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

Key Takeaways

1. GENIUS is the enacted floor: reserve composition, the monthly reserve report and its accounting-firm examination, AML/CFT, and sanctions compliance take effect under § 20 on the earlier of January 18, 2027 or 120 days after final implementing rules, none of which exist yet, while the CLARITY yield overlay is still unreconciled.¹

2. Tillis-Alsobrooks bars exchanges and wallets, not issuers, from paying deposit-equivalent yield, and preserves activity rewards: it defines neither term, leaving a one-year joint SEC, CFTC, and Treasury rulemaking to draw the line.²

3. There are two Section 404s: the House-passed exchange-registration provision and the Senate Banking yield compromise, and conflating them mis-cites the statute.

4. Three archetypes sort the products: pure payment stablecoin, activity-reward stablecoin, and wrapped yield-bearing instrument, the last likely an SEC-regulated security.

5. House Sec. 310 matters more than the headlines: bank custody of reserves without balance-sheet liability treatment changes the reserve-custody math.

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

The GENIUS Act is law. The 2021 stablecoin report of the President’s Working Group, the FDIC, and the OCC had recommended Congress require issuers to be insured depository institutions.³ 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.⁴ For issuers, that statute is the enacted framework the compliance stack must be built to—not theory, not a proposed rule, not a discussion draft—and under § 20 it takes effect on the earlier of January 18, 2027 or 120 days after the primary Federal payment stablecoin regulators issue final implementing rules. As of September 6, 2026 the Federal Register carries proposed rules from every agency but no final one, so January 18, 2027 is the date to plan against.¹

The CLARITY Act is not law. The Digital Asset Market Clarity Act of 2025, H.R. 3633, passed the House on July 17, 2025.⁵ The Senate Banking Committee released the Tillis-Alsobrooks stablecoin-yield text on May 1, 2026 and advanced its substitute 15-9 on May 14, 2026; the provision sits at § 404 of the committee’s reported substitute, print EHF26374.⁶ That text has not been reconciled with the House bill or with Senate Agriculture’s parallel bill. Majority Leader Thune filed cloture on August 8, 2026, and the first procedural vote is set for September 15, 2026; a final House vote and Presidential signature still wait.⁷

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 reported substitute, also numbered Section 404, in a Senate text 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 enacted floor, effective January 18, 2027 absent earlier final rules. CLARITY Senate Banking Sec. 404 is the yield/rewards overlay at the exchange and wallet layer 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 a share of reserve income scaled to the USDC held on Coinbase’s platform—$907.9 million in 2024, and half of the profits from the reserve interest under the parties’ agreement as the Consumer Federation of America describes it—and Coinbase advertises 3.85% “rewards” for holding USDC there.⁸⁹ Whether that arrangement evades GENIUS or violates it is the question the OCC’s proposed rule answers with a rebuttable presumption.¹⁰ 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.¹¹ This is not silence. The provision is enacted and takes effect under § 20 on the earlier of January 18, 2027 or 120 days after final implementing rules; from that date, an issuer that pays holders directly for holding, using, or retaining the stablecoin violates the statute.¹ 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, published March 2, 2026, proposes a rebuttable presumption that an issuer pays prohibited yield where it has an arrangement to pay interest or yield to “an affiliate or a related third party” that in turn pays interest or yield to holders; the OCC explains that it cannot enumerate every one of the “arrangements with third parties in which issuers could achieve the payment of yield to payment stablecoin holders.”¹⁰ The comment period closed May 1, 2026. The FDIC paired with its own NPRMs in December 2025 and April 2026, the second of which proposed a 40% cap on a PPSI’s exposure to any one eligible financial institution and tracked the OCC framework.¹²¹³ FinCEN and OFAC issued a joint NPRM on April 10, 2026 establishing a PPSI-specific AML/CFT program, the first sanctions-compliance-program mandate federal law has imposed on any U.S. person, and carving PPSIs out of the money-services-business definition.¹⁴ Treasury issued an advance notice on September 19, 2025 seeking comment on the statutory $10 billion threshold for state-versus-federal oversight,¹⁵ proposed its “substantially similar” principles for state regimes on April 3, 2026,¹⁶ and proposed its issuance, offer, and sale rules on August 18, 2026.¹⁷ NCUA issued an NPRM on licensing PPSI subsidiaries of federally insured credit unions in February 2026 and a second on GENIUS requirements in May, and the OCC, the FDIC, and FinCEN each proposed PPSI-specific AML, sanctions, or customer-identification rules in June.¹⁸¹⁷ The Federal Reserve has proposed no GENIUS Act rule of its own as of this writing: it signed the five-agency customer-identification proposal and issued its own Bank Secrecy Act program proposal in July, but no licensing, reserve, or compliance rule for the issuers it will supervise—a planning gap for bank-affiliated PPSI issuers.¹⁹ This is the active regulatory layer, and it is where the exchange-intermediary question is being litigated through notice-and-comment.

Layer 3—CLARITY Senate Banking Sec. 404 statutory overlay (the legislative layer). The Tillis-Alsobrooks provision reaches a different actor than either GENIUS or the OCC NPRM: it binds the covered party—a digital asset service provider and its affiliates, expressly not a permitted payment stablecoin issuer—and purports to legislate a clean line between prohibited deposit-equivalent yield and permitted activity-based rewards at that layer.² The provision sits in a Senate Banking reported-substitute text that has not cleared the floor, has not been reconciled with the House bill, and has not been signed. The one-year 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’s covered-party prohibition and Layer 2’s issuer-side presumption converge on the same exchange-channel arrangement from opposite ends, or whether a payment that clears the Sec. 404 carveout at the exchange still trips the OCC presumption at the issuer that funds it. Neither outcome is foreclosed today.

The Rule 2a-7 analogy is the closest extant model. The SEC’s money-market-fund reforms, in 2014 and again in 2023, unbundled the “money market” marketing claim from operational reality by tightening NAV-stability and liquidity-fee mechanics around what a fund could call itself.²⁰ 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 reserve reports, 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 at the exchange and wallet layer. 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 Deposit Interest Actually Means

The Senate Banking reported substitute’s language does the work in two clauses. The prohibition bars a covered party from paying a U.S. customer interest or yield “solely in connection with the holding” of payment stablecoins, or on a balance “in a manner that is economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.” The carveout preserves rewards or incentives “based on bona fide activities or bona fide transactions” that are not so equivalent, and adds, for the avoidance of doubt, that permissible rewards “may be calculated by reference to a balance, duration, tenure, or any combination of the foregoing.”² The covered party is a digital asset service provider together with its affiliates, “excluding any permitted payment stablecoin issuer”; the issuer’s own prohibition stays in GENIUS § 4(a)(11).²

