The Senate Banking Committee has postponed action on the CLARITY Act, delaying a comprehensive set of market regulations that would have enshrined much of the pro-crypto policy from the Trump administration. This delay might inadvertently create an opportunity for the crypto markets to test certain fears themselves. According to Galaxy Research, there’s roughly a 50-50 chance of enactment this year, though it could be lower due to ongoing debates over DeFi rules, jurisdictional issues, and stablecoin yield provisions.
The bill encompasses token classification, registration requirements for exchanges and broker-dealers, software exemptions, and DeFi regulations. Among these is the contentious rewards provision that embodies Wall Street’s primary concern about stablecoins. A delay could allow the market to address this issue independently of Congressional action.
At the heart of this debate is whether stablecoin issuers can pay interest or yield solely for holding a payment stablecoin, as prohibited by the GENIUS Act. The more complex question involves if exchanges and third parties can offer cash-back incentives or referral bonuses without falling under similar restrictions. Both the OCC’s and FDIC’s proposals have sought to extend anti-evasion measures to related third-party arrangements, but these are still pending final approval.
Banks view this regulatory ambiguity as a significant threat to their competitiveness. The ABA has warned of up to $6.6 trillion in deposits at risk, suggesting that incentives funded by exchanges could divert savings away from the banking sector. Standard Chartered estimates potential deposit outflows to stablecoins could reach $500 billion by 2028, with regional banks facing the greatest exposure.
This argument hinges on whether exchange-funded rewards make stablecoin balances competitive with bank deposits while bypassing reserve requirements, capital rules, and insurance costs that banks must adhere to. The White House Council of Economic Advisers countered this view in April, suggesting that eliminating stablecoin yields would only marginally increase bank lending by $2.1 billion, or about 0.02%, at an $800 million net welfare cost.
As of April 27, the stablecoin market stood over $320 billion against roughly $19.1 trillion in U.S. commercial bank deposits. This represents approximately 1.66% of the deposit base, significant enough to create competitive pressure but small enough for overall funding stability to remain intact. If stablecoins expanded from $320 billion to $500 billion, displacing an equivalent amount from bank deposits, it would test community banks’ pricing power while leaving aggregate funding unchanged.
If CLARITY stalls and regulatory bodies do not address the rewards issue, exchanges could continue operating within this gray area. This scenario provides a chance for observable data on flow between traditional and digital financial accounts, changes in retail cash allocation, and bank responses to competitive pressures.
After eighteen months of Congressional debate, a delay may yield empirical evidence to fill gaps between the ABA’s $6.6 trillion concern and the CEA’s estimated $2.1 billion lending effect.
Internationally, any data produced will have immediate relevance beyond U.S. borders. The EU’s MiCA regulation prohibits interest payments on e-money tokens, while Hong Kong uses a license-based approach to stablecoin issuers. The BIS notes varying international stances on whether exchanges and crypto-asset service providers can offer rewards.
Should the U.S. establish deposit-flow data before regulatory clarity is achieved, it would contribute empirical insights into this global policy debate. However, if agencies finalize rules broad enough to encompass promotional incentives or if CLARITY passes with strict yield prohibitions, the potential experiment may never materialize.
Banks would achieve their desired prohibition, leaving only theoretical projections as reference points for continued debate. The White House CEA notes that the GENIUS framework becomes effective within 18 months of enactment, limiting any regulatory gray area’s duration. Structural costs continue to burden the industry and its users as long as CLARITY remains unaddressed.
A stalled CLARITY Act could either provide valuable data on deposit shifts toward stablecoins or see the opportunity vanish before it materializes, depending on regulatory actions.