-genius-act-of-2025-stablecoin-legislation-adopted-in-the-us. ↩ ↩² ↩³

3. H.R. 3633, Digital Asset Market Clarity Act of 2025, 119th Cong. (as passed by the House, July 17, 2025), available at https://www.congress.gov/bill/119th-congress/house-bill/3633/text. H.R. 3633 § 404 governs registration of digital commodity exchanges (a CFTC Title IV provision) and is distinct from the Senate Banking manager’s-amendment Sec. 404. ↩ ↩²

4. Senate Banking Comm., Manager’s Amendment to H.R. 3633 (May 12, 2026); advanced 15-9 on May 14, 2026. Available at https://www.banking.senate.gov/imo/media/doc/market_structure_draft.pdf; see also CoinDesk, “Clarity Act Clears U.S. Senate Committee on Its Way to a Final Test in Congress” (May 14, 2026), available at https://www.coindesk.com/policy/2026/05/14/clarity-act-clears-u-s-senate-committee-on-its-way-to-a-final-test-in-congress; CoinDesk, “Clarity Act Text Lets Crypto Firms Offer Stablecoin Rewards While Shielding Bank Yield” (May 1, 2026), available at https://www.coindesk.com/policy/2026/05/01/clarity-act-text-lets-crypto-firms-offer-stablecoin-rewards-while-shielding-bank-yield. ↩ ↩²

5. Lee Reiners, “Circle, Coinbase, and the Prohibition on Interest Under the GENIUS Act,” Columbia CLS Blue Sky Blog (Dec. 11, 2025), available at https://clsbluesky.law.columbia.edu/2025/12/11/circle-coinbase-and-the-prohibition-on-interest-under-the-genius-act/. ↩ ↩² ↩³ ↩⁴

6. GENIUS Act § 4(a)(11), Pub. L. No. 119-27 (prohibiting “any form of interest or yield… solely in connection with the holding, use, or retention” of a payment stablecoin paid by the issuer or a foreign payment stablecoin issuer). Q-PENDING: exact subsection numbering pending attorney verification against enrolled S. 1582 text. The substantive prohibition is well-attested across contemporaneous law-firm summaries and the Reiners CLS Blue Sky analysis.⁵ ↩ ↩² ↩³

7. OCC NPRM, “Implementing the GENIUS Act for Entities Subject to OCC Jurisdiction,” 91 Fed. Reg. 10,202 (Mar. 2, 2026); comment period closed May 1, 2026. See also Sullivan & Cromwell, “OCC Proposes Regulations to Implement GENIUS Act” (Mar. 2026), available at https://www.sullcrom.com/insights/memo/2026/March/OCC-Proposes-Regulations-Implement-GENIUS-Act. The proposed rule contemplates extension of the issuer-level yield prohibition to “arrangements with third parties in which issuers could achieve the payment of yield to payment stablecoin holders.” ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶

8. FDIC NPRM, “Application Requirements for Subsidiaries,” 90 Fed. Reg. 59,409 (Dec. 19, 2025) (FR Doc. 2025-23510); comment period closed Feb. 17, 2026. ↩ ↩² ↩³

9. FDIC Second NPRM, “GENIUS Act Requirements and Standards for FDIC-Supervised PPSIs,” 91 Fed. Reg. __ (Apr. 9, 2026) (40% single-IDI concentration cap on reserves; tracking OCC proposal). _See_ Mayer Brown, “FDIC Proposes GENIUS Act Rules: How Do They Compare to the OCC Proposal” (Apr. 2026), available at https://www.mayerbrown.com/en/insights/publications/2026/04/fdic-proposes-genius-act-rules-how-do-they-compare-to-the-occ-proposal. ↩ ↩² ↩³ ↩⁴

10. FinCEN/OFAC Joint NPRM, “PPSI AML/CFT and Sanctions Compliance,” 91 Fed. Reg. __ (Apr. 10, 2026); comment period closes June 9, 2026. _See_ Sullivan & Cromwell, “GENIUS Act Implementation: FinCEN and OFAC Propose Rule on AML and Sanctions Compliance Requirements” (Apr. 2026), available at https://www.sullcrom.com/insights/memo/2026/April/GENIUS-Act-Implementation-FinCEN-OFAC-Propose-Rule-AML-Sanctions-Compliance-Requirements. Q-PENDING: full Federal Register text via Federal Register redirect; substance verified via Sullivan & Cromwell summary. ↩ ↩² ↩³ ↩⁴ ↩⁵