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 Consumer Federation of America’s title says the ban is “Not Found,” and it argues the language “codifies that all these versions of stablecoin yield are legal.”⁹ Six bank trade associations, the ABA, BPI, and ICBA among them, endorsed the activity-versus-interest distinction but asked that the equivalence test be widened and the balance-duration-tenure clause struck as “contradictory to the initial prohibition”; BPI has argued since August 2025 that yield paid through exchanges and affiliates evades the GENIUS prohibition, pointing to a Treasury advisory-committee estimate of as much as $6.6 trillion in potential deposit outflows depending on whether stablecoins may pay yield.²¹²² 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.²³ Senate Banking advanced the bill 15-9 with the language intact.⁶ 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 one-year 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 floor—a $50 million SEC civil penalty, with a further $50 million in parallel state settlements announced the same day—for selling crypto-backed interest accounts as unregistered securities, holding the accounts securities both as notes under Reves and as investment contracts under Howey.²⁴²⁵ The SEC’s complaint against Celsius Network pleads the Earn Interest Program as an unregistered investment contract under Howey.²⁶ The SEC staff’s April 4, 2025 statement on stablecoins is the closest thing to guidance: “Covered Stablecoins” are not securities under Howey or Reves, and the staff expressly declined to express any view on yield-bearing stablecoins, leaving them outside the non-security determination rather than inside the security framework.²⁷ Senate Banking Sec. 404 does not touch that question; it governs what a covered party may pay, not whether the instrument is a security. 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.²⁸ Under the family-resemblance test every note is presumed to be a security, and the presumption is rebutted only by a strong resemblance, measured on four factors (the parties’ motivations, the plan of distribution, the reasonable expectations of the investing public, and the presence of another regulatory scheme), to one of the enumerated categories of non-security notes such as consumer financing or a note evidencing a commercial bank loan for current operations. A yield-bearing stablecoin held in a wallet for the yield is structurally close to the BlockFi Interest Account—the same instrument that drew $50 million in SEC penalties and another $50 million in state settlements. That is the doctrinal floor under any rewards-product design. Senate Banking Sec. 404 does not eliminate that floor; it regulates what a covered party may pay on top of it. The architecture of its carveout is what the one-year 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 at the distribution layer—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 in the asset classes § 4(a)(1)(A) enumerates, principally currency and central-bank balances, demand deposits at an insured depository institution, Treasuries of 93 days or less, overnight repo, and government money-market-fund shares, with two further clauses for regulator-approved liquid federal assets and tokenized forms.²⁹ Monthly reserve reports, examined by a registered public accounting firm and certified by the CEO and CFO.³⁰ AML/CFT program under the FinCEN/OFAC joint NPRM. An OFAC sanctions compliance program—the first such statutory mandate for any U.S. person.¹⁴ Federal regulator (OCC, Federal Reserve, FDIC, NCUA) or state equivalent for issuers at or under the $10 billion threshold.¹⁵³⁰ USDC, at the issuer level, sits in this archetype; the rewards paid on it are Coinbase’s, which is the point of Section II.⁸

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.²⁷ That non-security determination is a staff statement with no legal force or effect, not Commission action. 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 carveout opens. The architecture: GENIUS Act PPSI issuance, with the issuer paying holders nothing, plus a rewards layer paid by the exchange, wallet, or affiliate that distributes the coin, 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.¹¹ The OCC NPRM would presume an issuer pays prohibited yield when it pays an affiliate or related third party that in turn pays holders.¹⁰ Senate Banking Sec. 404 adds a separate prohibition at the distribution layer—on covered parties, expressly not on permitted payment stablecoin issuers—with a carveout for bona fide activity-based and transaction-based rewards.² The carveout sits inside a legislative package that leaves the issuer-level prohibition untouched. An ARS product designed to the broadest reading of the carveout—balance-and-tenure rewards calculated like a deposit rate—collides with the deposit-equivalence test at the exchange and, where the issuer funds the program, with the OCC’s proposed presumption at the issuer. The product survives only if the activity nexus is satisfied at the layer where the reward is paid and the issuer’s funding of it does not trip the presumption.

Concrete candidates. The exchange-intermediary model—Circle’s reserve-income share paid to Coinbase, and Coinbase’s 3.85% “rewards” to USDC holders—is the live disputed example, and it is the structure the OCC’s proposed presumption is built around.⁸¹⁰ Whether Circle/Coinbase under the current arrangement survives the OCC NPRM, the Tillis-Alsobrooks test, 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 for every covered party that distributes the coin plus the one-year 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 staff’s April 2025 statement declining to reach yield-bearing stablecoins in its 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 bank trade associations are pushing to widen the equivalence test and strike the balance-duration-tenure clause, which would pull the carveout toward the flat prohibition GENIUS § 4(a)(11) already imposes on issuers; the 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 flat-ban 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 its issuer, engaged primarily in investing in the Treasuries and repo behind it, is an investment company under Investment Company Act § 3(a)(1)(A) unless it fits a defined exemption.³¹³² GENIUS § 17’s exclusion of payment stablecoins from the federal “security” definitions does not reach it: the exclusion covers only a payment stablecoin issued by a permitted payment stablecoin issuer, and the Act’s own definition of a payment stablecoin excludes a security, including the shares of a registered fund.³³ 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 roughly $2.8 billion in assets under management as of August 2026, sits under Investment Company Act § 3(c)(7), the qualified-purchaser exemption, distributed under Securities Act Rule 506(c).³⁴ 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 $720.93 million in total net assets as of July 31, 2026.³⁵³⁶ 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 short-term Treasury exposure. The product wound down through an Anchorage Digital acquisition, a decision Mountain Protocol attributed in part to “the evolving U.S. regulatory landscape, including upcoming stablecoin legislation.”³⁷ 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; Ondo itself calls USDY a “yieldcoin,” not a stablecoin.³⁸

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.³⁹ 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.⁵ The Tillis-Alsobrooks stablecoin-yield language sits in the Senate Banking Committee’s reported substitute (EHF26374), also numbered Section 404, in a Senate-side text still unreconciled with the House bill.⁶² Commentary on the yield provision routinely cites “Section 404” without naming the print. 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 one-year joint SEC/CFTC/Treasury rulemaking will publish a non-exhaustive list of permissible activity-based and transaction-based rewards, and Sec. 404(c)(3)(A) already directs what the list must include: payments in connection with a transaction, payment, transfer, conversion, remittance, or settlement; providing liquidity for market-making, posting collateral, or otherwise putting assets at credit or investment risk; and the use of any product or service, including participation in governance, validation, staking, or a loyalty, promotional, subscription, or incentive program.² The candidates this article sorts: payments (transaction-frequency rewards), transfers (peer-to-peer activity), market-making (liquidity provision), staking (protocol participation, which the House bill treats separately in its Sec. 309 exclusion for decentralized finance activities), governance (voting and proposal participation), and loyalty (merchant adoption tiers and KYC upgrades). Each category sits at a different distance from the “economically or functionally equivalent” disqualifier.

