The stablecoin yield issue continues to be a contentious point in the debate surrounding the Digital Asset Market Clarity Act, aimed at regulating U.S. crypto markets. Bankers have launched another argument suggesting that reward programs for stablecoins pose a risk to traditional bank deposits.
Contrary to a recent White House economists’ report asserting minimal risks from stablecoin proliferation, the American Bankers Association argues that the analysis was flawed by focusing on an incorrect scenario. The association suggests that instead of considering the impact of a potential ban on stablecoin yield, the focus should have been on the implications if such yields were permitted.
“The CEA paper minimizes the core risk by starting from the wrong question,” stated ABA economists. “There is already ample evidence and analysis showing that prohibiting yield for payment stablecoins acts as a prudent safeguard. This policy allows stablecoins to develop primarily as a payments tool, not as an economically risky alternative to insured bank deposits.”
This debate over a topic partly addressed in last year’s GENIUS Act has stalled Senate legislation for months. Although proponents of the Clarity Act anticipate a hearing before the Senate Banking Committee soon, it hasn’t been scheduled yet.
Lawmakers from both parties have considered arguments that depositors might leave banks en masse to pursue higher stablecoin yields compared to traditional bank interest rates. A compromise was reached to prohibit yield on stablecoins resembling deposit accounts and permit rewards for specific activities, similar to credit card incentives. However, the banking industry has not endorsed this compromise.
Senator Cynthia Lummis of Wyoming, chairing the Banking Committee’s digital assets subcommittee, emphasized the urgency in a recent post: “America needs Clarity.” She insists it is ‘now or never’ for advancing the bill.
The longer the debate drags on, the more challenging it becomes to navigate the Clarity Act through Senate procedures leading to a vote. While crypto stakeholders have been vocal about this conflict, bank representatives have maintained a lower profile.
Bankers argue that without intervention in stablecoin yields now, these markets could expand from $300 million to potentially $2 trillion rapidly.
“In an expanded market, yield would be more than just a feature; it would drive the migration away from traditional bank deposits,” they assert. Moreover, major stablecoin issuers are likely to deposit reserves with larger banks rather than community ones, as per ABA’s analysis.