Recent Updates in Digital Assets Policy

Over the past month, federal agencies have been busy on the digital assets front, taking several regulatory actions that will shape how digital assets are classified and regulated going forward. On March 23, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) published joint interpretive guidance establishing the first formal token taxonomy for digital assets. At the same time, although the administration and members of Congress are seeking to pass digital asset market structure legislation, that effort has been complicated by concerns over the stablecoin yield provision in the GENIUS Act (P.L. 119-27), which remains under negotiation. As part of that debate, the White House Council of Economic Advisers (CEA) released a report analyzing the impact of the GENIUS Act’s stablecoin yield prohibition on bank lending. And throughout early April, the Treasury Department, the Federal Deposit Insurance Corporation (FDIC) and the Financial Crimes Enforcement Network (FinCEN) each issued proposed rules implementing the GENIUS Act ahead of its July 2026 deadline for final regulations.

Token Taxonomy

On March 23, the SEC and CFTC jointly published a 68-page interpretive guidance document establishing the first formal classification framework for crypto assets under federal law. The release followed a memorandum of understanding signed by the two agencies on March 11. The interpretation establishes a token taxonomy classifying five types of digital assets. It also addresses how a digital asset that is not itself a security may become subject to, or cease to be subject to, an investment contract, and clarifies the application of federal securities laws to airdrops, protocol mining, protocol staking and the wrapping of non-security digital assets.

Classification of Digital Assets

The taxonomy groups digital assets into five categories:

1. Digital Commodities: A digital commodity is a digital asset whose value is “intrinsically linked to and derives its value from the programmatic operation of a crypto system that is functional, as well as supply and demand dynamics, rather than from the expectation of profits from the essential managerial efforts of others.” The taxonomy explicitly names 16 tokens as digital commodities, including Bitcoin and Ethereum. In the taxonomy, a digital commodity does not fall under the definition of a security.
2. Digital Collectibles: A digital collectible is a digital asset “that is designed to be collected and/or used and may represent or convey rights to artwork, music, videos, trading cards, in-game items, or digital representations or references to internet memes, characters, current events, or trends, among other things.” In the taxonomy, a digital collectible does not fall under the definition of a security.
3. Digital Tool: A digital tool is a digital asset that “performs a practical function, such as a membership, ticket, credential, title instrument, or identity badge.” In the taxonomy, a digital tool does not fall under the definition of a security.
4. Stablecoin: A stablecoin is a digital asset “that is designed to maintain a stable value relative to a reference asset like the U.S. dollar.” The taxonomy states that payment stablecoins will not be considered securities once the GENIUS Act takes effect; however, other stablecoins may meet the definition of a security.
5. Digital Securities: A digital security “is a financial instrument enumerated in the definition of a ‘security’ that is formatted as or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks.” In the taxonomy, a digital security falls under the definition of a security and is thus applicable to the same SEC rules and regulations as a traditional security.

While the token taxonomy is only interpretive guidance, the SEC is expected to issue a more in-depth, formal rulemaking in the coming months that will further clarify the regulatory treatment of digital assets. In parallel, Congress is still working on advancing the CLARITY Act (H.R. 3633), which passed the House in July 2025 by a bipartisan 294-134 vote and advanced out of the Senate Agriculture Committee in January 2026 but has not yet passed out of the Senate Banking Committee after a canceled markup in January. The legislation remains in limbo due to a dispute over a provision in the GENIUS Act that allows digital asset exchanges and other intermediaries to offer yield or rewards to customers for the placement of payment stablecoins.

