Negotiations between the cryptocurrency industry and U.S. Banks over the structure of stablecoin regulation have stalled, threatening to delay key legislation aimed at providing a clearer legal framework for digital assets. The impasse, revealed in a series of meetings hosted by the White House, centers on whether stablecoins should be permitted to offer yield or rewards to holders – a feature banks argue could undermine traditional deposit-taking activities.
The core of the disagreement lies within the Senate’s Digital Asset Market Clarity Act. Banks, according to sources familiar with the discussions, are pushing for a complete prohibition on any form of yield offered on stablecoins, outlining their concerns in a document titled “Yield and Interest Prohibition Principles.” They contend that offering returns on stablecoins blurs the line between these digital assets and traditional bank deposits, potentially destabilizing the financial system.
The crypto industry, however, is resisting a blanket ban, arguing that the ability to offer rewards is crucial for attracting users and fostering innovation within the decentralized finance (DeFi) ecosystem. The Digital Chamber of Commerce, a prominent industry trade group, has circulated its own set of principles, signaling a willingness to compromise on certain aspects of yield-bearing stablecoins but maintaining the need for some form of incentivization, particularly for activities that support liquidity and ecosystem participation.
“We want to make the case known to policymakers that we do think this is a compromise,” said Cody Carbone, CEO of the Digital Chamber, in a statement. The industry group is prepared to concede ground on rewards for static holdings of stablecoins – those simply held as a store of value – which would more closely resemble a traditional savings account. However, they insist on preserving the ability to offer rewards for transactions and other active engagement with the stablecoin network.
The current standoff represents a setback for efforts to pass comprehensive crypto legislation. The Clarity Act, which already passed the Senate Agriculture Committee, is intended to provide regulatory certainty for the digital asset market. A similar bill is also under consideration in the House of Representatives. However, the legislation faces additional hurdles beyond the stablecoin yield debate, including demands from Senate Democrats for stricter rules regarding the involvement of government officials in the crypto industry and enhanced measures to combat illicit finance.
The situation is further complicated by the recent passage of the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins), which established a regulatory framework for stablecoins. Banks are now attempting to roll back some of the provisions of the GENIUS Act through amendments to the Clarity Act, a move the crypto industry views as a breach of established law. Carbone suggested that the industry’s willingness to forgo rewards on stablecoin holdings is a significant concession, and that the banks should return to the negotiating table.
“If they don’t negotiate, then the status quo is that rewards continue as-is,” Carbone stated. He emphasized the Digital Chamber’s unique position as a trade organization representing both traditional banking and crypto interests, positioning the group as a potential mediator in the dispute.
The White House, according to reports, has urged both sides to reach a compromise by the end of February. Trump crypto advisor Patrick Witt indicated that another meeting may be scheduled next week, expressing encouragement that both sides would be willing to find common ground. Witt suggested focusing on a “scalpel” approach, addressing the narrow issue of idle yield rather than attempting a broad overhaul of stablecoin regulation.
The Senate Agriculture Committee’s version of the Clarity Act focuses on the commodities aspects of digital assets, while the Senate Banking Committee’s version addresses securities. If the Banking Committee follows the lead of its Agriculture counterpart, the bill could advance along partisan lines. However, securing a final bill that can pass the full Senate will require significant Democratic support, necessitating a 60-vote margin.
The debate over stablecoin yields underscores the broader tension between the traditional financial industry and the rapidly evolving world of digital assets. Banks fear disruption to their established business models, while the crypto industry seeks to innovate and offer new financial products and services. The outcome of this legislative battle will have significant implications for the future of both sectors and the broader financial landscape.
The Digital Chamber’s principles specifically highlighted the importance of protecting reward scenarios tied to providing liquidity and fostering ecosystem participation, arguing that these provisions are particularly vital for the growth of decentralized finance (DeFi). The industry maintains that these incentives are essential for attracting users and developers to the DeFi space.
