New Regulations Allow 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 issuers will be prohibited from offering yield solely based on holding stablecoin reserves. This approach is similar to discussions that have taken place throughout the year. The compromise, reached by U.S. Senators Thom Tillis and Angela Alsobrooks, aims to prevent stablecoin issuers from providing services that rival those of traditional banks. However, the new text does allow for rewards based on 'bona fide activities or transactions', which is similar to incentives offered by financial firms for credit card activity. This distinction is crucial, as it enables crypto firms to continue offering rewards while avoiding direct competition with banks. The text explicitly states that 'no covered party shall, directly or indirectly, pay any form of interest on yield' to a restricted recipient solely for holding payment stablecoins or in a manner equivalent to interest-bearing bank deposits. The restriction does not apply to incentives based on genuine activities or transactions. This development is significant, as it paves the way for a Senate Banking Committee hearing to advance the legislation. Coinbase CEO Brian Armstrong expressed support for the agreement, stating 'mark it up' in a social media post. The company's chief legal officer, Paul Grewal, noted that the language 'preserves activity-based rewards tied to real participation on crypto platforms and networks', which aligns with the bank lobby's requests. The new text also includes provisions for rulemaking, directing the Treasury Department and Commodity Futures Trading Commission to launch a rulemaking process within a year of the bill becoming law. This process will provide clarity on how crypto firms can offer yield products. Furthermore, the text includes anti-evasion language to prevent companies from circumventing the regulations. 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. The development is seen as a positive step towards advancing the legislation and providing clarity for the crypto industry.