The US crypto industry's efforts to pass the Digital Asset Market Clarity Act have been hindered by a contentious issue surrounding stablecoin yields. Bankers have recently countered a White House economists' report, which downplayed the risks associated with stablecoin yields, by arguing that the report's analysis was based on the wrong premise. The American Bankers Association claims that the real concern lies in what would happen if stablecoin yields were allowed to continue, rather than if they were banned. According to the ABA, allowing stablecoin yields to persist would create a risky substitute for insured bank deposits, potentially leading to a significant migration of funds out of traditional banking institutions.
This disagreement has stalled the progress of the Clarity Act, which aims to regulate the US crypto market. The conflict has been ongoing, with lawmakers attempting to find a compromise that would address the concerns of both the banking and crypto industries.
The proposed compromise would ban yield on stablecoin holdings that resemble deposit accounts and only permit rewards programs for activity, similar to credit-card rewards. However, the banking industry remains unsatisfied with this proposal, and the debate continues to hinder the passage of the Clarity Act. As the debate drags on, the likelihood of the bill passing through the Senate process and reaching a floor vote becomes increasingly uncertain.
The banking industry argues that the absence of intervention on stablecoin yields would enable stablecoin markets to rapidly expand, potentially reaching $2 trillion, and that this growth would be driven by yield, which would accelerate the migration of funds out of bank deposits. Furthermore, the ABA suggests that even if leading stablecoin issuers were to deposit their reserves in banks, these deposits would likely go to larger institutions, rather than community banks.