GENIUS Act Compliance Guide

The GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins Act) prohibits stablecoin issuers from paying interest or yield solely in connection with holding the tokens. However, it explicitly allows third-party distribution partners to offer rewards tied to customer balances.

FTH Protocol implements a compliant third-party rewards model.

1. Separation of Entities

┌─────────────────────────────────────┐
│   FTH Stablecoin Issuer (FTH)      │
│   - Issues FTH stablecoin           │
│   - Does NOT pay interest           │
│   - Maintains dollar peg            │
└─────────────────────────────────────┘
            │
            │ No direct yield
            │
┌─────────────────────────────────────┐
│   Future Tech Holdings (3rd Party)  │
│   - Operates staking platform       │
│   - Invests in RWA independently    │
│   - Distributes yield to stakers    │
└─────────────────────────────────────┘

2. Third-Party Rewards Model

Key Principle: Yield comes from independent RWA investments, not from the stablecoin issuer.

How It Works

1. Users Stake FTH Tokens

   • Users deposit FTH stablecoins into Future Tech Holdings' staking contract
   • Users receive stFTH receipt tokens (1:1 initially)

2. Independent RWA Investment

   • Future Tech Holdings (separate entity) invests in:
     • US Treasury Bonds
     • Government Securities
     • Money Market Funds
   • These investments are independent of FTH stablecoin operations

3. Yield Distribution

   • RWA investments generate 4-6% annual yield
   • Yield is distributed to stFTH holders via rebase mechanism
   • stFTH tokens automatically increase in value relative to FTH

4. Unstaking

   • Users unstake stFTH → receive FTH + accrued yield
   • Yield comes from RWA profits, not from holding FTH itself

What is Prohibited

❌ Direct Issuer Yield

• Stablecoin issuer cannot pay interest for simply holding tokens
• No interest-bearing stablecoins directly from issuer
• Reserves cannot be used to generate yield for holders

What is Allowed

✅ Third-Party Rewards

• Independent platforms can offer rewards
• Rewards tied to staking/deposit activities (not passive holding)
• Yield from separate investment activities

✅ Receipt Token Mechanism

• Exchange FTH for stFTH (derivative token)
• stFTH represents both stake + yield entitlement
• Clear separation from base stablecoin

Smart Contract Architecture

// ❌ PROHIBITED: Direct yield on FTH token
contract FTHStablecoin {
    // No yield-bearing functions
    // No interest accrual on balances
}

// ✅ ALLOWED: Third-party staking contract
contract FTHStaking {
    // Separate contract operated by Future Tech Holdings
    // Accepts FTH deposits → issues stFTH receipts
    // Yield sourced from RWA investments
}

Transaction Flow

User Perspective:
1. Stake 1,000 FTH → Receive 1,000 stFTH
2. Wait 1 year (RWA earns 5% yield)
3. stFTH rebases: 1 stFTH now worth 1.05 FTH
4. Unstake 1,000 stFTH → Receive 1,050 FTH

Legal Interpretation:
- User did NOT earn yield from "holding FTH"
- User earned yield from "staking with third-party platform"
- Yield sourced from independent RWA investments
- Complies with GENIUS Act third-party exception

Entity Separation

• FTH stablecoin issued by separate entity
• Staking platform operated by Future Tech Holdings
• Clear legal separation in documentation
• Separate governance structures

Staking Requirements

• Active staking required (not passive holding)
• Receipt token mechanism (stFTH)
• Unstaking cooldown period (7 days)
• Clear terms distinguishing stake from hold

RWA Investment

• Independent investment portfolio
• Yield sourced from real-world assets
• Transparent reporting of RWA holdings
• Audited RWA yield calculations

Disclosure Requirements

• Clear risk disclosures
• Explanation of third-party relationship
• RWA investment documentation
• Yield source transparency

vs. Prohibited Models

Similar Compliant Models

• Coinbase USD (USDC) Rewards: Coinbase offers rewards to users, not Circle (issuer)
• Custody Account Interest: Banks pay interest on deposits, not the USD issuer
• DeFi Lending: Independent protocols offer yield on stablecoin deposits

All transactions maintain compliance documentation:

1. Staking Events

   • Timestamp of stake initiation
   • Amount staked
   • Receipt token issuance

2. RWA Investment Records

   • Investment type and amount
   • Yield rate
   • Maturity date
   • Third-party verification

3. Yield Distribution

   • Source of yield (specific RWA)
   • Calculation methodology
   • Distribution timestamp
   • Rebase factor applied

Users must acknowledge:

1. Third-Party Risk: Yield depends on Future Tech Holdings' RWA management
2. Market Risk: RWA returns fluctuate (4-6% target, not guaranteed)
3. Liquidity Risk: 7-day unstaking period
4. Regulatory Risk: Future regulation may impact operations

User-Facing

• Terms of Service clearly state third-party relationship
• Staking agreement separate from stablecoin terms
• RWA yield source explanation
• Risk disclosures prominently displayed

Internal

• Legal opinion on GENIUS Act compliance
• Audited financial statements
• RWA custodian agreements
• Regular compliance reviews

Monthly Reports

• Total value locked (TVL)
• RWA portfolio composition
• Yield distribution history
• Staker demographics

Quarterly Audits

• Smart contract audits
• Financial statement audits
• Compliance audits
• RWA verification

This compliance framework is reviewed quarterly and updated as:

• GENIUS Act implementation progresses
• Regulatory guidance emerges
• Industry best practices evolve

Last Updated: January 2026
Next Review: April 2026
Compliance Officer: Future Tech Holdings Legal Team

For compliance questions:

• Email: compliance@fth-protocol.io
• Legal: legal@fth-protocol.io

• GENIUS Act (2025)
• Stablecoin Regulatory Framework
• SEC Guidance on Third-Party Rewards
• OCC Interpretive Letters on Stablecoin Yield