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

A newly introduced legislative provision aims to regulate the stablecoin market by prohibiting the offering of yields based solely on holding stablecoin reserves. The proposed Digital Asset Market Clarity Act text, released on Friday, outlines a compromise between U.S. Senators Thom Tillis and Angela Alsobrooks, which would ban stablecoin issuers from providing yield-based services similar to those offered by traditional banks. However, the legislation does allow for rewards tied to actual participation on crypto platforms and networks, such as incentives for using stablecoins in transactions. The language of the text maintains that 'depository institutions provide financial services integral to the strength of the American economy,' and that stablecoin issuers offering similar services 'may inhibit' these institutions. The new provision is seen as a crucial step forward in the legislation's progress through the Senate, with a markup hearing potentially on the horizon. According to Coinbase CEO Brian Armstrong, the agreement marks a significant development, and the company's chief legal officer, Paul Grewal, stated that the language 'preserves activity-based rewards tied to real participation on crypto platforms and networks.' The text specifically prohibits the payment of interest on yield to restricted recipients solely for holding payment stablecoins or in a manner equivalent to interest-bearing bank deposits. However, it does permit incentives based on 'bona fide activities or bona fide transactions,' which are distinct from yield generated by interest-bearing bank deposits. This approach is similar to rewards offered by financial firms for credit card activity. The legislation also includes anti-evasion language and directs the Treasury Department and Commodity Futures Trading Commission to launch a rulemaking process within a year of the bill becoming law to clarify how crypto firms can offer yield. The rulemaking provision is worded in a way that could give regulators flexibility in defining what crypto companies can do with yield products, according to Corey Frayer, director of investor protection at the Consumer Federation of America. 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 in the way of a markup. The association will continue to advocate for the power of rewards to drive consumer utility, competition, and innovation across the digital asset ecosystem.