CryptoSlate
The Federal Reserve has proposed requiring payment stablecoin issuers it supervises to redeem tokens within two business days of a request under normal conditions. But at least $76 billion of reserve-backed stablecoins was held at centralized exchanges in a July 28 snapshot, where customers may first need the venue to release or convert their balances.
Why it matters
The proposal would require covered issuers to disclose redemption procedures and accept requests for at least one token, subject to screening and onboarding. The Board could extend the deadline for safety, financial stability or the public interest, and the proposal includes limited safe harbors for required checks or circumstances outside an issuer’s control. The rules remain open to public comment.
The issuer deadline is not a guaranteed two-day exit for every exchange customer. A customer’s instruction to sell, convert or withdraw is a separate transaction governed by the venue’s terms. Circle says direct USDC redemption outside the European Economic Area requires an eligible Circle Mint account. Coinbase’s US agreement says it is not obliged to repurchase customers’ USDC, while pointing them to Circle for direct redemption under Circle’s terms. Tether requires verified customers for direct redemption and lists a $100,000 minimum.
Market impact
The Andersen Institute for Finance and Economics identified $76 billion across 12 reserve-backed dollar stablecoins at exchanges, including $61.5 billion of USDT and $10.1 billion of USDC. Researchers call the total a lower bound because some exchange wallets are unidentified. The figure spans different issuers and regulatory categories, so it cannot be treated as entirely covered by the Fed proposal.
A March 2023 USDC stress episode also shows why venue balances are not a direct measure of customer redemption activity. Exchanges held 15.2% of USDC supply before the episode and accounted for 40% of its subsequent decline. From March 10 to 13, USDC supply fell $2.7 billion while identified exchange balances rose $600 million; after March 13, supply fell another $8.1 billion as exchange balances dropped $4.9 billion.
Frequently asked questions
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Which stablecoin issuers would face the Fed's proposed two-day redemption limit?
The proposal applies to payment stablecoin issuers supervised by the Federal Reserve. It does not automatically cover every issuer or every stablecoin.
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Does the proposal guarantee exchange customers can withdraw stablecoins within two business days?
No. The proposed deadline concerns covered issuers' redemptions. An exchange customer's request to sell, convert or withdraw is a separate transaction governed by the venue's terms.
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How much USDT and USDC did researchers identify at centralized exchanges?
The July 28 snapshot identified $61.5 billion of USDT and $10.1 billion of USDC at exchanges, within at least $76 billion across 12 reserve-backed dollar stablecoins.
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What conditions do Circle and Tether set for direct redemption?
Circle says eligible holders outside the European Economic Area need a Circle Mint account for direct USDC redemption. Tether requires customer verification and lists a $100,000 minimum.
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What did exchange balances do during the March 2023 USDC stress episode?
From March 10 to 13, USDC supply fell $2.7 billion while identified exchange balances rose $600 million. After March 13, supply fell another $8.1 billion and exchange balances dropped $4.9 billion.
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