Banks vs Crypto: Stablecoin Yield Fight Enters Final Stretch

As Executive Director of the President’s Council of Advisors for Digital Assets, Witt has taken on the role of mediator, speaking publicly in mid-February 2026 and leading closed-door meetings at the White House with Wall Street executives and crypto leaders. His message has been clear: stablecoins and banks can coexist.

The Yield Debate Moves to Center Stage

The central dispute revolves around whether stablecoin issuers should be allowed to distribute reserve earnings to token holders. Large banking institutions argue that yield-bearing stablecoins could drain deposits from traditional savings accounts. Crypto firms counter that sharing reserve income is part of financial innovation and consumer choice.

Witt does not see stablecoin yields as a structural threat to the U.S. financial system. He argues that banks are not defenseless – many are already seeking regulatory pathways, including OCC charters, to launch their own digital asset products.

Scalpel, Not Chainsaw

Rather than endorsing a blanket ban, Witt has urged lawmakers to take a targeted approach. He has warned against sweeping restrictions that could derail the broader market structure framework embedded in the CLARITY Act.

The focus, in his view, should be on so-called idle yield – rewards granted simply for holding a token in a way that mirrors a bank deposit. Narrowly defining and regulating that category, he believes, would address banking concerns without stifling innovation across the entire stablecoin sector.

Stablecoins as a Bridge to Traditional Finance

Witt has described stablecoins as a gateway for global finance, arguing that they are often the first point of contact between traditional institutions and blockchain technology. By integrating digital dollars into payments and settlement systems, stablecoins could accelerate the modernization of financial infrastructure.

At the same time, he has acknowledged concerns from lawmakers worried about deposit flight from community banks. His position frames the debate as a question of consumer choice, maintaining that competition ultimately benefits users.

The Legislative Standoff

The yield issue has become the primary obstacle delaying the CLARITY Act of 2025. Representatives from major banks, including JPMorgan and Goldman Sachs, have reportedly advocated for a full prohibition on yield-bearing stablecoins.

Crypto advocacy groups, such as the Chamber of Digital Commerce, have proposed a compromise. Under their model, issuers would avoid paying yield on static, deposit-like holdings but retain the ability to offer rewards tied to on-chain activity and transactional use.

Time Running Short

High-level February meetings at the White House were described as productive but ended without a final agreement. The administration has requested that both sides reach a compromise by the end of the month.

With the 2026 midterm elections approaching, Witt has warned that the legislative window is narrowing. If lawmakers fail to pass a balanced framework now, the next attempt at regulation could be far more restrictive.

For the U.S. digital asset industry, the outcome of this yield debate may determine whether innovation remains domestic – or gradually moves offshore.

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