New Legislation Allows Crypto Firms to Offer Rewards on Stablecoins While Protecting Bank Interests

The newly proposed Digital Asset Market Clarity Act text, released on Friday, introduces a new provision that restricts stablecoin issuers from offering yield solely based on holding stablecoin reserves. However, it allows for rewards tied to genuine participation on crypto platforms and networks. This compromise, reached by U.S. Senators Thom Tillis and Angela Alsobrooks, aims to balance the interests of the crypto industry and traditional banking institutions. The text explicitly states that no covered party can pay interest on yield to a restricted recipient solely for holding payment stablecoins or in a manner equivalent to interest-bearing bank deposits. Nevertheless, incentives based on legitimate activities or transactions are permitted, similar to rewards offered by financial firms for credit card activity. This development is expected to require digital asset firms to restructure their yield offerings, shifting from a 'buy and hold' approach to a 'buy and use' model. The Treasury Department and Commodity Futures Trading Commission will have to establish clearer guidelines on crypto firms' yield products within a year of the bill becoming law. Industry experts believe that the rulemaking provisions could give regulators flexibility in defining what crypto companies can do with yield products, potentially allowing them to conduct activities and pay returns to customers. The text also includes anti-evasion language to prevent crypto firms from circumventing the regulations. The release of this text is seen as a significant step forward in the legislative process, with the Senate Banking Committee potentially advancing the bill in the near future. Coinbase CEO Brian Armstrong and chief legal officer Paul Grewal have expressed satisfaction with the language, stating that it preserves activity-based rewards and should not be a basis for objection. 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.