If crypto rewards survive CLARITY Act banks are likely to rapidly build their own branded digital dollars

Washington’s stablecoin stalemate is hardening into a fight that banks recognize immediately as a deposit issue.

The dispute is no longer centered on whether dollar-linked tokens should exist. It centers on whether they should be treated as deposits, especially if consumers can earn interest-like rewards simply for holding them.

A recent White House meeting aimed at breaking a deadlock between banking and crypto trade groups ended without agreement, with stablecoin interest and rewards still the central fault line.

The timing is not incidental. Stablecoins have grown beyond a niche plumbing layer for crypto trading and cross-venue settlement.

Total stablecoin supply hit a fresh high in mid-January, peaking at $311.332 billion, based on DeFiLlama data.

At that scale, the policy question ceases to be theoretical and becomes a question of where the safest, stickiest “cash” balance sits in the financial system and who benefits from it.

Why banks see stablecoins as deposit competition

Banks care about stablecoins because the dominant model reroutes “deposit-like” money away from bank balance sheets and into short-term US government debt.

Deposits are cheap funding for banks. They support loan books and help cushion margins. Stablecoin reserves, by contrast, are typically held in cash and short-term Treasuries, which shifts the system’s resting money away from deposit funding and toward sovereign funding.

Essentially, these new assets change who earns, who intermediates, and who controls distribution.

That becomes politically explosive when the product starts competing on yield. If stablecoins are strictly non-interest-bearing, they look like a settlement tool, a payments technology that competes on speed, uptime, and availability.

However, if stablecoins can deliver yield, either directly or through platform rewards that feel like interest, they start to resemble a savings product.

That is where banks perceive a direct threat to their deposit franchise, particularly for regional lenders that rely heavily on retail funding.

Standard Chartered recently quantified the perceived risk, warning that stablecoins could withdraw approximately $500 billion in deposits from US banks by the end of 2028, with regional lenders most exposed.

The estimate is less important as a forecast than as a signal of how banks and their regulators are modeling the next phase.

In that framing, a crypto platform becomes the front-end “cash account,” while banks get pushed into the background, or lose balances outright.

GENIUS and CLARITY are now tangled in the rewards fight

Notably, the US already has a stablecoin law on the books, and it is central to the current dispute.

President Donald Trump signed the GENIUS Act in July 2025, framing it as a means to bring stablecoins within a regulated perimeter while supporting demand for US debt through reserve requirements.

However, the law’s implementation remains forward-dated, with the Treasury Secretary Scott Bessent confirming that the legislation could be implemented by July this year.

That runway is one reason the yield dispute has migrated into the market-structure push now grouped under CLARITY.

Banks argue that even if stablecoin issuers are constrained, third parties (exchanges, brokerages, fintechs) can still offer incentives that appear to be interest, drawing customers away from insured deposits.

Due to this, they have outlined a broad prohibition on stablecoin yield, stating that no person may provide any form of financial or non-financial consideration to a payment stablecoin holder in connection with the holder’s purchase, use, ownership, possession, custody, holding, or retention of a payment stablecoin.

They add that any exemptions should be extremely limited to avoid undermining the prohibition or driving deposit flight that would undercut Main Street lending.

However, crypto firms counter that rewards are a competitive necessity, and that banning them locks in bank power by limiting how new entrants can compete for balances.

The pressure has become explicit enough to slow legislative momentum.

Last month, Coinbase CEO Brian Armstrong said the company could not support the bill in its current form, citing constraints on stablecoin rewards among other issues, a move that helped delay Senate Banking Committee action.

Nonetheless, not everyone in crypto agrees that the two debates should be fused.

Mike Belshe, BitGo’s CEO, said both sides should stop rehashing GENIUS because, in his view, that fight is settled, and anyone who wants changes should pursue an amendment.

He said the market-structure effort should not be held up by a separate dispute over stablecoin yield, adding, “Get CLARITY done.”

That split is now shaping how the sector plans for 2026. It is also shaping how banks and crypto platforms position themselves for rules that will determine who holds the consumer’s default dollar balance.

Three paths for the sector, and three different sets of winners

Considering the above, the stablecoin impasse can be resolved in ways that reshape business models across crypto and finance.

In the first scenario, the no-yield clampdown (bank-friendly). If Congress or regulators effectively restrict passive “hold-to-earn” rewards, stablecoins will skew toward payments and settlement rather than savings.

That would likely accelerate adoption among incumbents seeking stablecoin rails without deposit competition.

Notably, Visa’s push is an early signal. It reported more than $3.5 billion in annualized stablecoin settlement volume as of Nov. 30, 2025, and expanded USDC settlement to US institutions in December.

In this world, stablecoins grow because they reduce friction and improve settlement, not because they pay consumers to hold.

In the second scenario, banks and crypto firms can reach a compromise.

Here, US lawmakers could allow rewards tied to activity (spending, transfers, card-like interchange) while restricting pure duration-based interest.

That would preserve consumer incentives but make compliance and disclosures the moat, favoring large platforms with scale.

The likely second-order effect is a migration of yield into wrappers, with returns delivered around the stablecoin through structures such as tokenized money-market access, sweeps, and other products that can be framed as distinct from a payment stablecoin balance.

Lastly, the status quo could persist due to ongoing delays between the banks and the crypto firms.

If the impasse drags through 2026, rewards persist long enough to normalize stablecoin “cash accounts.” That increases the likelihood that the deposit-displacement thesis is directionally true, especially if rate differentials are meaningful to consumers.

It also increases the risk of a sharper policy backlash later, a whiplash moment that arrives after distribution has already shifted and the political optics harden around deposit flight.

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