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 regarding the contentious issue of stablecoin yield in the crypto market structure legislation. The new agreement would ban stablecoin issuers from offering yield solely based on holding stablecoin reserves, as this may inhibit the financial services provided by depository institutions that are integral to the American economy. However, the text does allow for rewards tied to real participation on crypto platforms and networks. The language of the text reads, 'No covered party shall, directly or indirectly, pay any form of interest on yield... solely in connection with the holding of such restricted recipient's payment stablecoins.' This restriction does not apply to incentives based on 'bona fide activities or bona fide transactions' that differ from yield generated by interest-bearing bank deposits. The text also includes provisions for rulemaking, which would allow the Treasury Department and Commodity Futures Trading Commission to clarify how crypto firms can offer yield within a year of the bill becoming law. According to Corey Frayer, director of investor protection at the Consumer Federation of America, the wording of the rulemaking provision could give regulators latitude in defining what crypto companies can do with yield products, potentially allowing them to conduct activities and then pay returns back to customers. The text also includes anti-evasion language to prevent crypto firms from circumventing the regulations. The compromise was reached after months of negotiation between U.S. Senators Thom Tillis and Angela Alsobrooks, and is seen as a significant step forward in the progress of the legislation through the Senate. Coinbase CEO Brian Armstrong and chief legal officer Paul Grewal have expressed satisfaction with the language, stating that it preserves activity-based rewards tied to real participation on crypto platforms and networks. The Digital Chamber CEO Cody Carbone also welcomed the public release of the stablecoin yield language, seeing it as an important step toward resolving one of the final issues standing between the Committee and a markup.