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

The newly proposed Digital Asset Market Clarity Act text, released on Friday, reveals that a compromise has been reached between U.S. Senators Thom Tillis and Angela Alsobrooks, which would prohibit stablecoin issuers from offering yield solely based on holding stablecoin reserves. The text maintains that depository institutions are crucial to the American economy and that stablecoin issuers offering similar services may hinder these institutions. However, the legislation does allow for rewards tied to real participation on crypto platforms and networks, which is similar to what the bank lobby had requested. The new text reads, 'No covered party shall, directly or indirectly, pay any form of interest on yield to a restricted recipient solely in connection with the holding of such restricted recipient's payment stablecoins, or on a payment stablecoin balance in a manner that is economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.' This restriction does not apply to incentives based on genuine activities or transactions that differ from yield generated by interest-bearing bank deposits. The legislation also includes anti-evasion language and directs the Treasury Department and Commodity Futures Trading Commission to launch a rulemaking within a year of the bill becoming law to clarify how and when crypto firms can offer yield. According to Corey Frayer, director of investor protection at the Consumer Federation of America, the rulemaking provision could give regulators latitude in defining what crypto companies can do with yield products. The text has been welcomed by the Digital Chamber, a trade association, which views it as an important step toward resolving one of the final issues standing between the Committee and a markup. Coinbase executives have also expressed satisfaction with the language, stating that it preserves activity-based rewards tied to real participation on crypto platforms and networks.