11. Treasury ANPRM, 90 Fed. Reg. __ (Sept. 19, 2025) (FR Doc. 2025-18226) ($10B threshold for state vs. federal oversight; “substantially similar” state certification standard). ↩ ↩² ↩³

12. NCUA NPRM (Feb. 2026) (Credit Union Service Organization PPSI licensing; joint CUSO + CU parent submission pathway). ↩ ↩²

13. Federal Reserve has issued no GENIUS Act implementing rule as of May 14, 2026. See Morgan Lewis, federal banking agency GENIUS implementation survey (Apr. 2026) (confirming FRB silence relative to OCC, FDIC, NCUA, FinCEN, OFAC, and Treasury action). ↩ ↩² ↩³

14. 17 C.F.R. § 270.2a-7 (Rule 2a-7 money-market fund regulation; 2014 SEC amendments addressing institutional prime fund stable-NAV and liquidity-fee mechanics). ↩ ↩²

15. Senate Banking Comm., Manager’s Amendment to H.R. 3633, § 404 (Tillis-Alsobrooks stablecoin yield compromise) (May 12, 2026 text); 12-month joint SEC/CFTC/Treasury rulemaking timeline; “balance, duration, tenure, or any combination of the foregoing” carveout language. Q-PENDING: verbatim text via clean manager’s-amendment text (machine-compressed PDF unreadable); carveout language captured from Consumer Federation of America critique.¹⁶ ↩ ↩²

16. Consumer Federation of America, “CLARITY Act Section 404 Ban on Stablecoin Yield: Not Found” (2026), available at https://consumerfed.org/clarity-act-section-404-ban-on-stablecoin-yield-not-found/. ↩ ↩² ↩³

17. ABA, BPI, and ICBA, Joint Trades Letter on Section 404 of the CLARITY Act (May 8, 2026), available at https://bpi.com/wp-content/uploads/2026/05/Joint-Trades-Letter-Section-404-of-the-CLARITY-Act-05.08.26.pdf. ↩ ↩²

18. Bank Policy Institute, “Closing the Payment of Interest Loophole for Stablecoins” (Aug. 12, 2025), available at https://bpi.com/closing-the-payment-of-interest-loophole-for-stablecoins/. ↩ ↩²

19. Council of Economic Advisers (White House), “Effects of Stablecoin Yield Prohibition on Bank Lending” (Apr. 8, 2026), available at https://www.whitehouse.gov/research/2026/04/effects-of-stablecoin-yield-prohibition-on-bank-lending/. ↩ ↩²

20. In re BlockFi Lending LLC, SEC Release No. 33-11029 (Feb. 14, 2022) ($50M SEC penalty + $50M state penalties; BIAs are securities under Reves; Securities Act §§ 5, 17(a)(2); Investment Company Act § 7(a)). Q-PENDING: SEC administrative order PDF returns 403; Reves analysis substance verified via Westlaw and contemporaneous SEC press release at https://www.sec.gov/newsroom/press-releases/2022-26. ↩

21. SEC v. Celsius Network Limited, No. 1:23-cv-06008 (S.D.N.Y. filed July 13, 2023) (Earn Interest Program = unregistered security under Howey and Reves). See SEC Press Release No. 2023-133 (July 13, 2023), available at https://www.sec.gov/newsroom/press-releases/2023-133. ↩

22. SEC Staff Statement on Stablecoins (Apr. 4, 2025) (Covered Stablecoins are not securities under Howey or Reves; yield-bearing stablecoins are explicitly excluded from the non-security determination), available at https://www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425. The statement is staff guidance, advisory only. ↩ ↩² ↩³

23. Reves v. Ernst & Young, 494 U.S. 56 (1990) (family-resemblance test for whether a note is a security). ↩ ↩²

24. Investment Company Act § 3(a)(1), 15 U.S.C. § 80a-3(a)(1) (investment company classification baseline). ↩ ↩²

25. Securities Act § 2(a)(1), 15 U.S.C. § 77b(a)(1) (security definition). ↩ ↩²

26. BlackRock USD Institutional Digital Liquidity Fund (BUIDL); Investment Company Act § 3(c)(7) qualified-purchaser exemption; Securities Act Rule 506(c) distribution; AUM exceeding $2.5 billion as of 2026 public reporting. ↩

