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

The newly unveiled section of the proposed Digital Asset Market Clarity Act, released on Friday, indicates that a compromise has been reached between U.S. Senators Thom Tillis and Angela Alsobrooks, which would prevent stablecoin issuers from providing yield solely based on holding stablecoin reserves. The proposal acknowledges the integral role of depository institutions in the American economy and suggests that stablecoin issuers offering similar services may hinder these institutions. As a result, the Senate Banking Committee is likely to move forward with the legislation. The new text allows for rewards tied to real participation on crypto platforms, which aligns with the bank lobby's demands, according to Coinbase's chief legal officer, Paul Grewal. However, the restriction applies to loyalty programs and incentives that are economically equivalent to interest-bearing bank deposits. The proposal requires digital asset firms to restructure their yield offerings, shifting from a 'buy and hold' system to a 'buy and use' model. The rulemaking provision in the text grants regulators the authority to define how crypto companies can offer yield, considering factors such as balance, duration, and tenure in rewards calculations. The Consumer Federation of America's director of investor protection, Corey Frayer, notes that the wording of the rulemaking section could enable crypto firms to conduct activities and pay returns to customers. The text also includes anti-evasion language, and Senators Alsobrooks and Tillis have been negotiating the details of the proposal for several months, with input from bank lobbyists and crypto insiders. The Digital Chamber CEO, Cody Carbone, welcomes the public release of the stablecoin yield language, considering it an important step toward resolving the final issues before the Committee markup.