The Federal Reserve has proposed rules for stablecoin issuers that establish a strict timeline for managing reserve shortfalls. If an issuer's reserves fall below the value of its outstanding tokens, it must notify the Fed and submit a remediation plan within 24 hours. Unless the issuer closes the gap or the Fed directs it to proceed with the plan, liquidation must begin by 5 p.m. on the next business day—a window the Fed says amounts to less than 48 hours in many cases.
The 392-page proposal uniquely permits issuers to continue minting new tokens during this rescue window. The Fed ties this allowance to the public nature of blockchains, reasoning that an abrupt halt in issuance would be visible on-chain and could alert token holders to the problem, potentially accelerating the very run the rules aim to prevent.
Reserve Requirements and Timing
The proposal requires reserve assets to equal or exceed outstanding tokens at all times. Issuers must record the fair value of reserves at least once daily at 5 p.m. in their supervising Federal Reserve Bank's time zone. Issuers operating with thin margins may need to perform this calculation multiple times per day.
Once liquidation begins, minting stops and redemption fees are prohibited. A separate rule for normal conditions requires honoring redemption requests within two business days.
The Math of Reserve Runs
The Fed illustrates the dynamics using a hypothetical example: a $100 million stablecoin backed by $95 million in reserves. As token holders redeem at par value, each remaining holder's backing declines. After $35 million in redemptions, $60 million in assets would remain against $65 million in tokens, leaving approximately $0.92 of backing per token. After $80 million in redemptions, backing would fall to $0.75 per token.
This structure creates an incentive for early redemptions, as the fastest redeemers exit at full par value while later holders absorb proportional losses. Forced liquidation is designed to push all holders toward the same pro-rata loss before accelerated redemptions deepen the shortfall.
The Visibility Trade-Off
Large stablecoins generate substantial daily issuance activity. Circle's data shows that USDC, with $74.6 billion in circulation as of September 21, issued $40.2 billion and redeemed $39 billion over the prior 30 days—a gross flow of $79.2 billion despite net circulation growth of only $1.2 billion. For a token with this daily rhythm, a sudden stop in minting would be plainly visible on-chain.
New token issuance during the rescue window can spread an existing reserve shortfall across a larger supply, temporarily improving per-token backing. However, closing the hole itself requires new capital, recovery of impaired assets, or a rebound in reserve values. The Fed has asked commenters whether issuance should be capped or prohibited the moment the 1:1 reserve threshold is breached.
Contrast With OCC Approach
The Office of the Comptroller of the Currency proposed a different approach in March. Under OCC rules, an issuer falling below minimum reserves must stop net new issuance immediately, with a narrow exception for moving tokens between ledgers. Mandatory liquidation would trigger only if the shortfall persisted for 15 consecutive business days, a period the OCC could extend. The Fed's rules govern issuers it supervises, while the OCC and state regulators oversee other issuers, meaning both approaches could operate in parallel.
Lessons From SVB Collapse
The Fed's December 2025 research on the March 2023 collapse of Silicon Valley Bank documents how stablecoin runs behave. Circle disclosed that $3.3 billion of USDC reserves, about 8 percent at the time, were trapped at the failed bank. Redemptions surged, primary redemption channels largely shut over the weekend as banking rails went offline, and USDC fell as low as $0.86 on secondary markets. Trading volume on those markets reached nearly $2 billion in a single hour on March 11.
The Fed's research found that shutting an issuer's redemption window does not stop the run—it shifts the venue. Holders keep selling on exchanges, so the run persists but moves to secondary markets. In the Fed's view, visible redemptions can prompt additional redemptions, while secondary-market trading can absorb selling that would otherwise hit the issuer as par redemptions and forced reserve sales.
Potential Run Scenarios
CoinGecko's survey of the 12 largest centralized exchanges found that 97.7 percent of stablecoin-denominated trading pairs use USDT or USDC. The total stablecoin market stands near $307.3 billion, with USDT at approximately $183.7 billion and USDC at $76.4 billion as of September 25.
Holders fleeing a distressed token could redeem directly for dollars, buy another stablecoin, purchase Bitcoin or other crypto assets, or sell into fiat. Each path affects different markets and leaves different signals: redemption volume and reserve coverage for direct redemptions; spreads on stablecoin pairs for inter-stablecoin flows; Bitcoin price differentials across stablecoin pairs for crypto purchases; and market depth and bid-ask spreads for fiat exits.
The GENIUS Act steers reserves toward Treasuries maturing within 93 days and qualifying repo arrangements. The Fed acknowledges that a large Treasury position could be difficult to sell in full without moving prices. An IMF model highlights the timing mismatch between stablecoin holders, who can redeem around the clock, and bond and repo markets, which close overnight and on weekends. A large redemption wave can drain cash buffers and force bond sales as soon as markets reopen.
Timing as Destiny
If an issuer closes its reserve gap within the first 24 hours, the episode could pass as a brief dislocation, with minting and redemption resuming normal operation. A breach that occurs late on a Friday, with redemptions and a secondary-market discount feeding each other before the 5 p.m. cutoff, would unfold differently. Each exit at par thins the backing for remaining holders, and the scramble spreads into exchange order books. The issuer's Treasury holdings would wait for Monday's open while its tokens trade all weekend.
The Fed has drafted these rules for a market where runs are visible in real time. Over the 60-day comment period, regulators will weigh that transparency against the speed they require from a rescue.