27. Franklin Templeton OnChain U.S. Government Money Fund (FOBXX, branded BENJI); 1940 Act registered government money-market fund operated under Rule 2a-7; AUM $435 million+ across eight chains as of 2026 public reporting. ↩

28. 17 C.F.R. § 270.2a-7 (Rule 2a-7 money-market fund regulation). ↩

29. Mountain Protocol USDM wind-down documentation; Anchorage Digital acquisition (post-GENIUS), available at https://docs.mountainprotocol.com/wind-down-documentation/usdm-wind-down-overview. ↩

30. Ondo USDY (tokenized note secured by short-term Treasuries; non-U.S. persons only; not registered under Investment Company Act or Securities Act). ↩

31. OCC Interpretive Letter 1170 (July 22, 2020) (crypto-asset custody), available at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf. ↩ ↩² ↩³

32. OCC Interpretive Letter 1172 (Sept. 21, 2020) (stablecoin reserves), available at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1172.pdf. ↩ ↩² ↩³

33. OCC Interpretive Letter 1174 (Jan. 4, 2021) (DLT payment / independent node verification), available at https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2a.pdf. ↩ ↩² ↩³

34. OCC Interpretive Letter 1183 (Mar. 7, 2025) (rescinds IL 1179; reaffirms 1170, 1172, 1174 authorities), available at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1183.pdf. Q-PENDING: IL 1183 PDF returns binary content; substance verified via Sullivan & Cromwell, Arnold & Porter, Mayer Brown, and Clifford Chance summaries. ↩ ↩² ↩³

35. Wyoming Special Purpose Depository Institution charter; Wyoming FRNT token (issued Aug. 29, 2025). GENIUS Act is the first federal law recognizing non-FDIC-insured state-chartered entities; FRNT is the first state-issued stablecoin. State-issued stablecoins are exempt from the PPSI definition under GENIUS. ↩ ↩²

36. SEC Staff Accounting Bulletin 122 (Jan. 23, 2025) (rescinding SAB 121’s balance-sheet liability requirement for SEC-reporting entities). See Deloitte Heads Up, “SEC Rescinds SAB 121; Issues SAB 122” (2025), available at https://dart.deloitte.com/USDART/home/publications/deloitte/heads-up/2025/sec-rescinds-sab-121-issues-sab-122-crypto-cryptocurrency. ↩ ↩²

37. H.R. 3633 § 310 (treatment of custody activities by banking institutions; codification of SAB 122 framework with extension to non-SEC-reporting entities). ↩

38. NASAA, 31 State Securities Regulators Letter on CLARITY Act (Mar. 12, 2026) (opposing NSMIA preemption of state antifraud authority). ↩

39. Conference of State Bank Supervisors, Comment Letter on GENIUS Act $10B Threshold and “Substantially Similar” Certification (Nov. 4, 2025). ↩

40. California Digital Financial Assets Law, Cal. Fin. Code §§ 3900 et seq. (eff. Oct. 13, 2023; license deadline extended to July 1, 2026 by AB 1934). California is the largest U.S. crypto market by user base; an issuer with California customers who has not filed for a DFAL license by July 1, 2026 operates without required authorization in the state. ↩ ↩² ↩³

41. GENIUS Act § 5(h) (federal preemption scope; preempts state chartering and licensing for federal PPSIs only; state consumer-protection laws survive; non-issuance activities not preempted; state-issued stablecoins exempt from PPSI definition). ↩

42. New York Department of Financial Services, Industry Letter (June 8, 2022) (reserve and redemption requirements for stablecoins predating GENIUS). ↩

43. Markets in Crypto-Assets Regulation (MiCA), Article 22(4) (asset-referenced tokens) and Article 50(3) (e-money tokens) (categorical prohibition on benefits related to holding duration; in force June 30, 2024). ↩

44. David Krause, “Stablecoin Interest at a Crossroads: MiCA’s Prohibition and the US Regulatory Maze,” Oxford OBLB (Mar. 4, 2026), available at https://blogs.law.ox.ac.uk/oblb/blog-post/2026/03/stablecoin-interest-crossroads-micas-prohibition-and-us-regulatory-maze. ↩

45. Financial Stability Board, “High-Level Recommendations for Global Stablecoin Arrangements” (July 17, 2023) (establishing “same activity, same risk, same regulation” principle) and FSB Implementation Review (Oct. 2025) (finding significant global implementation gaps). ↩