In early May, Sens. Alsobrooks and Tillis unveiled bipartisan draft language intended to resolve the yield standoff between banks and fintechs that has stalled the Clarity Act. The six-page proposal would prohibit crypto firms from paying stablecoin holders interest or yield “solely in connection with the holding” of a stablecoin, or in a manner “economically or functionally equivalent” to interest-bearing bank deposits. Certain permissible arrangements — loyalty programs, liquidity incentives, staking rewards — would be carved out, with regulators tasked to write rules providing further clarity.
Coinbase quickly endorsed the compromise. The five largest banking trade groups (ABA, BPI, CBA, FSF, ICBA) responded Monday that while they appreciate the effort, the language “falls short.” Specifically, they objected to provisions that allow rewards calculated based on duration, balance, and tenure — arguing that incentivizes passive holding in a manner functionally equivalent to deposit interest — and to membership program carve-outs that they say create a significant loophole.
The senators responded that banks and fintechs are “both about equally unhappy,” which they took as evidence the compromise is correctly calibrated. Warren and Reed separately introduced amendments in committee that would have tightened the yield language along the lines of bank suggestions. Both were rejected on party-line votes.
Competition for Deposits, Regardless: The yield compromise, even if enacted as written, would not eliminate stablecoin competition for deposits. It would limit the most direct interest-bearing equivalents but leave room for rewards programs structured around transaction activity. Community banks should continue monitoring deposit flows for any emerging stablecoin substitution effects, particularly as the regulatory clarity around stablecoin issuance increases adoption. If stablecoins become mainstream payment instruments with transaction-based rewards, the competitive pressure on low-rate deposit accounts will intensify.