Staking is the highest-risk category even though Sec. 404(c)(3)(A)(iii) names it expressly in the permissible list the joint rulemaking must publish, because the same subparagraph keeps every listed activity subject to the equivalence proviso, and a lock-up reward calculated on balance and tenure is where that proviso bites.² 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 doctrinal line between staking as a security under Howey and staking as an activity-based reward under Sec. 404 is thin. An issuer whose coin is distributed with a staking-based rewards program should expect the joint rulemaking to read the staking entry 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 the stronger case for the carveout because the reward is consideration for the transaction rather than for the balance. Float-funded cashback—where the reward is sourced from interest earned on holder balances—is economically the holder’s balance reformulated. But Sec. 404(c)(2)(B) applies the prohibition to any “loyalty, promotional, subscription, or incentive program” that is economically or functionally equivalent to deposit interest, and nothing in the text turns on funding source, so funding architecture is evidence, not a safe harbor, until the joint rulemaking says otherwise.² The same product can fall on either side of the line depending on how the reward is calculated and paid.

The Reiners critique frames the exchange-intermediary question sharply. Circle pays Coinbase a share of reserve income scaled to the USDC on Coinbase’s platform; Coinbase pays USDC holders “rewards”; Reiners argues the arrangement is “exactly what Section 4(a)(11) forbids,” because Coinbase is the legal holder of the USDC in its custodial wallets and Circle is therefore paying a holder for holding.⁸ The OCC’s proposed presumption reaches the same structure from the regulator’s side: an issuer that pays yield to “an affiliate or a related third party” that in turn pays holders is presumed to violate the prohibition, and the OCC notes that arrangements outside the presumption “may also violate” it.¹⁰ Whether the joint rulemaking imports the OCC’s related-third-party 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 one-year rulemaking is where the rule’s real shape appears. Issuers who design to the reported-substitute 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.⁴⁰ IL 1172 (September 2020) confirmed that national banks may hold reserves backing stablecoin issuances.⁴¹ IL 1174 (January 2021) authorized national banks to use distributed ledger technology and stablecoins to facilitate payments.⁴² IL 1183 (March 7, 2025) rescinded IL 1179’s supervisory-non-objection requirement and reaffirmed the authorities granted in 1170, 1172, and 1174.⁴³

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-affiliated ARS paradox. The intuition is that bank-affiliated groups face less Sec. 404 risk than non-bank groups because banks already know how to pay deposit interest under Reg DD. The intuition is wrong at the distribution layer. Sec. 404 excludes every permitted payment stablecoin issuer from “covered party,” bank subsidiary or not, but sweeps in a digital asset service provider “together with all of its affiliates”; the disqualifier’s reference instrument is a bank deposit, so a bank-affiliated exchange or wallet arm paying rewards on a stablecoin balance is measured against precisely the economic relationship its affiliated bank is built to operate.² The paradox is that the “economically or functionally equivalent” comparator pulls the bank-affiliated distributor’s product directly into the prohibition’s center of gravity. The Federal Reserve’s absence from the federal banking agency NPRM stream is a planning gap here: bank-affiliated PPSI issuers have no FRB-side regulatory text to study yet.¹⁹

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.¹²¹³ Credit-union subsidiaries operate under the February and May 2026 NCUA NPRMs.¹⁸ State-qualified issuers at or under the $10 billion threshold operate under state regulators whose regimes must be certified “substantially similar” to the federal framework under Treasury’s April 2026 proposed principles.¹⁶ Wyoming’s Stable Token Commission, a state instrumentality established under the Wyoming Stable Token Act, issued FRNT, the first state-issued stablecoin, on August 19, 2025.⁴⁴ GENIUS reaches issuance by a “person,” a term § 2(24) defines by enumerating private entity forms, so a token issued by a State in its own name is on that reading outside § 3(a)‘s issuer limitation rather than exempted from the PPSI definition.⁴⁴ The reading is contestable on the Act’s own terms: § 40-31-103(a) creates the Commission as “a body politic and corporate operating as an instrumentality of the state of Wyoming,” and whether that body is the State or a “corporation” or “other business entity” within § 2(24) is the question an adversary would press.⁴⁴ The competitive-distortion frame is that a state-issued stablecoin sits outside the federal PPSI framework 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)(A) classifies an issuer that is, or holds itself out as being, engaged primarily in the business of investing, reinvesting, or trading in securities as an investment company; the § 3(a)(1)(C) forty-percent test does not reach a Treasury-bill portfolio, because government securities are excluded from “investment securities.”³¹ The exemptions: § 3(c)(1) (securities beneficially owned by not more than one hundred persons), § 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 staff’s April 2025 statement is the closest existing 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 expressly declines to express any view on yield-bearing stablecoins, so they sit outside that non-security determination.²⁷ A yield-bearing token marketed as a stablecoin gets no comfort from the statement and has to be analyzed on its own terms under Howey and Reves. 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), presumes a note is a security unless it bears a strong family resemblance, on the four Reves factors, to an enumerated category of non-security notes.²⁸ 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-7,²⁰ or restructure away from yield-bearing economics entirely (the migration to ARS, with the § 5 conversion-mechanics caveat noted earlier).³²

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

The CLARITY Act explainers lead with Senate Banking Sec. 404 because it is politically loud. The structurally more important provision for stablecoin issuers is House Sec. 310, and in my reading of the coverage it gets a fraction of the attention. I call this “the quiet revolution.” But the framing needs a correction: the quiet revolution started January 23, 2025, when the SEC issued Staff Accounting Bulletin 122 and rescinded SAB 121.⁴⁵ House Sec. 310 does not invent the change. It bars the appropriate federal banking agency, the NCUA, and the SEC alike from requiring the balance-sheet liability, and from requiring regulatory capital against custodied assets except as needed to mitigate the operational risks inherent in the custody services, reaching the same result SAB 122 reached for SEC-reporting filers and binding every listed regulator going forward.⁴⁶

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 liability and a corresponding asset under SAB 121. The accounting treatment made bank custody of digital assets economically punishing at scale because capital and reserve 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 no longer grossed up the balance sheet for SEC-reporting filers. House Sec. 310 (post-enactment): the statute bars the appropriate federal banking agency, the NCUA, and the SEC from requiring a depository institution, national bank, federal or state credit union, trust company, broker, or dealer, or any affiliate of one, to carry custodied assets as a liability or to hold regulatory capital against them—except, on the capital prong, as necessary to mitigate operational risks inherent in the custody or safekeeping services, as the relevant supervisor determines. SAB 122 covered the SEC-reporting universe by staff bulletin. House Sec. 310 reaches the whole listed population by statute.⁴⁶

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 issued none of its own.¹⁹ For bank-affiliated PPSI issuers—any BHC-issued stablecoin—that absence is a planning uncertainty for the bank-side custody path. House Sec. 310 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 permits reserves only in the assets § 4(a)(1)(A) enumerates, and § 10(a) permits reserve custody only by a person supervised by a primary Federal payment stablecoin regulator, the SEC or the CFTC (Dodd-Frank § 2(12)(B)-(C)), or a state bank or credit-union supervisor.²⁹ SAB 122 made the bank-side path commercially viable for SEC-reporting filers in January 2025. House Sec. 310 extends that to the whole custodian population 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 House Sec. 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-House Sec. 310 world runs through OCC-chartered banks operating under the IL 1170/1172/1174/1183 stack.^40414243

