Bank Lobby Threatens US Crypto Bill Over Stablecoin Rewards Issue

TRLDR

• The debate over stablecoin yields threatens to delay US crypto market reform.
• Bank lobbyists are opposing crypto platforms offering rewards on stablecoins.
• Over 3,200 bankers have urged lawmakers to close what they call a “payment of interest loophole.”
• The banking sector fears that stablecoin rewards could lead to deposit outflows from traditional banks.
• The Senate Banking Committee has delayed progress on the CLARITY Act due to intense lobbying from banks.

A brewing political fight over stablecoin yields is putting the future of the long-awaited US crypto market structure reform at risk.

The debate has revealed deep divisions among banks, crypto firms, and lawmakers over how to handle the next phase of financial regulation. Central to the dispute is whether crypto platforms should be allowed to offer rewards or yield on stablecoins.

Bank Lobby’s Opposition to Stablecoin Yields

At the heart of the ongoing debate is the banking industry’s opposition to crypto platforms offering rewards on stablecoins. Galaxy CEO Mike Novogratz warned that banking lobbyists could kill the broader legislative efforts if stablecoin yields are allowed. “The dynamics of yield in the stablecoin bill are fascinating and might cost the bill. Politics over good policy,” Novogratz explained.

The banking sector is concerned that allowing crypto platforms to provide rewards could lead to deposit outflows from traditional banks. As customers shift their funds to crypto platforms, it could reduce bank margins and disrupt established business models. This concern has led over 3,200 bankers to urge lawmakers to close what they describe as a “payment of interest loophole.”

Political Struggles and Consumer Impact

The political battle has caused delays in advancing the CLARITY Act, which is intended to establish clearer rules for the crypto market. Intense lobbying from the banking sector has delayed any progress in the Senate Banking Committee.

Opponents of the bill argue that it tilts the regulatory playing field in favor of banks, limiting competition from crypto firms. While banks can still pay interest on deposits, crypto platforms face stricter rules that allow rewards only for active participation such as staking or liquidity provision.

The battle also reflects friction between the White House and the crypto industry. Journalist Brendan Pedersen recently noted that tensions remain unresolved between the administration and major crypto firms like Coinbase. However, Patrick Witt, Executive Director of the President’s Council of Advisors for Digital Assets, argued that passing the bill now is preferable to future, more restrictive legislation.

Bill Hughes, a legal expert at ConsenSys, also warned that punitive regulation could emerge without a financial crisis. He cautioned that minor regulatory changes, hidden within must-pass legislation, could have lasting negative effects on the crypto industry.

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