New Legislation Allows Crypto Firms to Offer Stablecoin Rewards While Protecting Bank Yields

A newly unveiled legislative agreement aims to regulate the contentious issue of stablecoin yields within the crypto market, introducing a framework that prohibits stablecoin issuers from offering yields based solely on holding stablecoin reserves. This approach is designed to safeguard the traditional banking sector, which provides essential financial services to the US economy. The proposed Digital Asset Market Clarity Act text, released by US Senators Thom Tillis and Angela Alsobrooks, would ban stablecoin issuers from offering yield-based services that mimic those of depository institutions, as this could potentially undermine the banking system. However, the legislation does allow for rewards programs tied to genuine activities and transactions on crypto platforms, which is similar to the rewards offered by financial firms for credit card usage. The new text stipulates that no covered party can pay interest or yield to a restricted recipient solely for holding payment stablecoins or in a manner equivalent to interest-bearing bank deposits. Nevertheless, incentives based on legitimate activities or transactions are permissible, providing crypto firms with the flexibility to design innovative rewards programs. According to industry insiders, this could lead to a shift from 'buy and hold' systems to 'buy and use' models, where customers are incentivized to engage in transactions rather than simply holding stablecoins. The legislation also directs the Treasury Department and the Commodity Futures Trading Commission to establish clear rules for crypto firms offering yield products within a year of the bill becoming law, giving regulators significant latitude in defining the parameters for these products. The rulemaking provision could enable crypto firms to conduct activities and pay returns to customers, taking into account factors such as balance, duration, and tenure in rewards calculations. Furthermore, the text includes anti-evasion language to prevent crypto firms from circumventing the regulations. The release of this legislative text marks a significant step forward in the negotiation process, with Senators Alsobrooks and Tillis having worked tirelessly to address the concerns of both the banking and crypto industries. The Digital Chamber, a trade association, has welcomed the public release of the stablecoin yield language, viewing it as a crucial step toward resolving the remaining issues and advancing the legislation. Coinbase executives have also expressed satisfaction with the language, noting that it preserves activity-based rewards tied to real participation on crypto platforms and networks.