Paradigm challenges FDIC over controversial stablecoin yield ban

Crypto investment firm Paradigm has urged the U.S. Federal Deposit Insurance Corporation to remove provisions from its proposed stablecoin framework that could restrict third-party firms from offering rewards tied to stablecoins.

According to a comment letter submitted to the FDIC, Paradigm argued that the agency’s interpretation of the GENIUS Act goes beyond the law approved by Congress. The firm stated that while the legislation bars stablecoin issuers from paying yield directly to holders, it does not prohibit independent third parties from distributing rewards linked to stablecoin activity.

“Nothing in the statutory text can be read to expand the yield prohibition to ‘related third parties’ or to authorize an agency’s presumption that the yield prohibition reaches those entities.”

Paradigm said the FDIC should withdraw what it described as an expansion of the statute 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 firm also asked the regulator to establish an enforcement cure period that would protect compliant issuers from unintended violations.

The dispute comes as lawmakers continue work on the CLARITY Act, a separate crypto market structure bill that preserves activity-based stablecoin rewards offered by third-party companies such as exchanges. Several digital asset firms, including Ripple and Coinbase, have recently called on Congress to advance the legislation to a floor vote.

Paradigm says Congress rejected similar restrictions

Within its filing, Paradigm pointed to the legislative history of the GENIUS Act and argued that Congress had already considered and declined proposals that would have extended restrictions on stablecoin rewards to outside firms.

According to the company, nothing in the law authorizes the FDIC to presume that third-party reward programs violate the statute. Paradigm stated that lawmakers deliberately limited the prohibition to stablecoin issuers rather than distributors or other service providers.

Part of the disagreement centers on how stablecoins are distributed through the crypto ecosystem. Activity-based rewards have become common among exchanges and fintech platforms that use stablecoins for payments, transfers, or customer incentive programs.

Earlier feedback submitted by Consensys raised similar concerns. In a separate filing reported by crypto.news, the blockchain software company argued that parts of the FDIC proposal could capture ordinary commercial arrangements involving distribution partners and brand licensing agreements. Consensys also cited legislative discussions surrounding the GENIUS Act, stating that lawmakers ultimately abandoned efforts to extend remuneration restrictions to third parties.

Other proposed rules draw industry scrutiny

Beyond the yield issue, Paradigm challenged several operational requirements contained in the FDIC proposal.

The company urged the agency to preserve white-label stablecoin arrangements, arguing that requiring separate reserve pools, accounts, and compliance systems for every branded stablecoin would create unnecessary burdens. Instead, Paradigm recommended allowing subledgering practices similar to those proposed by the OCC.

Recognition of tokenized reserve assets formed another part of the firm’s submission. Paradigm asked the FDIC to follow the OCC’s approach and formally accommodate such assets within the regulatory framework.

Reporting requirements also drew criticism. According to Paradigm, weekly supervisory reports would impose high fixed costs on issuers. The firm recommended monthly reporting and asked regulators to define reporting categories directly in the rule text rather than through forms that could later be revised without public consultation.

Questions about how failed institutions would be handled under the GENIUS Act remain unresolved as well. Paradigm stated that the law does not clearly identify which agency would oversee the resolution of a national trust bank, prompting the company to request additional guidance from the FDIC.

Paradigm joins a growing list of industry participants weighing in on the proposed rules. Alongside Consensys, USDC issuer Circle has also submitted comments, urging regulators to clearly distinguish payment stablecoins from tokenized bank deposits.