There's an interesting point to note about the OCC's latest regulation proposal regarding stablecoins. They just released a draft regulation based on the GENIUS Act that states the legal requirements for how stablecoins should be regulated, and the most controversial part is about yields.

So here’s the deal – the majority of the 376-page proposal is quite straightforward. They discuss custody controls, capital requirements, and other technical regulatory aspects we usually see. But the part about yields? That’s very ambiguous and could be a game-changer for the industry.

This proposal basically states that stablecoin issuers cannot pay holders any form of interest or yield – whether cash, tokens, or other forms – solely because they hold the stablecoin. And more interestingly, the OCC also tries to regulate how issuers can work with third parties to provide yields. They say payments will be considered yields if there’s a contract stating so.

This now directly impacts companies like Coinbase, Circle, PayPal, and Paxos. They might have to redesign their entire agreement structures. Matthew Sigal from VanEck even said these companies should make their agreements look more like loyalty programs rather than interest payments.

But there’s also a confusing part – the definition of affiliate in this proposal. If an issuer owns 25% or more of shares in a third party, they cannot offer yields. This opens a loophole for third parties that don’t have ownership issues. And considering white-label relationships like those between PayPal and Paxos, the wording could potentially block yield payments depending on the contract duration.

What makes the situation more complex is that stablecoin yields are also one of the issues delaying the industry’s much-anticipated Market Structure Bill. There’s a possibility that this OCC proposal will make Congress not need to address yields in that bill at all, but Congress might still want authority over this matter.

Realistically, this OCC proposal probably won’t be implemented as-is. If the Market Structure Bill becomes law before OCC finalizes its regulation, they’ll need to issue a temporary proposal to comply with the new law. Or there could be a separate rulemaking process following afterward.

For the Market Structure Bill itself, there are some latest draft language circulating among legislators, but no consensus yet between the banking industry and crypto. So we’re still in a wait-and-see phase. Clearly, stablecoin regulation in the US will continue to evolve, and the industry needs to be ready to adapt to various possible scenarios.