Consensys warns the FDIC’s proposal could overextend the limits of the GENIUS Act

Consensys has urged the Federal Deposit Insurance Corporation to review parts of its proposed stablecoin framework, saying several provisions tied to the GENIUS Act could unintentionally limit common distribution models and access to decentralized financial instruments.

According to a filing released by the blockchain software company, the response is part of a coordinated series of submissions to U.S. regulators that also included comments sent to the Office of the Comptroller of the Currency on May 1 and separate submissions from the Treasury Department that include federal oversight bodies.

Consensys said the three filings together define its position on how payment stablecoins should be regulated under a new federal framework expected to govern the sector over the next decade.

At issue are several provisions contained in the FDIC’s proposed rule that implements the GENIUS Act, the stablecoin law signed earlier this year that introduces conditions for deposit, redemption, custody, and capitalization of permitted issuers.

Back in April, the FDIC voted to release a 191-page proposal that requires covered stablecoin issuers to maintain capital 1:1 using cash or highly liquid assets such as short-term US Treasuries. The proposal also introduced mandatory redemption periods, audit obligations for large issuers, and capital and liquidity requirements. Under the draft framework, stablecoin holders themselves will not receive federal deposit insurance protection even if the deposits are held in insured banks.

Consensys reverses yield limits

In its latest filing, Consensys said the FDIC’s definition of stablecoin payout limits exceeds what lawmakers intended when they wrote the GENIUS Act.

The company argued that the proposal would sweep away normal commercial arrangements involving distribution agreements with third parties.

In the filing, Consensys said the “proposed proposal goes beyond the scope of capturing traditional commercial distribution arrangements, including traditional product licensing.”

The company also pointed to the legislative history surrounding the GENIUS Act, saying lawmakers had discussed expanding the restrictions to outside groups before eventually abandoning those amendments.

Another phase of the filing is focused on decentralized financial access through self-storage wallet software. Consensys asserted that the GENIUS Act preserved the protection of non-limited instruments and wallet developers should not be considered intermediaries when users interact independently with DeFi protocols.

According to the company, a user who sends stablecoins to a DeFi application through a custodial wallet does not receive any profit from the issuer itself. Instead, any refunds are made according to the protocol that is accessed.

Elsewhere in the submission, Consensys recommended that regulators avoid automatic enforcement actions tied to bookings, redemptions, or cash shortages. The company warned that mandatory fines could create what it described as “cliff-edge dynamics” that could hurt stablecoin holders in times of stress.

Technical specifications also attracted attention in the filing. Consensys called for regulators to use technology-neutral language when defining distributed ledgers, smart contracts, and cross-chain stablecoin functionality.

Meanwhile, federal regulators continued to draft the GENIUS Act ahead of official deadlines later this year. The FDIC’s previous guidance is closely aligned with a February proposal from the OCC, which similarly required full reserve support and approval mechanisms for stablecoin issuers operating under federal supervision.