The US crypto industry's primary legislative effort, the Digital Asset Market Clarity Act, remains stalled due to a contentious issue surrounding stablecoin yield. Bankers have reignited the debate, asserting that the industry's reward programs jeopardize bank deposits. In response to a White House report downplaying the risks, the American Bankers Association argues that the economists misinterpreted the scenario.
Instead of examining the effects of a stablecoin yield ban, they should have considered the consequences of allowing such returns. The ABA contends that prohibiting yield on payment stablecoins is a necessary precaution to prevent them from becoming a risky substitute for insured bank deposits. This dispute has hindered the progress of the Clarity Act, which aims to regulate US crypto markets. Senators from both parties have been swayed by the bankers' concerns, leading to a proposed compromise that would ban yield on stablecoin holdings resembling deposit accounts.
However, the banks remain unsatisfied. The longer the debate persists, the more challenging it will be to pass the Clarity Act. The bankers warn that inaction on stablecoin yield could lead to rapid market growth, resulting in a significant migration of funds out of bank deposits.
They argue that even if leading stablecoin issuers deposit reserves in banks, these funds will likely go to larger institutions, bypassing community banks.