New Regulations Allow Crypto Firms to Offer Stablecoin Rewards While Protecting Bank Yields

Under a recently proposed amendment to the Digital Asset Market Clarity Act, stablecoin yield would be prohibited in a manner that mirrors previous discussions on the crypto market structure legislation. The newly introduced section of the proposed text, released on Friday, reveals that U.S. Senators Thom Tillis and Angela Alsobrooks have reached a compromise that would prevent stablecoin issuers from offering yield solely based on holding stablecoin reserves. This approach acknowledges the crucial role of depository institutions in the American economy and seeks to prevent stablecoin issuers from undermining these institutions by offering similar services. The agreement is expected to pave the way for a Senate Banking Committee hearing, which could significantly advance the legislation. Coinbase CEO Brian Armstrong expressed his support for the agreement, stating that it preserves rewards tied to real participation on crypto platforms. The new text explicitly prohibits paying interest on yield to restricted recipients solely for holding payment stablecoins or in a manner equivalent to interest-bearing bank deposits. However, it allows incentives based on 'bona fide activities or bona fide transactions' that differ from yield generated by interest-bearing bank deposits. This distinction is expected to require digital asset firms to restructure their yield offerings, shifting from a 'buy and hold' system to a 'buy and use' approach. The rulemaking provisions in the text grant regulators latitude in defining what crypto companies can do with yield products, considering factors such as balance, duration, and tenure in rewards calculations. The text also includes anti-evasion language to prevent crypto firms from circumventing the regulations. The compromise has been welcomed by the Digital Chamber, a trade association that advocates for the power of rewards to drive consumer utility, competition, and innovation in the digital asset ecosystem.