A dollar token is a promise by an issuer
If a payment token is meant to stay worth one dollar, the central question is who must convert it back into that dollar. A blockchain records token balances and transfers. The backing assets and the banking route that pays out dollars sit in a separate financial system.
On September 24, 2026, the Federal Reserve released two proposals under the GENIUS Act. They were published in the Federal Register on September 29. As checked on October 7, they remain proposals, with comments due November 30, 2026. The detailed requirements described below would apply as proposed, rather than already being final rules.
The package concerns the Board’s jurisdiction, including certain issuers and banks. It is not a universal Fed approval for every dollar token. A regulated payment stablecoin is also different from a central-bank dollar or an insured bank deposit.
The cover’s vault is a simplified illustration of backing. Its gold bars should not be read as a list of eligible reserves, and the token symbol does not make the article an assessment of a particular issuer.
Follow a simplified mint, transfer, and redemption
Consider a hypothetical business eligible to use an issuer’s direct service. It sends $1,000 through the banking system and receives 1,000 dollar tokens after funding is accepted. Minting means creating those token units.
The business then sends 200 tokens to a supplier. On Ethereum, a signed transaction can instruct a contract to update token balances; Ethereum’s transaction documentation explains signatures, execution, and network fees. A token transfer need not move $200 between the issuer’s reserve bank accounts. The on-chain holder changed, while the backing remained off-chain.
If the supplier is also eligible for direct redemption, it follows the issuer’s payout process. In this simplified mint-and-burn model, 200 tokens are retired and $200 is paid through the banking system. Ignoring fees, 800 tokens remain outstanding and require $800 of backing.
The ledger in this example ends with 800 tokens and $800 of required backing. The transfer to the supplier changed the token holder, while redemption changed both the outstanding units and the reserve requirement. Actual access terms, procedures and fees remain issuer-specific.
Backing must be suitable, sufficient, and usable
The proposed reserve rule sets out permitted assets. Examples include dollar cash, eligible deposit claims, and Treasury securities with no more than 93 days remaining to maturity. Certain qualifying funds and Treasury-backed transactions also appear in the framework. Ordinary company shares or bitcoin do not qualify merely because their estimated value matches token liabilities.
The proposal would compare reserve assets’ fair value with the outstanding tokens’ promised value. A hypothetical million dollar tokens would not be fully backed by assets currently worth $990,000 merely because those assets once cost a million dollars.
It would also separate backing from other issuer assets and restrict its availability to unrelated creditors before tokens have been redeemed at par. That addresses ownership and creditor claims as well as arithmetic.
Then comes liquidity: the ability to turn backing into a payout. A security can have value while the issuer needs a functioning custodian, trading arrangement, and banking connection to use it. The draft would require issuers to demonstrate an operational ability to access and monetize reserves. “Assets exist” and “the customer has received dollars” remain different statements.
Redemption timing is measured in business days
The draft’s normal outer limit is two business days following the date of the redemption request. That is not two minutes or necessarily 48 elapsed hours. The proposal permits specified regulatory limitations and includes safe harbors for necessary compliance reviews and delays outside an issuer’s control.
It would require clear redemption procedures and disclosures about fees. It does not promise free cash-outs. Appropriate screening and onboarding remain relevant, and the Fed asks specific questions about retail access and possible fee limits.
For an exchange buyer, identify the available payout route before applying the draft’s redemption timetable: a market sale, an intermediary cash-out or direct issuer redemption. These are different transactions. Product terms and eligibility determine which one the holder can use, as the guide to stablecoin price and redemption routes explains.
An exchange quote can diverge from one dollar even while the issuer promises par redemption. In a hypothetical market at 98 cents, a participant able to redeem at a dollar has an incentive to buy and redeem. That opportunity depends on fees, access, timing, and confidence. The price does not mechanically follow the promise at every instant.
Reserves and capital solve different problems
An issuer with assets matching all outstanding tokens can still face operating losses. Consider an illustrative security incident with expensive recovery costs. If the business pays those costs from token backing, the reserves could become inadequate.
Capital is a separate loss-absorbing cushion. The Fed proposes standardized requirements for operational risks and certain credit exposures. That cushion is neither the reserve pool nor deposit insurance.
The proposal also addresses custodial property, separation of customer assets, technology risks, and monthly reserve reporting with examination by a registered public accounting firm. A public token ledger helps track digital units. It cannot independently inspect legal ownership or availability of an off-chain bank balance.
The GENIUS Act itself prohibits representing payment stablecoins as government-guaranteed or federally insured. Issuer supervision does not erase wallet, intermediary, or payout risks. Healthy reserves would not prevent a user from authorizing a fraudulent transfer.
The bank application is a separate proposal
The second notice concerns insured state member banks seeking approval for a subsidiary to issue payment stablecoins. The parent applies; the subsidiary issues. That distinction does not transform the token into an insured deposit.
The proposed application would explain the business plan, management, funding, reserve arrangements, relevant third parties, and financial projections for the first three years. Customer agreements and policies would help show how issuance, reconciliation, and redemption are intended to work.
A 120-day decision clock is tied to a substantially complete application. Filing an incomplete plan does not start an unconditional countdown. The Act provides deemed approval if the Board does not decide on a complete application in time; the draft explains circumstances in which material changes would restart the clock with a new submission date.
Read the promise all the way through
A credible dollar claim needs more than an attractive token balance. Identify the issuer, the backing, the custodian, the redemption terms, and the route available to the holder. Then distinguish the legal framework from draft implementation details that may change before finalization.
For the broader comparison of designs, see stablecoin backing, redemption, and risk. The Fed proposals make those questions more concrete. They do not remove the need to ask them for the actual token and service being used.