CEA Report on Stablecoin Yield

Since the Senate Banking Committee postponed its CLARITY Act markup in January, the Council of Advisors for Digital Assets has convened three meetings between digital asset industry leaders and bank trade associations to address the stablecoin yield issue, which has slowed the momentum of broader market structure legislation. In an attempt to help inform the discussion, the White House CEA released a report on April 8 analyzing the effects of section 4(a)(11) of the GENIUS Act—the provision that prohibits stablecoin issuers, but not digital asset intermediaries, from offering yield or interest to stablecoin holders. The report explores the potential impact on lending, with a focus on community financial institutions. Under the GENIUS Act, permitted payment stablecoin issuers (PPSIs) are required to hold reserves for the stablecoins they issue at a one-to-one ratio in cash or cash equivalents. According to the report, there are three ways that PPSIs can hold their reserves: (1) the PPSI can purchase treasuries with the reserves, which would result in no change in aggregate deposits in the banking system because the seller of the treasury will likely deposit the proceeds in a bank; (2) the PPSI can deposit the reserves in a banks, which results in no change in total bank deposits but would likely restrict lending because banks would not be able to lend against this deposit since it is a stablecoin reserve; or (3) the PPSI can invest in other allocations such as money market funds, which would result in a net loss of banking deposits, but this is described as a “feature of the broader financial system and not unique to stablecoins” in the report.

Findings

The report concludes that eliminating stablecoin yield would not meaningfully erode bank deposits or constrain lending. The CEA found that banning stablecoin yield would increase bank lending by $2.1 billion, or roughly 0.02% of total loans outstanding, while resulting in a net welfare cost of approximately $800 million in lost benefits for consumers. Additionally, the report concludes that a majority of the additional lending that would occur due to the stablecoin yield prohibition would be conducted by large banks, with banks with over $10 billion in assets expected to comprise 76% of additional lending. The report models out various assumptions for how the stablecoin yield prohibition will affect the lending market. It shows that under the most dramatic assumptions, if the stablecoin market were to increase sixfold to $1.8 trillion, there would be only a $531 billion increase in lending, which represents a 4.4% increase in total bank lending. Additionally, under this scenario, community bank lending would only increase by $129 billion, or a 6.7% increase in lending for community banks. The report details that, while there are concerns over stablecoin yield, the risk of mass deposit flight is “quantitatively small.”

Industry Response and Implications

The report has drawn criticism from the banking industry, with trade groups arguing that it addresses the wrong question. Rather than focusing on whether prohibiting stablecoin yield would affect traditional lending, critics contend the more important issue is whether the current statutory text of the GENIUS Act, combined with the ability of digital asset intermediaries to pass through yield-like rewards, could accelerate deposit migration out of bank accounts. The CEA report acknowledges that while the law places a prohibition on PPSIs, it does not restrict intermediaries, such as digital asset exchanges. It also cites a report from Andrew Nigrinis that projects much larger effects under scenarios in which stablecoins can offer yield, including substantial bank deposit contraction and roughly $1.5 trillion in reduced lending capacity. Critics have further argued that the report does not adequately address how large retailers and other nonfinancial firms could use stablecoin rewards on balances and purchases to further draw deposits from banks.

Recent GENIUS Act Proposed Rules

Amid the debate over stablecoin yield, federal regulators have issued multiple proposed rules in recent weeks to implement the GENIUS Act. On April 3, the Treasury Department released its first proposed rule implementing the law. The proposed rule establishes principles for determining when a state-level regulatory regime qualifies as “substantially similar” to the federal framework. On April 10, the FDIC issued a proposed rule establishing a framework for FDIC-supervised PPSIs, including requirements related to reserve assets, redemption, capital and risk management. Finally, on April 10, FinCEN and the Office of Foreign Assets Control (OFAC) jointly proposed a rule that would treat permitted payment stablecoin issuers as financial institutions under the Bank Secrecy Act, subjecting them to comprehensive anti-money laundering and sanctions compliance requirements. These proposals build on other recent implementation efforts, including the NCUA’s registration proposal, for which comments closed on April 12, and the OCC’s proposal, for which comments are due by May 1.