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. House Sec. 310 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 a depository-institution coalition speaking with one voice is, in my judgment, the constituency most likely to move conferees on a banking-policy text, and because the May 8 letter’s asks are drafted as text a conferee can adopt. 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%). Six trade associations—the ABA, the Bank Policy Institute, the Consumer Bankers Association, the Financial Services Forum, ICBA, and the National Bankers Association—wrote to Senate Banking on May 8, 2026 endorsing the distinction between transaction-and-activity rewards and interest-like payments on balances, while asking that “solely” be struck from the holding prong, that the equivalence standard be replaced with a substantial-similarity standard, and that the balance-duration-tenure clause “be removed in its entirety.”²¹ BPI has argued since August 2025 that exchange and affiliate channels evade the GENIUS prohibition.²² Counter-pressure from stablecoin issuers is real but structurally weaker—the 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 flat-ban tightening in the final law sits at 35-45%.

House Sec. 310 bank custody: low probability of material change (10%). No banking-side comment letter in the record contests House Sec. 310. The SAB 122 parallel 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 House Sec. 310 to survive substantially intact.

House Sec. 308 state preemption: medium-high probability of narrowing (35-45%). House Sec. 308 would treat a digital commodity as a covered security under NSMIA, while its rule of construction preserves the existing state antifraud authority in Securities Act § 18(c)(1).⁴⁷ The state-side opposition is two-pronged. Thirty-two state securities regulators wrote on March 12, 2026 urging that the CLARITY Act and the DCIA preserve state authority consistent with NSMIA and add a catch-all savings clause for state antifraud enforcement; NASAA’s own February 23, 2026 letter is attached.⁴⁸ On the GENIUS side, the Conference of State Bank Supervisors’ November 4, 2025 comment letter addresses the $10 billion joint-oversight threshold and the “substantially similar” certification standard.⁴⁹ California DFAL, New York BitLicense, and Wyoming 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 concludes that a yield prohibition “would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings,” which cuts against the policy premise of a categorical ban.²³ Regulators do follow political signals over time, and the one-year 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 flat-ban 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 House Sec. 308 fight matters for the Theory 1 argument because it constrains the operational space even further. The state regulators’ letter asks Congress to secure state antifraud authority through a catch-all savings clause the current text lacks; if Congress does, and given that GENIUS itself preempts no state securities law, a state securities regulator or attorney general using Howey against an over-engineered rewards product can run that case to settlement independent of the federal carveout’s reach.⁴⁸⁵⁰ 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 a flat 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 compliance posture from now through GENIUS’s January 18, 2027 effective date and 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 has passed. Since July 1, 2026 a person engaging in digital financial asset business activity—exchanging, transferring, or storing a digital financial asset—with or on behalf of a California resident must hold a license under Cal. Fin. Code § 3203, have a completed application submitted on or before July 1, 2026 and still pending, or be exempt under § 3103.⁵¹ The CLARITY Act timeline gets all the headlines; the DFAL deadline carries the more immediate enforcement risk. If you are not licensed, pending, or exempt, the pending-application safe harbor closed with the deadline; the remaining paths are an exemption, a license application carrying the exposure of the interim, or ceasing California activity.

Day 0 (now through the GENIUS effective date). Build the GENIUS PPSI AML/CFT program to the FinCEN/OFAC joint proposed rule—four elements (risk-based internal policies, procedures, and controls; independent testing; a designated compliance officer; ongoing training) with ongoing customer due diligence built into the first, plus the five-element OFAC sanctions compliance program.¹⁴ Map reserve composition against the OCC and FDIC NPRMs,¹⁰¹²¹³ and map the issuance, offer, and sale prohibitions against Treasury’s August 2026 proposal.¹⁷ If you serve California residents, confirm DFAL status now.

Day 90 (post-Senate floor signal). Confirm Sec. 404 reward-product structure with counsel. If the rewards paid on your coin at the exchange or wallet layer are “economically or functionally equivalent” to deposit interest, 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.¹¹ The Treasury ANPRM asked how the § 18 pathway—Comptroller registration and reciprocity determinations—should work, and Treasury’s August 18, 2026 proposal implementing § 3 now addresses when a digital asset service provider may offer a foreign issuer’s stablecoin in the United States, including that issuer’s compliance with lawful orders and any reciprocal arrangement under § 18.¹⁵¹⁷ 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.⁸ A dedicated treatment sits on the firm’s research queue.

Key risk. Senate Banking Sec. 404 tightened in conference to a flat 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, concentration limits on exposure to any one eligible financial institution.¹⁰¹³ Monthly reserve reports.³⁰ AML/CFT program under the FinCEN/OFAC joint NPRM with the four-element architecture and customer due diligence, plus the stablecoin-specific OFAC program.¹⁴

Senate Banking Sec. 404 layer (post-enactment), for every covered party that distributes the coin. 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 one-year rulemaking comment-period strategy that engages the SEC, CFTC, and Treasury staff on the specific activity categories the product uses.

State layer. GENIUS § 5(h) preempts state charter, license, and authorization-to-do-business requirements for federal qualified PPSIs and approved bank and credit-union subsidiaries; state consumer-protection law survives under § 7(f)(4), and GENIUS preempts no state securities law.⁵⁰ California DFAL licensure, pending application, or exemption for anyone conducting digital financial asset business activity with California residents.⁵¹ New York DFS stablecoin guidance for any issuer that issues U.S. dollar-backed stablecoins under DFS supervision as a BitLicensee or limited purpose trust company.⁵² Wyoming’s state-issued FRNT as a competitor rather than a charter path.⁴⁴

House Sec. 310 layer. Bank-custody contract architecture under SAB 122 and the OCC interpretive-letter stack.^40414243 Repaper non-bank custody arrangements where commercial terms support the move.

