The US crypto industry's main legislative effort, the Digital Asset Market Clarity Act, remains stalled due to disagreements over stablecoin yields. Bankers have reignited the debate, warning that the industry's reward programs pose a threat to bank deposits. In response to a White House report downplaying the risks, the American Bankers Association argues that the economists analyzed the wrong scenario.
Instead of considering a ban on stablecoin yields, they should have examined the consequences of allowing such returns. The ABA economists claim that the White House report 'minimizes the core risk by starting from the wrong question.' They believe that prohibiting yield for payment stablecoins is a necessary safeguard, allowing stablecoins to develop as a payments innovation rather than a risky substitute for insured bank deposits.
This dispute has derailed Senate legislation for months, with lawmakers predicting a necessary hearing in the Senate Banking Committee by the end of the month. However, the session has not been scheduled yet. Senators from both parties have been swayed by the bankers' arguments that their depositors would abandon them in favor of higher stablecoin yields.
As a result, lawmakers have proposed a compromise that would ban yield on stablecoin holdings resembling deposit accounts and only permit rewards programs for activity. Nevertheless, the banks have not endorsed this compromise. The debate's prolongation makes it increasingly challenging to pass the Clarity Act through the Senate process.
While crypto insiders have been vocal about the clash, bank representatives have been more restrained. The bankers' latest arguments suggest that failing to intervene in stablecoin yields now would enable stablecoin markets to expand rapidly from $300 million to $2 trillion. They contend that 'in a larger market, yield is not a minor product feature; it is the mechanism that would accelerate migration out of bank deposits.' Furthermore, leading stablecoin issuers would likely deposit reserves in larger banks, rather than community banks, according to the ABA's reasoning.