The Fed’s Stablecoin Proposal Puts a Clock on Getting Your Dollars Back
Calling something a stablecoin is quite a commitment. Most financial products at least leave themselves some room in the name.
A dollar-linked stablecoin is a digital token intended to hold a $1 value.
The Federal Reserve put more detail behind that commitment on Thursday, September 24, proposing rules for payment stablecoin issuers under its supervision. The package covers what backs the tokens, how issuers manage risk and how customers get their money back. It’s a proposal, open for comment, rather than a new set of final protections you can rely on today.
For someone considering a dollar-linked stablecoin, the part worth reading closely is the exit. Who actually owes you the dollar? How do you collect it? And does pressing “sell” in an app use the same process?
What the Fed proposed Thursday
The Fed’s announcement, released at 2:30 p.m. Eastern, describes two proposals under the GENIUS Act. One would require Fed-supervised payment stablecoin issuers to fully back their tokens with permitted reserves, including short-term Treasury bills and certain other high-quality, liquid assets. It also sets out capital and risk-management requirements.
The other lays out an application process for banks under the Fed’s supervision seeking to issue payment stablecoins. Applicants would have to provide a business plan and financial information, among other documents. Reuters reported the proposals Thursday.
The Fed’s jurisdiction is important here. An announcement covering the issuers it supervises doesn’t establish that every token in your trading app meets these standards. Comments are due 60 days after publication in the Federal Register, so don’t start counting from the press release.
Two business days, with conditions
Buried in the proposed rule’s redemption section is a useful, concrete standard: an issuer would generally have to redeem a payment stablecoin no later than two business days following the date of the request.
I like having an actual clock attached to the promise. “Timely” leaves rather a lot of room for interpretation when you’re the person waiting.
The proposal also calls for public instructions explaining how to redeem, the expected timing and the associated fees. But the two-day standard has exceptions. The Fed could extend the period for safety, financial-stability or public-interest reasons. Certain compliance checks and delays outside an issuer’s control could also qualify for protection from enforcement, subject to reasonable efforts to resolve them.
An unexpectedly large volume of redemption requests, by itself, wouldn’t qualify for that latter exception. So a blanket promise of “your money back in two days” would leave out some expensive details.
Selling and redeeming can produce different results
The draft rule explicitly separates redemption by the issuer or its agent from trading in the secondary market. Its redemption requirements wouldn’t apply to that secondary trading.
Here’s a hypothetical. You buy 5,000 dollar-linked tokens for $1 each, spending $5,000. Later, you sell all of them on a trading platform for 98 cents apiece. You receive $4,900: a $100 loss, or 2%, before fees and taxes.
Those are invented prices for an arithmetic example, not a report about a particular coin. The example assumes a sale, with no interest earned or other payments.
A redemption route offering face value could give you another option, but you’d need to establish that you can use it, meet its requirements and wait for the proceeds. An issuer’s reserves don’t automatically dictate the price another trader will pay you this afternoon.
That’s why I’d read the redemption policy before treating a token balance as money available for a particular bill. The useful information is the name of the party responsible, the steps you must complete and the timing that actually applies to you.
Check the exit before you need it
Fed Governor Michael S. Barr made reliable redemption at face value central to his statement supporting the proposal. He emphasized that this needs to work during market stress and strain at an issuer, too.
For a practical check, open the terms for any stablecoin you hold or are considering. Find the issuer’s redemption instructions. Then compare them with the withdrawal process on the platform where you keep the token. Write down who handles each step, what it costs and whether you need an approved account or additional identity checks.
If you can’t tell whether your exit involves redeeming with the issuer or finding a buyer, that’s a question for support before you commit more money. Ask for the relevant terms in writing. A reassuring chat message is difficult to build a cash-flow plan around.
There’s no need to wait for a final rule to do that check. The terms available to you now are the ones to investigate. If you needed those dollars next week, could you explain how they’d reach your bank account?
Disclosure: If you purchase through the Predictive Alpha link below, StockHitter may earn a commission at no additional cost to you.
Researching stocks? See what Predictive Alpha actually shows you.
TradeSmith’s Predictive Alpha is a stock research tool that gives you a projected price, a projection date and a historical directional accuracy measure for individual stocks. Those are estimates, so you still need to judge the business and the risk for yourself. Read our hands-on review to see the tool and its limits, then check the current Predictive Alpha offer if it fits the way you research stocks.
This article is general financial education, not personalized investment advice.
