Fed applies GENIUS Act ‘dollar test’ to stablecoins

The Federal Reserve proposed rules that would apply the GENIUS Act’s “dollar test” to stablecoin issuers and the assets backing their tokens. The draft would require tokens to be redeemable at par for a U.S. dollar and reserves to meet standards for liquidity, safety and verifiability.

Under the draft framework, the Fed would use the dollar test as a regulatory benchmark for companies issuing stablecoins and for the reserve pools that support them. Issuers would need to demonstrate that each token can be redeemed for a dollar at par and to hold reserves in forms that preserve value and can be converted into dollars quickly. The proposal also includes clearer reporting, audit and custody requirements and stronger disclosure to token holders and regulators.

The draft frames the proposal as a response to potential risks to consumers and the payments system posed by stablecoins. It sets rules intended to make redemption mechanics predictable and reserve holdings more transparent.

Key elements in the draft include enforceable obligations for issuers to maintain sufficient high-quality assets to meet redemptions, requirements for independent verification of reserves, and limits on reserve asset types to those that can be converted into dollars without material loss of value. The draft also outlines operational safeguards such as segregation of reserve assets and recordkeeping that would allow regulators to monitor compliance in near real time.

Market participants likely to be affected include crypto-native issuers, banks and custody providers that hold or manage reserve assets. Firms that rely on commercial paper, money market funds or other short-term instruments for backing could need to change reserve compositions or arrange for banking partners to hold deposits in insured depositories. The draft also clarifies which entities are eligible to be stablecoin issuers and how state and federal supervisory roles would interact.

The draft text states regulators view the standards as intended to reduce the chance that a run on a stablecoin could spill over into the banking system or broader financial markets. The proposal would supplement other regulatory efforts covering custody, anti‑money‑laundering controls and consumer protections.

The proposal will be subject to a public comment period. The draft does not specify how long the comment period will be or when a final rule would be adopted. Issuers, financial institutions, consumer advocates and others can submit feedback on specifics such as the dollar test, the scope of covered assets, reporting frequency and interactions with existing state and federal frameworks.

Background: The GENIUS Act was developed in Congress to set uniform standards for stablecoins after market disruptions highlighted risks from inadequate reserves and opaque redemption mechanisms. Lawmakers have emphasized that stablecoins should represent a claim on safe, liquid resources and be redeemable on demand for dollars. Regulators across agencies have coordinated in recent years to address consumer protection, systemic risk and the integrity of the payments system.