Crypto investment firm Paradigm has urged the US Federal Deposit Insurance Corporation to remove provisions from its proposed stablecoin framework that could prevent third-party companies from offering rewards linked to stablecoins.
Summary
- Paradigm urged the FDIC not to extend the GENIUS Act’s stablecoin yield ban to third-party companies such as exchanges and wallet providers.
- The company argued that Congress previously rejected proposals that would have expanded restrictions on stablecoin rewards.
- Paradigm also took issue with the proposed rules on white-label stablecoins, reporting requirements, token reserves and resolution procedures.
According to a comment letter submitted to the FDIC, Paradigm argued that the agency’s interpretation of the GENIUS Act went beyond the law approved by Congress. The company said that while the legislation prohibits stablecoin issuers from paying returns directly to holders, it does not prohibit independent third parties from distributing rewards related to stablecoin activity.
“Nothing in the statutory text shall be construed to extend the yield prohibition to ‘related third parties’ or to authorize an agency’s presumption that the yield prohibition reaches such entities.”
Paradigm said the FDIC should withdraw what it describes as an expansion of the law or align its approach with proposals already put forward by the Office of the Comptroller of the Currency and the National Credit Union Administration.
The company also asked the regulator to establish an enforcement period that would protect compliant issuers from unintentional violations.
The dispute comes as lawmakers continue to work on the CLARITY Act, a separate crypto market structure bill that preserves stable activity-based rewards offered by third-party companies such as exchanges. Several digital asset companies, including Ripple and Coinbase, recently called on Congress to bring the legislation to a floor vote.
Paradigm says Congress rejected similar restrictions
In its filing, Paradigm highlighted the legislative history of the GENIUS Act and argued that Congress had already considered and rejected proposals that would have extended restrictions on stablecoin awards to outside companies.
According to the company, nothing in the law allows the FDIC to presume that third-party rewards programs violate the law. Paradigm said lawmakers deliberately limited the ban to stablecoin issuers rather than distributors or other service providers.
Part of the disagreement is over how stablecoins are distributed in the crypto ecosystem. Activity-based rewards have become common among exchanges and fintech platforms that use stablecoins for payments, transfers, or customer incentive programs.
Previous comments submitted by Consensys raised similar concerns. In a separate filing reported by crypto.news, the blockchain software company argued that parts of the FDIC’s proposal could encompass ordinary commercial agreements involving distribution partners and brand licensing agreements. Consensys also cited legislative discussions around the GENIUS Act, saying lawmakers ultimately abandoned efforts to extend compensation restrictions to third parties.
Other proposed rules attract industry attention
Beyond the issue of performance, Paradigm took issue with several operational requirements contained in the FDIC’s proposal.
The company urged the agency to preserve white-label stablecoin agreements, arguing that requiring separate reserve pools, accounts and compliance systems for each branded stablecoin would create unnecessary burdens. Instead, Paradigm recommended allowing subledger practices similar to those proposed by the OCC.
Recognition of token reserve assets was another part of the company’s proposal. Paradigm has asked the FDIC to follow the OCC’s approach and formally incorporate these assets into the regulatory framework.
The reporting requirements have also attracted criticism. According to Paradigm, weekly monitoring reports would impose high fixed costs on issuers. The company recommended monthly reporting and asked regulators to define reporting categories directly in the text of the rules rather than through forms that could then be revised without public consultation.
Questions about how failed institutions would be treated under the GENIUS Act also remain unanswered. Paradigm said the law does not clearly identify which agency would oversee the resolution of a national trust bank, prompting the company to seek additional guidance from the FDIC.
Paradigm joins a growing list of industry players speaking out on the proposed rules. Alongside Consensys, USDC issuer Circle also submitted comments, urging regulators to clearly distinguish payment stablecoins from tokenized bank deposits.