The Reg DD analogy is the closest extant model for what Sec. 404(e)‘s disclosure rules will likely look like. Sec. 404(e) directs the SEC, the CFTC, and Treasury to require, within one year of enactment, clear and conspicuous plain-English disclosure of any compensation a covered party pays in connection with holding, using, or retaining a payment stablecoin, identifying who pays it and on what terms, and stating that payment stablecoins are not deposits and are not insured.² Truth in Savings Act / Reg DD built the bank-side disclosure architecture for deposit accounts, with account-opening disclosures of the annual percentage yield, advance notice of changes in terms, and periodic-statement disclosures.⁵³ The joint rulemaking will almost certainly draw on that 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 Articles 40 (asset-referenced tokens) and 50 (e-money tokens) prohibit issuers and crypto-asset service providers from granting interest, and paragraph 3 of each deems any benefit related to holding duration to be interest; the rules have applied since June 30, 2024.⁵⁴ The calculation-by-reference clause in Senate Banking Sec. 404 (rewards “may be calculated by reference to a balance, duration, tenure, or any combination of the foregoing”) 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.⁵⁵ The FSB’s high-level recommendations on global stablecoin arrangements anchor the broader regulatory-coordination question; the FSB’s October 2025 thematic review “reveals significant gaps and inconsistencies” in implementation across the jurisdictions it reviewed; the United States did not respond to the review’s questionnaire and was assessed from public sources.⁵⁶ 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 flat-ban scenario, not the looser Senate Banking 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 or functionally 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 flat-ban tightening and Senate Banking Sec. 404 collapses into a near-total prohibition on distributor-paid rewards, the bank-side path remains available for some activity-based reward designs under existing Reg DD-style frameworks. A bank-affiliated group 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 groups 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 once the Senate floor process that opens September 15, 2026 runs its course. The OCC NPRM, the FDIC NPRMs, and the FinCEN/OFAC joint NPRM are already shaping the issuance architecture today. California DFAL licensing closed 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 status, the January 18, 2027 GENIUS effective date, OCC and FDIC 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 exposure BlockFi and Celsius drew: a $50 million SEC penalty plus $50 million in state settlements in BlockFi’s case, and in Celsius’s a consented permanent injunction, with civil penalties and disgorgement sought against its founder and left to the court. The architectural choice is the operative variable.

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

GENIUS is law, effective January 18, 2027 unless final rules come first. Tillis-Alsobrooks Sec. 404 is not law, and when it becomes law it will bind the exchanges and wallets that distribute a coin, not the issuer. 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 presumption on affiliate and related-third-party arrangements; the CLARITY Sec. 404 covered-party overlay—is the architecture every U.S.-facing stablecoin product will live inside by early 2027. None of the three layers replaces the others. Each adds.

The Quiet Revolution under House Sec. 310 sits underneath all of this. SAB 122 started it in January 2025; House Sec. 310 will extend it by statute. 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 six-association trades letter 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 GENIUS’s January 18, 2027 effective date, with California DFAL already past its July 1, 2026 deadline. The OCC NPRM closed its comment period May 1, 2026; the FDIC, NCUA, Treasury, FinCEN/OFAC, and OCC June comment periods closed between April and August; Treasury’s issuance proposal closes October 19, 2026. The Senate’s first procedural vote on CLARITY is set for September 15, 2026, with a final House vote and signature after it. An issuer building a compliance plan around CLARITY milestones alone will be late to every federal PPSI rulemaking whose comment period ran in 2026 and unlicensed in California. The live floor arrives in January. 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. GENIUS Act § 20, 12 U.S.C. § 5901 note (“This Act, and the amendments made by this Act, shall take effect on the earlier of (1) the date that is 18 months after the date of enactment of this Act; or (2) the date that is 120 days after the date on which the primary Federal payment stablecoin regulators issue any final regulations implementing this Act.”). A Federal Register search for documents mentioning the GENIUS Act, run September 6, 2026, returns proposed rules and notices from Treasury, the OCC, the FDIC, the NCUA, FinCEN, and OFAC and no final rule by a primary Federal payment stablecoin regulator; the only two final rules matching the term are an IRS rule on tipped occupations and the SEC and CFTC’s joint rule on the application of the federal securities laws to certain crypto assets, neither of which implements the Act. ↩ ↩² ↩³ ↩⁴

2. Senate Banking Comm., Amendment in the Nature of a Substitute to H.R. 3633 (EHF26374, reported substitute), § 404(a)(3) (defining “covered party” as any digital asset service provider together with its affiliates, “excluding any permitted payment stablecoin issuer or foreign payment stablecoin issuer registered with the Comptroller”), § 404(c)(1) (prohibition), § 404(c)(2) (activity-based and transaction-based rewards permitted; (c)(2)(B) applying the prohibition to deposit-equivalent loyalty, promotional, subscription, or incentive programs), § 404(c)(3)(A) (joint SEC, CFTC, and Treasury rulemaking “[n]ot later than 1 year after the date of enactment,” including a non-exhaustive list of permissible rewards), § 404(c)(3)(B) (permissible rewards “may be calculated by reference to a balance, duration, tenure, or any combination of the foregoing”), § 404(c)(5) (good-faith reliance safe harbor), § 404(e) (disclosure rulemaking). ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰ ↩¹¹

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

4. 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 18, 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 Stablecoin Legislation Adopted in the US” (2025), available at https://www.lw.com/en/insights/the-genius-act-of-2025-stablecoin-legislation-adopted-in-the-us. ↩ ↩²

5. 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 Senate Banking Sec. 404 of the reported substitute, print EHF26374. ↩ ↩²

6. Senate Banking Comm., Amendment in the Nature of a Substitute to H.R. 3633 (EHF26374, reported substitute; print undated, reported after the May 14, 2026 markup), § 404. The committee’s January 12, 2026 manager’s amendment (EHF26031), whose § 404 carried an earlier rewards provision without the equivalence test, is available at https://www.banking.senate.gov/imo/media/doc/market_structure_draft.pdf. See CoinDesk, “Clarity Act Clears U.S. Senate Committee, on Its Way to a Final Test in Congress” (May 14, 2026) (15-9 vote), 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) (text released May 1, 2026; compromise negotiated by Senators Tillis and Alsobrooks), available at https://www.coindesk.com/policy/2026/05/01/clarity-act-text-lets-crypto-firms-offer-stablecoin-rewards-while-shielding-bank-yield. ↩ ↩² ↩³

7. “Senate Keeps Clarity Act Alive With Crypto Bill Vote Set for September,” Decrypt (Aug. 8, 2026) (Senate Majority Leader Thune filed the motion to proceed and cloture on H.R. 3633; first procedural vote set for September 15, 2026), available at https://decrypt.co/375174/senate-keeps-clarity-act-alive-with-crypto-bill-vote-set-for-september. ↩ ↩²

8. Lee Reiners, “Circle, Coinbase, and the Prohibition on Interest Under the GENIUS Act,” Columbia CLS Blue Sky Blog (Dec. 11, 2025) (reporting $907.9 million in 2024 distribution fees paid by Circle to Coinbase and Coinbase’s advertised 3.85% rewards, and arguing the arrangement is “exactly what Section 4(a)(11) forbids”), available at https://clsbluesky.law.columbia.edu/2025/12/11/circle-coinbase-and-the-prohibition-on-interest-under-the-genius-act/. ↩ ↩² ↩³ ↩⁴ ↩⁵

9. Consumer Federation of America, “CLARITY Act Section 404: Ban on Stablecoin Yield ‘Not Found’” (May 8, 2026) (describing the Circle-Coinbase agreement under which “Coinbase gets half of the profits from the interest Circle’s stablecoin reserves earn”), available at https://consumerfed.org/clarity-act-section-404-ban-on-stablecoin-yield-not-found/. ↩ ↩²

