Fed proposed stablecoin rule could trigger a 48-hour liquidation run

The Federal Reserve proposed rules for the payment stablecoin issuers it supervises that could trigger a 48-hour liquidation run when reserves fall below outstanding tokens. An affected issuer would have 24 hours to notify the Fed and submit a plan to restore full backing. The issuer would have to begin liquidating reserves and redeeming tokens by 5 p.m. on the next business day unless it closes the gap or the Fed directs it to proceed with the plan. The Fed says this window is less than 48 hours in many cases. The 392-page proposal would let an issuer keep minting tokens during the rescue window. The Fed says an abrupt halt in issuance would be visible on-chain and could accelerate a run. Comments would remain open for 60 days after the proposal appears in the Federal Register. Reserve assets would have to equal or exceed outstanding tokens at all times. Issuers would have to record the fair value of reserves at least once a day at 5 p.m. in the time zone of their supervising Federal Reserve Bank. The Fed says issuers operating close to the threshold may need to calculate reserve values several times a day. The breach clock would start when liquidation begins. Minting would stop once liquidation begins. Redemption fees would be prohibited after liquidation starts. A separate rule would require issuers to honor ordinary redemption requests within two business days. The Fed illustrates the mechanism with a $100 million stablecoin backed by $95 million in reserves. Each holder would initially recover $0.95 per token if redemptions were split evenly. After $35 million in redemptions at full par value, $60 million in assets would remain against $65 million in tokens. The remaining backing would be about $0.92 per token. Redemptions of $50 million would leave $0.90 per token. Redemptions of $80 million would leave $0.75 per token. The proposal would use forced liquidation to push holders toward the same pro-rata loss. Circle's figures show that USDC had $74.6 billion in circulation against $74.8 billion in reserves as of Sept. 21. Circle issued $40.2 billion and redeemed $39 billion during the prior 30 days. Those transactions produced a gross flow of $79.2 billion. Net circulation grew by $1.2 billion. The proposal would let issuers keep minting during the rescue window because a sudden stop could reveal the problem on-chain. The Fed's example says $20 million in new issuance alongside $35 million in redemptions would raise coverage to roughly $0.94. Closing the reserve gap would require new capital, recovery of an impaired asset or higher reserve values. The proposal asks whether issuance should be capped or prohibited when the 1:1 threshold is breached. The Office of the Comptroller of the Currency proposed a different approach in March. Under the OCC proposal, an issuer below minimum reserves would have to stop net new issuance immediately. The OCC would allow a narrow exception for moving existing tokens across ledgers. Mandatory liquidation would begin only if the shortfall lasted 15 consecutive business days. The OCC could extend that period. The Fed's rules would apply to issuers it supervises. The OCC and state regulators would oversee other issuers under the GENIUS Act. Fed research from December 2025 examined the March 2023 collapse of Silicon Valley Bank. Circle disclosed that $3.3 billion of USDC reserves were trapped at the failed bank. That amount represented about 8% of reserves at the time. USDC fell as low as $0.86 on secondary markets. Trading volume on those markets reached nearly $2 billion in one hour on March 11. The researchers concluded that closing an issuer's redemption window can move a run to exchanges rather than stop it. The Fed says visible redemptions can prompt more redemptions. Secondary-market trading can absorb selling that would otherwise reach the issuer through par redemptions and forced reserve sales. CoinGecko found that 97.7% of stablecoin-denominated trading pairs on the 12 largest centralized exchanges use USDT or USDC. Most spot volume on those exchanges trades against stablecoins. The total stablecoin market was near $307.3 billion as of Sept. 25. USDT accounted for about $183.7 billion. USDC accounted for $76.4 billion. Holders fleeing a distressed stablecoin could buy Bitcoin. That could lift Bitcoin's price quoted in that stablecoin above its dollar price. Holders could also move into fiat or another stablecoin. That could thin order books and widen spreads across trading pairs. Bitcoin price gaps across stablecoin pairs could show where a run was moving. Order book depth and funding rates could provide additional signals. The GENIUS Act directs reserves toward Treasuries maturing within 93 days and qualifying repo arrangements. The Fed acknowledges that a large Treasury position could be difficult to sell fully without moving prices. An IMF model from January describes the timing mismatch between holders who can redeem around the clock and bond and repo markets that close overnight and on weekends. A large redemption wave could drain cash buffers and force bond sales when those markets reopen. An issuer that closes its gap within the first 24 hours could resume normal minting and redemptions. A breach late on a Friday could leave the issuer's Treasury holdings waiting for Monday's market open while its tokens trade through the weekend.