Fed Floats Stablecoin Oversight Plan With Sub-48-Hour Liquidation Trigger

The Federal Reserve has unveiled a 392-page proposal setting out how payment stablecoin issuers under its supervision would be handled if their reserve assets fall below the value of outstanding tokens, a framework the central bank says could set off liquidation and redemption mechanics in less than 48 hours. Under the draft rules, an issuer that slips below full backing would have 24 hours to notify the Fed and provide a plan to restore 1:1 coverage. Unless the shortfall is cured or the Fed instructs the issuer to proceed with its plan, the issuer would be required to start liquidating reserves and redeeming tokens by 5 p.m. on the next business day. The Fed notes that, depending on timing, the practical window is often under 48 hours. The proposal requires reserve assets to equal or exceed outstanding tokens at all times. Issuers would also need to mark reserves to fair value at least once daily at 5 p.m. in the time zone of their supervising Federal Reserve Bank, with the Fed warning that issuers operating close to the threshold may need to compute reserve values multiple times per day. To reduce the risk of a visible on-chain signal amplifying stress, the Fed's draft would allow an issuer to keep minting during the initial "rescue window." It argues that abruptly halting issuance would be observable on-chain and could accelerate a run. Once liquidation begins, minting would stop, and redemption fees would be barred from that point forward. A separate requirement would obligate issuers to meet ordinary redemption requests within two business days. The Fed illustrates how losses could be distributed using a $100 million stablecoin backed by $95 million in reserves. If redemptions were shared evenly, holders would initially recover $0.95 per token. After $35 million in redemptions at full par value, $60 million in assets would remain against $65 million in tokens, implying about $0.92 per token for remaining holders. Redemptions of $50 million would leave $0.90 per token, while $80 million would leave $0.75 per token. The intent is to use forced liquidation to push outcomes toward the same pro-rata loss profile. The Fed also models how continued issuance during the rescue window could change coverage. In its example, $20 million of new issuance alongside $35 million in redemptions would lift coverage to roughly $0.94. It says closing a reserve gap would require new capital, recovery of an impaired asset, or higher reserve valuations. The central bank explicitly asks whether issuance should be capped or prohibited once the 1:1 threshold is breached. The proposal contrasts with an approach floated by the Office of the Comptroller of the Currency in March. Under the OCC's draft, an issuer below minimum reserves would have to stop net new issuance immediately, with a narrow exception for moving existing tokens across ledgers. Mandatory liquidation would begin only if the shortfall persisted for 15 consecutive business days, and the OCC could extend that period. The Fed's regime would apply only to issuers it supervises, while the OCC and state regulators would oversee other issuers under the GENIUS Act. The Fed ties its thinking to run dynamics observed in prior stress episodes. In research published in December 2025 examining Silicon Valley Bank's March 2023 collapse, the Fed noted Circle's disclosure that $3.3 billion of USDC reserves were trapped at the failed bank, about 8% of reserves at the time. USDC traded as low as $0.86 on secondary markets, and trading volume on those venues hit nearly $2 billion in one hour on March 11. The researchers concluded that closing an issuer's redemption window can shift a run to exchanges rather than stop it. The Fed says visible redemptions can spur additional redemptions, and that secondary-market trading can absorb selling pressure that might otherwise hit the issuer through par redemptions and forced reserve sales. CoinGecko data show 97.7% of stablecoin-denominated trading pairs on the 12 largest centralized exchanges use USDT or USDC, and most spot volume on those exchanges trades against stablecoins. As of Sept. 25, the total stablecoin market stood near $307.3 billion, with USDT at about $183.7 billion and USDC at $76.4 billion. Circle reported that as of Sept. 21, USDC had $74.6 billion in circulation against $74.8 billion in reserves. Over the prior 30 days, Circle issued $40.2 billion and redeemed $39 billion, generating gross flows of $79.2 billion and a net circulation increase of $1.2 billion. The Fed warns that a flight from a distressed stablecoin could spill into other markets. Holders might rotate into Bitcoin, potentially pushing Bitcoin's price quoted in that stablecoin above its dollar price. Alternatively, flows into fiat or another stablecoin could thin order books and widen spreads across trading pairs. The Fed notes that price gaps across stablecoin pairs, along with order-book depth and funding rates, could indicate where a run is migrating. The draft also acknowledges liquidity frictions implied by the GENIUS Act's reserve guidance, which channels reserves toward Treasuries maturing within 93 days and qualifying repo arrangements. The Fed says a large Treasury position could be hard to sell in full without moving prices. It cites an IMF model from January describing the timing mismatch between 24/7 redemption demand and bond and repo markets that close overnight and on weekends; a large redemption wave could drain cash buffers and force bond sales when markets reopen. If an issuer closes its reserve gap within the first 24 hours, it could resume normal minting and redemptions. The Fed highlights that timing matters: a breach late on a Friday could leave Treasury holdings waiting for Monday's market open while tokens continue trading through the weekend. Public comments will be accepted for 60 days after the proposal is published in the Federal Register.