Author: Oluwapelumi Adejumo
Compiled by: Saoirse, Foresight News
Original title: The Battle Over Stablecoin Yields Stalls U.S. Crypto Regulatory Legislation
This legislation, backed by the President and aimed at establishing more comprehensive regulatory rules for the U.S. cryptocurrency market, is approaching a political deadline at the congressional level. Meanwhile, the banking industry is pressuring lawmakers and regulators to prohibit stablecoin companies from offering yields similar to bank deposit interest.
This game has become one of the core unresolved issues on the crypto agenda in Washington. The focus of the controversy is: Should dollar-pegged stablecoins focus solely on payment and settlement functions, or can they add wealth management attributes that compete with bank accounts and money market funds?
The market structure bill in the Senate, named the "CLARITY Act," has stalled due to a breakdown in negotiations surrounding so-called "stablecoin yields."
Industry insiders and lobbyists say that if the bill is to have a realistic chance of passage before the election year schedule tightens, the practical window for advancing the bill will be from late April to early May.
Congressional Research Service Sharpens the Legal Debate
The Congressional Research Service's (CRS) framing of the issue is narrower than the public debate.
In a March 6th report, the CRS noted that the "GENIUS Act" prohibits stablecoin issuers from paying yields directly to users, but for what it calls the "three-party model"—where intermediaries like exchanges stand between the issuer and the end-user—the act does not fully clarify its legality.
The CRS stated that the bill does not explicitly define "holder," leaving room for debate over whether intermediaries can still pass on economic benefits to their customers. This ambiguity is precisely why the banking industry wants Congress to re-clarify the issue in the broader market structure bill.
Banks argue that even limited yield incentives could make stablecoins a strong competitor to bank deposits, particularly impacting regional and community banks.
However, crypto companies argue that incentives tied to payments, wallet usage, or network activity can help digital dollars compete with traditional payment channels and potentially elevate their status in mainstream finance.
This divergence also reflects differing perceptions of the future positioning of stablecoins.
An infographic shows that as the scale of digital dollar usage continues to expand, banks and crypto companies have serious disagreements on the question of "who should stablecoin yields belong to."
If legislators primarily view stablecoins as payment tools, the rationale for imposing stricter limits on related rewards becomes stronger. Conversely, if legislators see them as part of a major shift in the way value flows on digital platforms, the argument for supporting limited incentives is more justified.
Banking associations have urged lawmakers to close what they call "regulatory loopholes" before such reward mechanisms become more widespread. Banks claim that allowing rewards on idle balances would cause depositors to move funds out of banks, thereby weakening the core funding source for loans to families and businesses.
Standard Chartered estimated in January that by the end of 2028, stablecoins could drain about $500 billion in deposits from the U.S. banking system, with small and medium-sized banks facing the greatest pressure.
An infographic contrasts why banks and cryptocurrencies are concerned about the stablecoin bill, showing deposit outflows, impact on lenders, cash-back rewards, and banking protectionism.
Banks are also trying to demonstrate to lawmakers that their position has public support. The American Bankers Association recently released a poll result:
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When the question mentioned that "allowing stablecoin yields could reduce the funds banks have available to lend, affecting communities and economic growth," respondents supported a congressional ban on stablecoin yields by a 3:1 ratio;
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By a 6:1 ratio, respondents believed that stablecoin-related legislation should be cautious to avoid disrupting the existing financial system, especially community banks.
But the crypto industry counters that banks are simply trying to protect their own funding models by restricting competition from digital dollars.
Industry figures, including Coinbase CEO Brian Armstrong, argue that under the "GENIUS Act," reserve requirements for stablecoin issuers are stricter than for banks—issued stablecoins must be fully backed by cash or cash equivalents.
Trading Volume Scale Raises the Stakes in Washington Game
Market size has made this yield debate impossible to dismiss as a niche issue.
Boston Consulting Group estimated that the total settlement volume of stablecoins last year was approximately $62 trillion. After excluding bot trading, internal exchange transfers, and other activities, the real economic activity was only about $4.2 trillion.
The huge gap between surface trading volume and actual economic use also explains why the "yield" debate has become so critical.