10. OCC NPRM, “Implementing the Guiding and Establishing National Innovation for U.S. Stablecoins Act for the Issuance of Stablecoins by Entities Subject to the Jurisdiction of the Office of the Comptroller of the Currency,” 91 Fed. Reg. 10,202 (Mar. 2, 2026); comment period closed May 1, 2026. See also Sullivan & Cromwell, “GENIUS Act Implementation: OCC Issues Proposed Rules” (Mar. 11, 2026), available at https://www.sullcrom.com/insights/memo/2026/March/OCC-Proposes-Regulations-Implement-GENIUS-Act. The proposed rule would presume a violation of the interest prohibition where an issuer has an arrangement to pay interest or yield to “an affiliate or a related third party” that in turn pays holders, notes that other arrangements “may also violate” the prohibition, and explains that the OCC cannot enumerate all “arrangements with third parties in which issuers could achieve the payment of yield to payment stablecoin holders.” ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸

11. 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). ↩ ↩² ↩³

12. FDIC NPRM, “Approval Requirements for Issuance of Payment Stablecoins by Subsidiaries of FDIC-Supervised Insured Depository Institutions,” 90 Fed. Reg. 59,409 (Dec. 19, 2025) (FR Doc. 2025-23510); comment period extended to May 18, 2026, see 91 Fed. Reg. 6,138 (Feb. 11, 2026). ↩ ↩² ↩³

13. FDIC Second NPRM, “GENIUS Act Requirements and Standards for FDIC-Supervised Permitted Payment Stablecoin Issuers and Insured Depository Institutions,” 91 Fed. Reg. 18,534 (Apr. 10, 2026) (proposing a 40% cap on exposure to any one eligible financial institution; tracking the OCC proposal); comments closed June 9, 2026. See Mayer Brown, “FDIC Proposes GENIUS Act Rules: How Do They Compare to the OCC Proposal?” (Apr. 28, 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

14. FinCEN/OFAC Joint NPRM, “Permitted Payment Stablecoin Issuer Anti-Money Laundering/Countering the Financing of Terrorism Program and Sanctions Compliance Program Requirements,” 91 Fed. Reg. 18,582 (Apr. 10, 2026); comment period closed June 9, 2026; the agencies propose that their final rules take effect 12 months after issuance. See Sullivan & Cromwell, “GENIUS Act Implementation—FinCEN, OFAC Propose Rule on AML and Sanctions-Compliance Requirements” (Apr. 17, 2026), available at https://www.sullcrom.com/insights/memo/2026/April/GENIUS-Act-Implementation-FinCEN-OFAC-Propose-Rule-AML-Sanctions-Compliance-Requirements. ↩ ↩² ↩³ ↩⁴ ↩⁵

15. Treasury ANPRM, “GENIUS Act Implementation,” 90 Fed. Reg. 45,159 (Sept. 19, 2025) (FR Doc. 2025-18226) (seeking comment on the GENIUS § 4(c) $10 billion state-oversight threshold, the “substantially similar” state certification standard, and the § 18 foreign-issuer registration and reciprocity pathway). ↩ ↩² ↩³

16. Treasury NPRM, “GENIUS Act Broad-Based Principles for Determining Whether a State-Level Regulatory Regime Is Substantially Similar to the Federal Regulatory Framework,” 91 Fed. Reg. 16,844 (Apr. 3, 2026); comments closed June 2, 2026. ↩ ↩²

17. NCUA Supplemental NPRM, 91 Fed. Reg. 28,956 (May 18, 2026); FDIC NPRM, “Bank Secrecy Act and Sanctions Compliance Standards for FDIC-Supervised Permitted Payment Stablecoin Issuers,” 91 Fed. Reg. 34,171 (June 5, 2026); FinCEN, OCC, Federal Reserve Board, FDIC, and NCUA Joint NPRM, “Permitted Payment Stablecoin Issuer Customer Identification Program,” 91 Fed. Reg. 37,234 (June 22, 2026); OCC NPRM, “Permitted Payment Stablecoin Issuer Anti-Money Laundering/Countering the Financing of Terrorism and Sanctions Compliance Risk Management,” 91 Fed. Reg. 37,840 (June 24, 2026); Treasury NPRM, “GENIUS Act Regulations on Payment Stablecoin Issuance, Offer, and Sale,” 91 Fed. Reg. 53,368 (Aug. 18, 2026) (implementing § 3, including a digital asset service provider’s reliance on a foreign payment stablecoin issuer’s compliance with lawful orders and any reciprocal arrangement under § 18); comments due Oct. 19, 2026. ↩ ↩² ↩³ ↩⁴ ↩⁵

18. NCUA NPRM, “Investments in and Licensing of Permitted Payment Stablecoins Issuers,” 91 Fed. Reg. 6,531 (Feb. 12, 2026) (licensing PPSI subsidiaries of federally insured credit unions; an Applying Issuer must apply jointly with any insured credit union parent company); comments closed Apr. 13, 2026. NCUA Supplemental NPRM, “Implementing the Guiding and Establishing National Innovation for U.S. Stablecoins Act for the Issuance of Stablecoins by Entities Subject to the Jurisdiction of the National Credit Union Administration,” 91 Fed. Reg. 28,956 (May 18, 2026); comments closed July 17, 2026. ↩ ↩²

19. The Federal Reserve Board has issued no GENIUS Act rulemaking of its own as of September 6, 2026. It is a signatory, under its own docket (R-1885, RIN 7100-AH18), to the five-agency joint proposed rule on permitted payment stablecoin issuer customer identification programs, 91 Fed. Reg. 37,234 (June 22, 2026), which proposes text for FinCEN’s 31 C.F.R. part 1033; and a search of Federal Register documents mentioning the Act returns, from the Board alone, only its July 9, 2026 proposal on AML/CFT programs for Board-supervised banks, 91 Fed. Reg. 42,363, which states that AML/CFT program requirements for PPSIs “will be addressed separately from this rulemaking.” See Morgan Lewis, “GENIUS Act Implementation: Key Proposals and What Comes Next” (Apr. 2026) (surveying the six proposals to that date and noting the Board had yet to issue one), available at https://www.morganlewis.com/pubs/2026/04/genius-act-implementation-key-proposals-and-what-comes-next. ↩ ↩² ↩³

20. 17 C.F.R. § 270.2a-7 (Rule 2a-7; the stable-NAV and “money market” name-term mechanics as amended in 2014, 79 Fed. Reg. 47,736 (Aug. 14, 2014), and the liquidity-fee provisions as amended in 2023, 88 Fed. Reg. 51,404 (Aug. 3, 2023)). ↩ ↩²

