You earn a very small amount of interest when you let banks hang onto your money, and bankers contend that letting crypto platforms pay you more just for holding stablecoins would throw the U.S. economy into danger.
That argument may have contributed to fatally derailing the Senate's Digital Asset Market Clarity Act. Even after a high-profile bipartisan compromise months back, bank lobbyists pushed their worries back into the forefront earlier this month, just in time to help knock over the already teetering legislation. Still, the destiny of U.S. stablecoin yield isn't yet resolved.
While the bill's section that goes after President Donald Trump's personal business ties to crypto has drawn the most fervent attention, the Clarity Act's revisions on stablecoin yield were what threw the bill off course early this year, and the banks haven't stopped arguing that crypto firms may try to offer stablecoin rewards that imitate interest on bank deposits and by extension threaten the role of banks and imperil U.S. lending.
The battle is likely to be finished one way or another next month, when the Clarity Act gets its final three weeks of Senate action before the midterm elections, and the stakes will test the old-guard strength of bank lobbyists against the high-spending political powers of crypto advocates.
The banks have made an appeal that what they're doing represents the public good: Their business model requires that people keep their money in deposits, which don't pay enough interest to compete with what crypto firms would pay in stablecoin yield, if given the chance. People can't be allowed to make money off their holdings of stablecoins, the banks contend, because if customers abandon low-interest bank deposits, the institutions won't be able to reuse their money to support bank lending.
One of their standard bearers, JPMorgan Chase & Co. CEO Jamie Dimon, says banks aren't being treated fairly, contending that stablecoins don't carry the same government scrutiny, regulations and requirements to track the identity of users.
"It should be fair and equal, period," Dimon, whose bank is the largest in the U.S., said in a June Fox Business interview, saying the Clarity Act had "almost no legal protections" to prevent money laundering and other illicit finance.
"The banks will not accept it that way," he said. "We'll fight it. If we lose, we lose."
Stablecoins were designed as the private-sector equivalent of a digital dollar. Some of them — most notably the global leader, Tether's USDT — exist outside of the direct supervision of national regulators. But last year's Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act formally established the U.S. rules for stablecoin issuers, making these assets a formal component of the U.S. financial system.
The GENIUS Act is the current law of the land on stablecoins, and the crypto industry contends that it allows their businesses to offer the full range of stablecoin rewards that their banking adversaries seem to fear. So the bank lobbyists have been pressing for the Clarity Act to overhaul the year-old GENIUS on several points about stablecoin rewards, and though they won a number of concessions, their continued fight may contribute to the bill's failure if it doesn't manage to find 60 Senate supporters by mid-September.
So if they kill Clarity, they may be stuck with the status quo of GENIUS. While the new law bans stablecoin issuers from offering yield to holders, it's less explicitly restrictive on what the exchanges that handle customers' stablecoin transactions can do. However, when the regulators eventually turn the law into rules, whatever they decide about "anti-evasion language, particularly as it relates to indirect yield such as distribution-fee arrangements, will determine how much daylight exists for issuer-affiliated rewards programs," the American Bankers Association wrote in an opinion on its website.
"Concern that these rules will not go far enough is exactly why ABA is calling on Congress to tighten the language around stablecoin rewards in the Clarity Act," it said.
Many crypto lobbyists in Washington insist that the stablecoin rewards matter is "locked" in the legislation and won't be further revised.
"Simply put, this matter has already been dealt with," said Rashan Colbert, director of U.S. policy at the Crypto Council for Innovation.
The industry's view that the debate is over doesn't seem to grant that several Republican members of the Senate have split from their party to warn that they may oppose Clarity without more bank-friendly adjustments. At this point, the bill may not even be able to win a majority vote, let alone the 60 yesses it needs.