Treasury Department Proposed Rule

The Treasury Department’s notice of proposed rulemaking (NPRM) establishes principles for determining when a state stablecoin regulatory framework can be qualified as substantially similar to a state framework. Under the GENIUS Act, nonbank stablecoin issuers with $10 billion or less in outstanding stablecoins may opt for state-level oversight rather than federal supervision, provided the state regime passes the Treasury Department’s substantial similarity test and receives unanimous approval from the Stablecoin Certification Review Committee. The Treasury Department’s proposed rule divides state requirements into two categories:

1. Uniform Requirements: These are rigid requirements that every state that develops a payment stablecoin framework must have. These include things like minimum reserve requirements, the rehypothecation and yield prohibitions and Bank Secrecy Act and anti-money laundering (BSA/AML) compliance.
   
2. State-Calibrated Requirements: These are rules that states might implement but have more flexibility in the way they can be adopted. These include things like additional reserve assets, monthly CEO/CFO certification of accuracy of reserve report and discretionary limitations on timely redemptions.

Comments on the proposed rule are due by June 2.

FDIC Proposed Rule

The FDIC’s NPRM establishes a framework for establishing a prudential framework for FDIC-supervised PPSIs. The proposed rule includes requirements for reserve assets, redemption, capital, risk management and custodial and safekeeping services. This NPRM follows the agency’s December 2025 proposal on application procedures for insured depository institutions seeking to issue payment stablecoins through a subsidiary. The NPRM establishes that deposits held as reserves backing payment stablecoins would not be insured on a pass-through basis to stablecoin holders, meaning stablecoins will not have FDIC deposit insurance. At the same time, the proposal clarifies that tokenized deposits that satisfy the statutory definition of a “deposit” would be treated no differently than traditional deposits under the Federal Deposit Insurance Act. The rule also states that the FDIC will establish criteria for determining whether a stablecoin issuer has violated the GENIUS Act’s yield payment prohibition. The FDIC is seeking feedback on 144 specific questions covering permissible and prohibited activities, capital requirements, the yield prohibition and the approach to pass-through insurance. Comments on the proposed rule are due by June 9.

FinCEN/OFAC Proposed Rule

FinCEN and OFAC’s joint proposed rule would treat PPSIs as financial institutions under the Bank Secrecy Act and require comprehensive BSA/AML programs and sanctions compliance programs. Key requirements include customer identification and due diligence programs, suspicious activity reporting for transactions above $5,000, transaction monitoring capabilities and the technical capability to block, freeze or reject illicit transactions on their networks. The rule distinguishes between “primary market” activity, where a PPSI interacts directly with a user, and “secondary market” activity, where payment stablecoin transactions do not directly involve the PPSI as a party beyond a smart contract. Comments on the proposed rule are due by June 9, 2026.

Next Steps

Congress and the agencies are moving on two parallel tracks on digital assets. On Capitol Hill, lawmakers are attempting to advance digital asset market structure legislation, but that effort has been slowed by the dispute over stablecoin yield that grew out of the GENIUS Act.

Even if the digital asset and banking industries are able to reach agreement, the legislation would still need the support of more than a handful of Senate Democrats to clear the 60-vote threshold. Other sticking points remain as well, including congressional and presidential ethics, decentralized finance (DeFi), and token classification. The path forward is likely to become even more difficult as the midterm elections draw closer.

At the same time, federal agencies are moving ahead with implementation of the GENIUS Act’s stablecoin provisions, while the SEC and CFTC are using their existing authorities to provide additional clarity to market participants.

With multiple GENIUS Act proposed rule comment periods closing in the coming weeks, stakeholders face a narrow window to provide input on the proposed rules. Stakeholders working to offer stablecoins in accordance with the GENIUS Act also continue to identify opportunities and challenges as a result of the new law. The Brownstein Financial Services and Government Relations teams are ready to assist with drafting comments, compliance assessments and outreach related to these developments.

---

THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING NEW DIGITAL ASSET POLICY. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.