21. American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, Independent Community Bankers of America, and National Bankers Association, Letter to Chairman Tim Scott and Ranking Member Elizabeth Warren on Section 404 of the CLARITY Act (May 8, 2026) (endorsing the activity-versus-interest distinction and urging four amendments, including removal of subsection (3)(B) “in its entirety”), available at https://bpi.com/wp-content/uploads/2026/05/Joint-Trades-Letter-Section-404-of-the-CLARITY-Act-05.08.26.pdf. ↩ ↩²

22. Bank Policy Institute, “Closing the Payment of Interest Loophole for Stablecoins” (Aug. 12, 2025) (arguing that without a prohibition reaching exchanges and affiliates the GENIUS Act requirements “can be easily evaded and undermined,” and citing a Treasury estimate of “as much as $6.6 trillion in deposit outflows, depending on whether stablecoins are able to offer interest or yield”), available at https://bpi.com/closing-the-payment-of-interest-loophole-for-stablecoins/. See U.S. Dep’t of the Treasury, Treasury Borrowing Advisory Committee, Charge 2: Digital Money (Apr. 30, 2025) (illustrating a potential shift of roughly $6.6 trillion of transactional deposits to stablecoins), available at https://home.treasury.gov/system/files/221/TBACCharge2Q22025.pdf. ↩ ↩²

23. 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

24. In re BlockFi Lending LLC, Securities Act Release No. 33-11029, Investment Company Act Release No. 34503 (Feb. 14, 2022) (ordering a $50 million civil penalty payable to the SEC; holding the BlockFi Interest Accounts securities as notes under Reves and as investment contracts under Howey; Securities Act §§ 5(a), 5(c), 17(a)(2), 17(a)(3); Investment Company Act § 7(a)), available at https://www.sec.gov/litigation/admin/2022/33-11029.pdf. See also SEC Press Release No. 2022-26 (Feb. 14, 2022) (“BlockFi agreed to pay an additional $50 million in fines to 32 states to settle similar charges”), available at https://www.sec.gov/newsroom/press-releases/2022-26. ↩

25. SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946) (an investment contract is a scheme in which a person invests money in a common enterprise with the expectation of profits from the efforts of the promoter or a third party). ↩

26. SEC v. Celsius Network Ltd., No. 1:23-cv-06005 (S.D.N.Y. filed July 13, 2023) (complaint alleging the Earn Interest Program was offered and sold as an unregistered investment contract). See SEC Press Release No. 2023-133 (July 13, 2023), available at https://www.sec.gov/newsroom/press-releases/2023-133. ↩

27. SEC Div. of Corp. Fin., Statement on Stablecoins (Apr. 4, 2025) (Covered Stablecoins are not securities under Howey or Reves; the staff “do not express a view regarding the application of the federal securities laws to ‘yield-bearing stablecoins’”), available at https://www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425. The statement is a staff statement with no legal force or effect. ↩ ↩² ↩³

28. Reves v. Ernst & Young, 494 U.S. 56, 64-67 (1990) (presumption that a note is a security, rebutted only by a strong family resemblance, on four factors, to an enumerated category of non-security notes). ↩ ↩²

29. GENIUS Act § 4(a)(1)(A) (eligible reserve assets, on at least a 1:1 basis: United States coins and currency and Federal Reserve balances; demand deposits (or other deposits withdrawable on request) and insured shares at an insured depository institution; Treasury bills, notes, or bonds with 93 days or less remaining maturity; overnight repurchase and reverse repurchase agreements; registered government money-market-fund securities; other similarly liquid Federal Government-issued assets the primary regulator approves; and tokenized forms of those assets other than the repurchase and reverse repurchase agreements); § 10(a) (reserve custody only by a person subject to supervision or regulation by a primary Federal payment stablecoin regulator or by the SEC or the CFTC as primary financial regulatory agencies under Dodd-Frank § 2(12)(B)-(C), 12 U.S.C. § 5301(12)(B)-(C), or to supervision by a State bank supervisor or State credit union supervisor). ↩ ↩²

30. GENIUS Act § 4(a)(1)(C) (monthly website publication of the composition of reserves), § 4(a)(3) (monthly examination of the reserve report by a registered public accounting firm and monthly CEO and CFO certification), § 4(a)(5) (PPSI treated as a financial institution for Bank Secrecy Act, sanctions, customer identification, and due diligence purposes), § 4(c)(1) (a State qualified issuer with consolidated total outstanding issuance of not more than $10,000,000,000 may opt for a substantially similar State-level regime). ↩ ↩² ↩³

31. Investment Company Act § 3(a)(1)(A), (a)(2), 15 U.S.C. § 80a-3(a)(1)(A), (a)(2) (an issuer engaged primarily in investing, reinvesting, or trading in securities; “investment securities” excludes Government securities). ↩ ↩²

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

33. GENIUS Act § 17 (amending Investment Advisers Act § 202(a)(18), Investment Company Act § 2(a)(36), Securities Act § 2(a)(1), Exchange Act § 3(a)(10), and SIPA § 16(14) so that “[t]he term ‘security’ does not include a payment stablecoin issued by a permitted payment stablecoin issuer,” and Commodity Exchange Act § 1a(9) likewise for “commodity,” and Investment Company Act § 3(c)(3), 15 U.S.C. § 80a-3(c)(3), to exclude a permitted payment stablecoin issuer from the investment-company definition); § 2(22)(B)(iii) (the term “payment stablecoin” does not include a digital asset that is a security under the Securities Act, the Exchange Act, or the Investment Company Act). ↩

34. BlackRock USD Institutional Digital Liquidity Fund Ltd., Form D/A (filed July 27, 2026) (claiming the Rule 506(c) and Investment Company Act § 3(c)(7) exemptions; $100,000 minimum investment; no non-accredited investors), available at https://www.sec.gov/Archives/edgar/data/2013810/000201381026000002/primary_doc.xml; assets under management of roughly $2.8 billion as of August 2026 per “Blackrock’s BUIDL Hits $2.8B, Reclaims Treasury Crown,” Bitcoin.com News (Aug. 2026), available at https://news.bitcoin.com/finance/blackrock-buidl-2-8-billion-tokenized-treasury-crown/, and “Securitize’s BUIDL regains title as largest tokenized US Treasury fund,” Crypto Briefing (Aug. 30, 2026), available at https://cryptobriefing.com/buidl-regains-largest-tokenized-treasury-fund/. ↩

35. Franklin Templeton, Franklin OnChain U.S. Government Money Fund (FOBXX; fund number BENJI), fund page (total net assets $720.93 million as of July 31, 2026; a government money-market fund investing at least 99.5% of its total assets in U.S. government securities, cash, and repurchase agreements), available at https://www.franklintempleton.com/investments/options/money-market-funds/products/29386/SINGLCLASS/franklin-on-chain-u-s-government-money-fund/FOBXX. ↩

36. 17 C.F.R. § 270.2a-7 (Rule 2a-7 money-market fund regulation). ↩

37. Mountain Protocol USDM wind-down documentation; Anchorage Digital acquisition (wind-down attributed in part to “the evolving U.S. regulatory landscape, including upcoming stablecoin legislation”), available at https://docs.mountainprotocol.com/wind-down-documentation/usdm-wind-down-overview. ↩

