Federal Reserve official Musalem reiterated on September 22 that strict adherence to the ban on interest payments for stablecoin is essential when implementing the GENIUS Act. He emphasized that stablecoins should be positioned as payment tools rather than savings products, shattering the illusion of interest-bearing assets for issuers and signaling a tough regulatory stance. The global $280 billion stablecoin market is facing reconstruction, with the U.S. Treasury initiating public consultations on the GENIUS Act three days prior. The act, effective from July 18, is set to be implemented, strengthening compliance for issuers and consumer protection.
1. Recent Statements from Federal Reserve Officials Spark Market Attention
On September 23, senior officials from the Federal Reserve reiterated at the Financial Stability Forum that strict compliance with the restrictions on interest payments for stablecoins is necessary when implementing the GENIUS Act. This statement quickly sparked heated discussions in the financial and crypto communities.
Officials emphasized that the act aims to maintain the stability of the dollar payment system and prevent stablecoins from evolving into quasi-deposit tools that evade bank regulation. The remarks addressed market concerns about compliance, and since the act's effectiveness on July 18, 2025, this principle has been consistently central. However, this reiteration suggests more detailed guidance may be forthcoming before the end of the year. Over the past year, issuers reported more than 500 compliance incidents, some involving hidden yield mechanisms. Market analysts view this as a regulatory signal, with trading volume for dollar-pegged stablecoins fluctuating by 2.3% after the remarks. This move reinforces the Federal Reserve's cautious stance on digital assets and provides a compliance pathway for the industry.
2. Core Framework of the GENIUS Act and Analysis of the Interest Payment Ban
● Issuance Licenses and Reserve Requirements: Only entities that have obtained federal or state licenses (such as banks, credit union subsidiaries, or compliant non-bank institutions) can issue payment stablecoins. Issuers must maintain a 1:1 ratio of high-quality liquid reserve assets, including U.S. dollar cash, short-term U.S. Treasury securities (maturity ≤ 93 days), and Federal Reserve account deposits, to ensure the stablecoin's value remains stable and redeemable at all times. The act requires monthly disclosure of reserve asset composition and annual audits by independent third parties. Issuers with a market capitalization exceeding $50 billion must submit audited financial statements.
● Interest Payment Ban: The act explicitly prohibits stablecoin issuers from paying interest or any form of yield to holders, preventing stablecoins from evolving into deposit-like products that directly compete with bank deposits. This ban aims to prevent funds from flowing out of the regulated banking system, thereby disrupting the Federal Reserve's monetary policy transmission mechanism. Officials specifically noted that the interest ban applies not only to issuers but also indirectly constrains third-party platforms (such as exchanges or custodial service providers) from providing yields through derivatives or other means.
● Consumer Protection and Bankruptcy Isolation: In the event of an issuer's bankruptcy, the redemption rights of stablecoin holders take precedence over other creditors, and reserve assets are legally recognized as "bankruptcy isolated," ensuring the safety of holders' funds. The act also prohibits issuers from using misleading names (such as implying government endorsement) to protect consumers from fraud.
● Federal and State Tiered Regulation: The GENIUS Act establishes a parallel regulatory system at the federal and state levels. Issuers with a market capitalization exceeding $10 billion are directly regulated by federal agencies (such as the Office of the Comptroller of the Currency or the Federal Reserve), while smaller issuers may choose state regulation but must meet federally recognized "substantially similar" standards. The Treasury Department will issue further comments by October 2025, covering privacy protection, compliance cost assessments, and cross-border regulatory mechanisms.
● International Coordination and Reciprocity Arrangements: The act requires foreign stablecoin issuers operating in the U.S. market to comply with equivalent standards and to reach reciprocity agreements with jurisdictions comparable to U.S. regulation. The Treasury Secretary must implement such arrangements within two years of the act's effectiveness, aiming to prevent regulatory arbitrage and solidify the dollar's core position in the global digital asset market.
3. Current State of the Stablecoin Market: Data Reveals Growth and Regulatory Pressure
The stablecoin market is experiencing strong expansion in 2025, with a total market capitalization reaching $292 billion, a 22% increase from the previous year, making it the fastest-growing sector in crypto. However, regulatory tightening is intensifying, and the interest ban poses challenges to issuers' profitability. Dollar-pegged stablecoins dominate, with USDT and USDC accounting for 85%, and on-chain transactions reaching $26 trillion in the first half of the year. Circulation is inversely related to bank interest rates, with demand dropping by 15% under high rates of 5.25%-5.50%.
The table below summarizes key stablecoin metrics as of September 2025:
(Data source: CoinMetrics, Statista)
USDC has become the benchmark for the GENIUS Act due to its high proportion of Treasury reserves (92%) and strict compliance practices, while Tether faces adjustment pressure due to lower reserve transparency (with only 75% in Treasuries). The impact of the interest ban on issuers' profit models is particularly significant. In the past, issuers could earn about 4.5% annualized returns by investing reserve assets (such as short-term Treasuries), but with the implementation of the ban, profit margins are compressed, and small issuers are expected to see their market share shrink by 20%. Additionally, the Federal Reserve's maintenance of high interest rates (5.25%-5.50%) has led to a 15% decline in stablecoin demand, as traditional bank deposits become more attractive in a high-rate environment.
4. Prospects of Regulatory Measures: Opportunities and Global Coordination Challenges
● The interest ban under the GENIUS Act will increase compliance costs for issuers in the short term, with compliance expenditures expected to account for 15%-20% of issuers' operating costs by 2026. However, in the long run, the act provides a clear legal framework for the stablecoin industry, helping to attract traditional financial institutions. Experts predict that by 2027, the penetration rate of stablecoins in cross-border remittances will rise from the current 20% to 30%, significantly reducing transaction costs (70% lower than traditional bank wire transfers).
● Global coordination is the biggest challenge for the implementation of the act. The EU's Markets in Crypto-Assets Regulation (MiCA) allows stablecoins to pay limited yields, which may lead to capital flowing to regions with looser regulations. The G20 summit plans to discuss global benchmarks for "no-interest" stablecoins in 2026, but differences in monetary policies and financial systems among countries make coordination difficult. The U.S. has simplified the fragmentation of state-level regulation through federal prioritization, but it must remain vigilant against systemic risks caused by excessive concentration.
● Market opportunities coexist with risks. Compliant issuers like Circle are expected to further expand their market share through partnerships with traditional payment providers (such as Fiserv and Shopify), while non-compliant issuers may be forced to exit the U.S. market or adjust their reserve structures. DeFi projects will need to redesign smart contracts to adapt to regulations, with the DeFi market size expected to grow from the current $120 billion to $300 billion by 2026, although the space for innovation in anonymity and algorithmic stablecoins will be limited.
5. Conclusion and Outlook
The Federal Reserve's reiteration of the interest ban under the GENIUS Act marks the beginning of the "enforcement era" for stablecoin regulation. The act balances the dual goals of innovation and financial stability by strengthening reserve requirements, transparency, and consumer protection, laying the groundwork for the global landscape of the digital dollar. The Treasury's comment period in October will be a critical window for industry adjustments, and issuers need to accelerate the upgrade of their technological infrastructure and compliance processes. As global regulatory competition intensifies, the U.S. must consolidate the dollar's core position in the digital asset market through international coordination. In the future, stablecoins may not only serve as payment tools but could also become strategic assets reshaping the global financial system, warranting continued attention.
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