If stablecoins remain primarily a tool for trading and market structure settlement, it's easier for lawmakers to define them as payment instruments; but if yield mechanisms turn stablecoins into a cash storage tool widely used in user apps, the pressure on banks will rise rapidly.
To this end, the White House earlier this year attempted to broker a compromise: allowing limited yields in specific scenarios like peer-to-peer payments, but prohibiting returns on idle funds. Crypto companies accepted this framework, but banks rejected it, leading to a complete deadlock in Senate negotiations.
Even if Congress does not act, regulators may step in to tighten yield models.
The Office of the Comptroller of the Currency (OCC), in a proposed rule implementing the "GENIUS Act," suggested: if a stablecoin issuer provides funds to an affiliate or third party, which then pays yields to stablecoin holders, this would be considered a disguised payment of prohibited yields.
This means that if Congress cannot legislate a clear stance, the executive branch may define the boundaries through regulatory rules.
Time Running Out in Congress
The current博弈 (game/struggle) is playing out on two tracks:
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Congress debates whether to solve the problem through statute;
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Regulators define the boundaries of corporate behavior within the existing legal framework.
For the Senate bill, time itself is the biggest pressure.
Galaxy Digital Head of Research Alex Thorn wrote on social media:
If the "CLARITY Act" does not pass committee review by the end of April, the probability of passage in 2026 will be extremely low. The bill must be sent to the full Senate for a vote in early May. Legislative time is running out, and the probability of passage decreases with each passing day.
He also cautioned that even if the yield dispute is resolved, a breakthrough for the bill is hardly assured:
It is currently believed externally that the stablecoin yield dispute is holding up the "CLARITY Act." But even if a compromise is reached on the yield issue, the bill would likely still face other obstacles.
These obstacles could include DeFi regulation, regulatory agency authority, and even ethical issues.
Before the November midterm elections, crypto regulation is likely to become a larger political battlefield. This adds urgency to the current impasse—once delayed, the bill faces a more crowded political schedule and a more difficult legislative environment.
Prediction markets also reflect shifting sentiment. In early January, Polymarket gave the bill an ~80% chance of passing; after recent setbacks (including Armstrong calling the current version unworkable), the probability has dropped to near 50%.
Kalshi data shows a mere 7% chance the bill passes before May, and a 65% chance it passes by year's end.
Bill Failure Would Cede More Decision-Making to Regulators and Markets
The impact of failure extends far beyond the yield debate. The core purpose of the "CLARITY Act" is to define whether crypto tokens are securities, commodities, or another category, providing a clear legal framework for market regulation.
If the bill is shelved, the entire industry will rely more heavily on regulatory guidance, interim rules, and future political changes.
This is also one reason the market is highly focused on the bill's fate. Bitwise CIO Matt Hougan said earlier this year that the "CLARITY Act" would codify the current crypto-friendly regulatory environment into law; otherwise, future administrations could reverse existing policies.
He wrote that if the bill fails, the crypto industry will enter a period of "proving itself," needing three years to make itself indispensable to ordinary people and traditional finance.
Under this logic, future growth would rely less on the expectation of "legislation landing" and more on whether products like stablecoins and asset tokenization can truly achieve mass adoption.
This presents the market with two distinct paths:
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Bill passes → Investors price in the growth of stablecoins and tokenization early;
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Bill fails → Future growth relies more on actual adoption, while facing uncertainty from potential policy shifts in Washington.
A flowchart shows the countdown to the Senate stablecoin decision, with deadlines on March 6th and late April/early May leading to two paths: if Congress acts, it brings regulatory clarity and faster growth; if Congress fails to act, uncertainty follows.
At this stage, the next move is up to Washington. If senators can restart this market structure bill this spring, lawmakers can still personally define: to what extent stablecoins can transfer value to users, and how broad a crypto regulatory framework can be written into statute. If not, regulators are clearly prepared to draw at least some of the rules themselves.
Regardless of the outcome, this debate has long surpassed "whether stablecoins belong in the financial system," and delves into: how stablecoins will operate within the system, and who will benefit from their development.
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