New Legislation Allows Crypto Firms to Offer Stablecoin Rewards Under Certain Conditions

A newly proposed section of the Digital Asset Market Clarity Act, unveiled on Friday, prohibits stablecoin issuers from providing yield solely based on holding stablecoin reserves. This move aims to protect traditional banking institutions, which are deemed essential to the US economy. However, the legislation does allow for rewards tied to actual participation and transactions on crypto platforms, similar to incentives offered by financial firms for credit card activity. The restriction applies to loyalty programs and other similar efforts. The new text states that no covered party can pay interest on yield to a restricted recipient solely for holding payment stablecoins or in a manner equivalent to interest-bearing bank deposits. Incentives based on genuine activities or transactions are exempt from this restriction. The rulemaking provisions in the text direct the Treasury Department and Commodity Futures Trading Commission to launch a rulemaking process within a year of the bill becoming law, which will clarify how and when crypto firms can offer yield products. This provision may give regulators flexibility in defining what crypto companies can do with yield products, allowing them to consider factors such as balance, duration, and tenure in rewards calculations. The text also includes anti-evasion language, and lawmakers have been negotiating the details for several months. The Digital Chamber, a trade association, welcomes the public release of the stablecoin yield language, seeing it as a significant step toward resolving one of the final issues standing in the way of a Senate Banking Committee markup.