The US cryptocurrency sector's primary legislative push, the Digital Asset Market Clarity Act, remains stalled due to disagreements over stablecoin yields, which have little bearing on the bill's core objective of regulating US crypto markets. Bankers have reignited the debate, arguing that the industry's reward programs pose a threat to bank deposits.
In response to a White House economic report downplaying the risks, the American Bankers Association asserts that the analysis was flawed, focusing on the wrong scenario. Instead of examining the consequences of banning stablecoin yields, it should have considered the implications of permitting such returns. According to ABA economists, 'The CEA paper underestimates the primary risk by asking the wrong question.' There is substantial evidence that prohibiting yield on payment stablecoins is a prudent safeguard, allowing stablecoins to evolve as a payment innovation rather than a risky substitute for insured bank deposits. This dispute, which was partially addressed in last year's Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, has effectively derailed Senate legislation for months.
Although lawmakers supporting the Clarity Act predict it may receive a Senate Banking Committee hearing by the end of the month, no session has been scheduled. Senators from both parties were swayed by bankers' arguments that depositors would abandon banks in favor of stablecoin yields that surpass bank interest rates.
As a result, lawmakers crafted a compromise that would ban yield on stablecoin holdings resembling deposit accounts and only permit rewards programs for activities similar to credit-card rewards. However, banks have not welcomed this compromise.
Senator Cynthia Lummis, chair of the Banking Committee's digital assets subcommittee, has emphasized the need for clarity, stating that 'America needs Clarity.' The prolonged debate makes it increasingly challenging to advance the Clarity Act through the Senate process, which could lead to a floor vote. While crypto insiders have been vocal about the conflict, bank representatives have been more reserved.
The bankers' latest arguments suggest that failing to intervene in stablecoin yields would enable stablecoin markets to rapidly expand from $300 million to as much as $2 trillion. 'In a larger market, yield is not a minor product feature; it is the mechanism that would accelerate migration out of bank deposits,' they argue. Furthermore, leading stablecoin issuers would likely deposit reserves in larger banks, rather than community banks, according to the ABA's assessment.