The U.S. crypto industry's key legislative push, the Digital Asset Market Clarity Act, remains stalled due to disagreements over stablecoin yields. Bankers have reignited the debate, arguing that the rewards programs associated with stablecoins pose a threat to traditional bank deposits.
In response to a White House report downplaying these concerns, the American Bankers Association claims that the economists are focusing on the wrong scenario. Instead of examining the effects of banning stablecoin yields, they should be considering the potential consequences of allowing these yields to continue. The ABA economists argue that prohibiting yield on payment stablecoins is a necessary precaution to prevent them from becoming a risky alternative to insured bank deposits. This dispute has hindered the progress of the Senate legislation for months, despite predictions that it could be heard by the Senate Banking Committee soon.
Lawmakers from both parties have been influenced by the bankers' concerns that depositors might abandon traditional banks in favor of higher-yielding stablecoins. As a result, a compromise was proposed to ban yield on stablecoin holdings that resemble deposit accounts and only permit rewards programs for specific activities.
However, the banking industry has not welcomed this compromise. The debate's prolongation makes it increasingly challenging to advance the Clarity Act through the Senate. While crypto enthusiasts have been vocal about the issue, bank representatives have been more subdued.
The bankers' latest arguments suggest that failing to intervene in stablecoin yields could lead to rapid market growth, potentially reaching $2 trillion, and accelerate the migration of funds out of traditional bank deposits. According to the ABA, leading stablecoin issuers would likely deposit their reserves in larger banks, rather than community banks.