CTF Written Submission
Narrowing the Section 404 Prohibition
May 7, 2026
- The report establishes that routing payment‑stablecoin balances into 1940 Act–registered money market funds is legally outside §404’s prohibition, because NAV‑based MMF shares are securities, not deposit‑equivalents, and §404 governs only yield on payment stablecoins.
- It proposes a threshold NAV pass‑through test—requiring user‑borne downside risk, NAV‑tracking pricing, and 1099‑DIV tax treatment—under which any failure creates an irrebuttable presumption of prohibited passive yield.
- It provides a six‑factor, on‑chain‑auditable framework for agencies to distinguish bona fide user‑initiated activity from disguised yield, anchoring “routing” within expected rulemaking categories (transfers and market‑making) rather than creating new statutory exceptions.
Last Reviewed or Updated: May 7, 2026