Written by: Oluwapelumi Adejumo
Compiled by: Saoirse, Foresight News
This legislative effort, 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 contest has become one of the core unresolved issues on Washington's crypto agenda. The focus of the debate 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 Senate's market structure bill, 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 is from late April to early May.
Congressional Research Service Sharpens the Legal Dispute
The Congressional Research Service's (CRS) definition of this issue is narrower than the public debate suggests.
In a March 6th report, the CRS noted that the "GENIUS Act" prohibits stablecoin issuers from paying yields directly to users, but it does not fully clarify the legality of what it calls the "three-party model"—where intermediaries like exchanges stand between the issuer and the end-user.
The CRS stated that the bill does not explicitly define "holder," leaving room for debate on whether intermediaries could still pass on economic benefits to their customers. This ambiguity is precisely why the banking industry wants Congress to clarify this issue anew within the broader market structure bill.
Banks argue that even limited yield incentives could make stablecoins a strong competitor to bank deposits, impacting regional and community banks particularly hard.
However, crypto firms 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.
Infographic shows a serious divide between banks and crypto firms on the question of 'who should get stablecoin yields' as the use of digital dollars expands.
If lawmakers primarily view stablecoins as payment tools, the rationale for imposing stricter limits on related rewards becomes stronger. Conversely, if they see them as part of a major shift in how value flows on digital platforms, the argument for supporting limited incentives holds more ground.
Banking associations have urged lawmakers to close what they call a "regulatory loophole" before such reward mechanisms become more widespread. Banks claim that allowing rewards on idle balances would lead 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 stablecoins could drain about $500 billion in deposits from the U.S. banking system by the end of 2028, with small and medium-sized banks facing the most pressure.
Infographic compares why banks and crypto care about the stablecoin bill, showing deposit outflows, impact on lenders, cash-back rewards, and bank protectionism.
Banks are also trying to demonstrate to lawmakers that their position has public support. The American Bankers Association recently released a poll result:
- When the question mentioned that 'allowing stablecoin yields could reduce lendable funds for banks, affecting communities and economic growth,' respondents supported a congressional ban on stablecoin yields by a 3:1 ratio;
- By a 6:1 ratio, they believed 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.
Transaction Volume Size Raises the Stakes in Washington's Game
Market size has made this yield debate impossible to dismiss as a niche issue.
Boston Consulting Group estimated that the total circulation volume of stablecoins last year was about $62 trillion. After excluding bot trading, internal exchange flows, and other activities, 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 settlement tool for trading and market structure, lawmakers find it easier to define them as payment instruments; but if yield mechanisms turn stablecoins into a widely used cash storage tool in user apps, the pressure on banks would rise rapidly.
To this end, the White House earlier this year tried to broker a compromise: allowing limited yields for specific scenarios like peer-to-peer payments, but prohibiting returns on idle funds. Crypto firms accepted this framework, but banks rejected it, causing Senate negotiations to completely stall.
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 that if a stablecoin issuer provides funds to an affiliate or third party, which then pays yields to stablecoin holders, it would be deemed a disguised payment of prohibited yields.
This means that if Congress cannot legislate a clear stance, the executive branch may draw boundaries itself through regulatory rules.
Congress is Running Out of Time
The current contest is divided into two tracks:
- Congress debates whether to solve the problem with statute law;
- Regulators define the boundaries of corporate behavior within the existing legal framework.
For the Senate bill, time itself is the greatest 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 reach the full Senate floor for a vote by 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 decentralized finance (DeFi) regulation, regulatory agency authority, or even ethical issues.
Before the midterm elections in November, crypto regulation is likely to become a larger political battleground. This makes the current stalemate more urgent—once delayed, the bill will face a more crowded political schedule and a more difficult legislative environment.
Prediction markets also reflect a shift in sentiment. In early January, Polymarket gave the bill an ~80% chance of passage; after recent setbacks (including Armstrong calling the current version unworkable), the probability has dropped to near 50%.
Kalshi data shows the probability of the bill passing before May is only 7%, and the probability of passing by the end of the year is 65%.
Bill Failure Would Cede More Decision-Making to Regulators and the Market
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 Chief Investment Officer 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 industry growth would rely less on the expectation of "legislative landing" and more on whether products like stablecoins and asset tokenization can truly achieve mass adoption.
This presents the market with two截然不同的 paths:
- Bill Passes → Investors price in the growth of stablecoins and tokenization early;
- Bill Fails → Future growth relies more on actual adoption, while facing uncertainty from potential policy shifts in Washington.
Flowchart shows the countdown to a stablecoin decision in the Senate, with deadlines on March 6th and late April or 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 pass value to users, and how much of a crypto regulatory framework can be written into statute law. 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," delving into: how stablecoins will operate within the system, and who will benefit from their development.
