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

The newly unveiled text of the Digital Asset Market Clarity Act prohibits stablecoin issuers from providing yield solely based on holding stablecoin reserves, aiming to safeguard the traditional banking system. The legislation, resulting from a compromise between U.S. Senators Thom Tillis and Angela Alsobrooks, seeks to regulate the crypto market while allowing for certain reward programs. According to the proposed text, no covered party can pay interest on yield to a restricted recipient merely for holding payment stablecoins or in a manner equivalent to interest-bearing bank deposits. However, incentives based on genuine activities or transactions are permitted, mirroring the approach used by financial firms for credit card rewards. The restriction applies to loyalty programs and similar initiatives. Crypto companies may need to restructure their yield offerings from a 'buy and hold' system to a 'buy and use' model to comply with the new regulations. The Treasury Department and Commodity Futures Trading Commission will be tasked with launching a rulemaking process within a year of the bill's enactment to clarify how crypto firms can offer yield products. The rulemaking provision's wording may grant regulators flexibility in defining permissible yield products for crypto companies. The text also includes anti-evasion language to prevent circumvention of the regulations. The development is seen as a crucial step forward in the legislation's progress, with trade associations and industry leaders welcoming the public release of the stablecoin yield language.