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

A newly proposed section of the Digital Asset Market Clarity Act, released on Friday, outlines that stablecoin yield would be prohibited unless it is based on bona fide transactions or activities. This approach is similar to what has been discussed throughout the year. The new text, resulting from a compromise between U.S. Senators Thom Tillis and Angela Alsobrooks, would prevent stablecoin issuers from offering yield solely based on holding stablecoin reserves, as this may hinder the services provided by depository institutions. The agreement is expected to pave the way for a Senate Banking Committee hearing, which could advance the legislation. However, there are still several unresolved negotiation points. The text allows for rewards tied to real participation on crypto platforms and networks, but restricts incentives that are economically or functionally equivalent to interest-bearing bank deposits. This means that crypto firms may need to restructure their yield offerings to focus on 'buy and use' systems rather than 'buy and hold'. The rulemaking provisions in the text give regulators the flexibility to define how crypto companies can offer yield products, considering factors such as balance, duration, and tenure. The Consumer Federation of America's director of investor protection, Corey Frayer, noted 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 companies from circumventing the regulations. After months of negotiation, Senators Alsobrooks and Tillis have reached an agreement that blocks crypto firms from offering yield similar to deposit interest but permits rewards programs that do not rival banks' core products. The Digital Chamber CEO, Cody Carbone, welcomed the public release of the stablecoin yield language, stating that it is an important step towards resolving one of the final issues standing in the way of the Committee's markup. Carbone added that the trade association will continue to advocate for the power of rewards to drive consumer utility, competition, and innovation across the digital asset ecosystem.