New Legislation Allows Crypto Firms to Offer Stablecoin Rewards with Certain Restrictions

A newly proposed section of the Digital Asset Market Clarity Act, released on Friday, reveals that an agreement has been reached to ban stablecoin issuers from offering yield solely based on holding stablecoin reserves. This compromise, negotiated by U.S. Senators Thom Tillis and Angela Alsobrooks, aims to prevent stablecoin issuers from providing services that could undermine the role of traditional banks in the American economy. However, the new text does allow for rewards tied to real participation on crypto platforms and networks, which is in line with the banking lobby's requests. The language of the 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. Nevertheless, incentives based on genuine activities or transactions are permitted, similar to rewards offered by financial firms for credit card activity. This development is expected to require digital asset firms to restructure their yield offerings, shifting from a 'buy and hold' system to a 'buy and use' approach. The rulemaking provisions in the text grant regulators the authority to define how crypto firms can offer yield, with factors such as balance, duration, and tenure considered in rewards calculations. The Consumer Federation of America's director of investor protection, Corey Frayer, notes that the wording of the rulemaking section could allow crypto firms to conduct activities and then pay returns to customers. The text also includes anti-evasion language to prevent firms from circumventing the regulations. The release of this text is seen as a significant step forward in the legislation's progress, with the Digital Chamber trade association welcoming the development as an important step toward resolving one of the final issues standing in the way of a Senate Banking Committee hearing.