38. Ondo Finance, USDY product page (tokenized note secured by short-term Treasuries; non-U.S. persons only under Regulation S; not registered under the Investment Company Act or Securities Act; “USDY is a yieldcoin, but not a stablecoin.”), available at https://ondo.finance/usdy. ↩

39. Securities Act § 5, 15 U.S.C. § 77e; § 2(a)(3), 15 U.S.C. § 77b(a)(3) (the issue of a security upon exercise of a conversion right “shall be deemed a sale of such other security”). ↩

40. 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

41. 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

42. 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

43. 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. ↩ ↩² ↩³

44. Wyoming Stable Token Act, Wyo. Stat. §§ 40-31-101 to -110 (§ 40-31-103(a) creating the Wyoming Stable Token Commission as “a body politic and corporate operating as an instrumentality of the state of Wyoming”; § 40-31-105(c)(i) authorizing it to issue Wyoming stable tokens); Office of the Governor of Wyoming, “Wyoming Launches Pioneering State-Issued Stable Tokens—The Frontier Stable Token Ushers in a New Era of Digital Finance” (Aug. 19, 2025) (announcing the FRNT mainnet launch by the Wyoming Stable Token Commission, “[e]stablished in March 2023 under the Wyoming Stable Token Act,” and describing Wyoming as “the first public entity in the United States to issue a blockchain-based stable token”), available at https://content.govdelivery.com/accounts/WYGOV/bulletins/3ee734a. GENIUS § 2(24) defines “person” as “an individual, partnership, company, corporation, association, trust, estate, cooperative organization, or other business entity, incorporated or unincorporated,” and § 3(a) makes it unlawful “for any person other than a permitted payment stablecoin issuer to issue a payment stablecoin in the United States”; the Act carries no express exemption for a State issuing in its own name. ↩ ↩² ↩³ ↩⁴

45. SEC Staff Accounting Bulletin No. 122 (Jan. 23, 2025; effective Jan. 30, 2025) (rescinding SAB 121’s balance-sheet liability requirement for SEC-reporting entities), available at https://www.sec.gov/rules-regulations/staff-guidance/staff-accounting-bulletins/staff-accounting-bulletin-122. See Deloitte Heads Up, “SAB 121 and Done: SEC Issues SAB 122 to Rescind Guidance on Safeguarding Crypto Assets,” Vol. 32, Issue 1 (Jan. 27, 2025), available at https://dart.deloitte.com/USDART/home/publications/deloitte/heads-up/2025/sec-rescinds-sab-121-issues-sab-122-crypto-cryptocurrency. ↩ ↩²

46. H.R. 3633 § 310 (as passed by the House) (treatment of custody activities by banking institutions) (barring the appropriate Federal banking agency, the NCUA, and the SEC from requiring a listed entity to carry custodied assets “that are not accounted for as assets of the entity” as a balance-sheet liability, or to hold regulatory capital against custodied assets, including reserves backing such assets, “except as necessary to mitigate against operational risks inherent with the custody or safekeeping services,” as determined by those three regulators or a State bank or credit union supervisor). The Senate Banking substitute numbers its sections differently; its § 310 is a GAO study. ↩ ↩²

47. H.R. 3633 § 308 (as passed by the House) (amending Securities Act § 18(b) to provide that “[a] digital commodity shall be treated as a covered security”; § 308(b) rule of construction preserving the existing authority of State securities commissions under Securities Act § 18(c)(1)). ↩

48. Letter of Thirty-two State Securities Regulators to Sens. Scott and Warren on the CLARITY Act and the DCIA (Mar. 12, 2026; one signatory joined Apr. 28, 2026) (urging preservation of state authority consistent with NSMIA and a catch-all savings clause for state anti-fraud enforcement) (attaching NASAA letter of Feb. 23, 2026). ↩ ↩²

49. Conference of State Bank Supervisors, Comment Letter re GENIUS Act Implementation, Docket No. TREAS-DO-2025-0037, RIN 1505-ZA10 (Nov. 4, 2025) (addressing the $10 billion joint-oversight threshold and the “substantially similar” state certification standard). ↩

50. GENIUS Act § 5(h), 12 U.S.C. § 5904(h) (preempting any State charter, license, or other authorization-to-do-business requirement as to a Federal qualified PPSI or an approved subsidiary of an insured depository institution or credit union, while preserving a State’s authority to charter, license, supervise, or regulate its own insured depository institutions and credit unions); § 7(f)(4) (state consumer-protection laws and common-law remedies not preempted); § 17 (excluding a payment stablecoin issued by a permitted payment stablecoin issuer from the federal definitions of “security” and “commodity”). The Act preempts no state securities law. ↩ ↩²

51. California Digital Financial Assets Law, Cal. Fin. Code §§ 3101 et seq. (added by Stats. 2023, Ch. 792 (AB 39), eff. Jan. 1, 2024); § 3201 (on or after July 1, 2026, licensure under § 3203, a completed application submitted on or before July 1, 2026 and awaiting decision, or a § 3103 exemption required to engage in digital financial asset business activity with or on behalf of a resident; as amended by Stats. 2026, Ch. 52 (SB 97)); § 3102(h)(1) (defining the activity to include exchanging, transferring, or storing a digital financial asset); AB 1934, Stats. 2024, Ch. 945 (extending the deadline to July 1, 2026). ↩ ↩² ↩³

52. New York Department of Financial Services, Industry Letter (June 8, 2022) (reserve, redemption, and attestation requirements for U.S. dollar-backed stablecoins issued under DFS supervision by DFS-regulated virtual currency entities; predating GENIUS). ↩

53. Truth in Savings Act, Regulation DD, 12 C.F.R. § 1030.4 (account-opening disclosures, including the annual percentage yield), § 1030.5 (advance notice of a change in terms), § 1030.6 (periodic statement disclosures). ↩

54. Regulation (EU) 2023/1114 (MiCA), arts. 40 and 50 (asset-referenced tokens and e-money tokens respectively; paragraph 1 of each bars issuers, and paragraph 2 crypto-asset service providers, from granting interest, and paragraph 3 treats any remuneration or other benefit related to the length of time a holder holds the token as interest); Titles III and IV applicable from June 30, 2024 (art. 149(3)). ↩

55. 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. ↩

56. Financial Stability Board, High-level Recommendations for the Regulation, Supervision and Oversight of Global Stablecoin Arrangements: Final report (July 17, 2023) (grounding its recommendations in the “same activity, same risk, same regulation” principle); FSB, Thematic Review on FSB Global Regulatory Framework for Crypto-asset Activities: Peer review report (Oct. 16, 2025) (finding significant gaps and inconsistencies across the reviewed jurisdictions; the United States did not respond to the questionnaire and was covered from public sources). ↩