Federal Reserve Proposes Two-Day Redemption Limit for Stablecoin Issuers

The Federal Reserve has introduced a proposal that would mandate a general two-business-day window for stablecoin issuers under its supervision to fulfill redemption requests. The rule, which was announced on Sept. 24 and published in the Federal Register on Sept. 29, aims to standardize the redemption process for Board-supervised payment stablecoin issuers.

Under the proposed section 247.12, issuers would be required to disclose their redemption procedures and accept requests for at least one token, provided the customer meets onboarding and screening requirements. The Board retains the authority to extend this timeframe in the interest of financial stability or public safety, and the proposal includes safe harbors for delays caused by circumstances outside an issuer's control or necessary customer checks.

The practical application of these rules remains complex, particularly for users holding stablecoins on centralized exchanges. A July 28 snapshot from the Andersen Institute for Finance and Economics identified $76 billion worth of 12 reserve-backed dollar stablecoins held at exchanges. Researchers noted this figure is a lower-bound estimate, as some exchange wallets could not be identified.

The distinction between an issuer's obligations and an exchange's terms is significant. For example, Coinbase’s user agreement states that while customers own the balance of their USDC wallets, the exchange is not obligated to repurchase the tokens for dollars. Instead, Coinbase directs customers to Circle for direct redemption, which requires an eligible Circle Mint account. Tether similarly requires verified customers and maintains a $100,000 minimum for direct redemptions.

The Andersen Institute data also highlighted how exchange balances shifted during the March 2023 USDC stress episode. While exchanges held 15.2% of the total USDC supply on March 9, they accounted for 40% of the subsequent supply decline. Between March 10 and 13, USDC supply dropped by $2.7 billion, while identified exchange balances actually increased by $600 million. Following March 13, both total supply and exchange balances saw further declines.

The proposal is currently open for public comment. Because the Andersen snapshot includes assets like USDT and USDC, which have varying issuer policies and regulatory statuses, analysts suggest that issuer-by-issuer analysis is necessary to understand how the proposed rules would interact with the broader market.