Latest text of Clarity Act indicates that stablecoin yields in cryptocurrency will not permit rewards on balances.

The cryptocurrency sector has gained initial insights into legislative wording that prohibits rewards on stablecoin holdings, which is regarded as constraining.

Senator Angela Alsobrooks (Nikhilesh De/CoinDesk)

Key points:

• The latest provisions regarding stablecoin yield in the Clarity Act have raised concerns among crypto stakeholders, as reported by a source familiar with the industry’s initial exposure to the text.
• Stablecoin yield, a debated issue between financial institutions and crypto entities, was addressed through a compromise reached by senators working on the legislation.
• The current draft permits rewards programs on a limited basis, provided they do not resemble interest from bank deposits in any manner.

Insiders in the crypto sector received their initial glimpse of the updated market structure bill in the Senate, and the initial feedback indicated that the stipulations for permissible stablecoin yield were excessively narrow and ambiguous, according to a source familiar with the latest draft.

The newly introduced language, disclosed on Friday by Senators Angela Alsobrooks and Thom Tillis, would prohibit yield payments merely for holding a stablecoin. It would also impose restrictions on any structure that makes the program comparable to a bank deposit, and further limits would apply to other potentially permissible activities, the source added, indicating that the process for determining activities-based stablecoin rewards remains uncertain.

The crypto sector gained this initial insight into the revised section of the Digital Asset Market Clarity Act on Monday during a private review on Capitol Hill in Washington, aiming to remove a barrier in the pursuit of a hearing in the Senate Banking Committee. Banking representatives have asserted that stablecoin rewards should not resemble interest-bearing bank deposits, arguing that such competing offerings could hinder the industry and restrict lending. Consequently, the compromise will allow rewards programs based on users’ stablecoin activities, but not their holdings.

A similar iteration of the Clarity Act was passed in the House of Representatives last year, and another version successfully moved through a markup hearing in the Senate Agriculture Committee. The banking committee represents a significant advancement that could position the legislation for lawmakers to prepare a final, unified version for a vote in the full Senate.

The ongoing lobbying battle over stablecoin yield between the crypto industry and banking sector has stalled progress on the legislation for some time. However, it is not the sole contentious issue. The sector will also need clarity on the final oversight framework for the decentralized finance (DeFi) ecosystem, which has continued to be a concern for Democrats seeking to ensure protections against illicit finance. Additionally, Democrats have demanded a prohibition on senior government officials profiting personally from the crypto sector—a measure specifically targeting President Donald Trump.

Despite the industry’s significant victory last year when the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act became the first major U.S. legislation to regulate a segment of the crypto industry, it was intended as the less critical first step of a two-part policy approach culminating in the Clarity Act.

The comprehensive integration of crypto into the U.S. financial system will resolve regulatory ambiguities for investors who have been reluctant to engage in the sector. Insiders in digital assets believe it will create opportunities for institutional investors and developers eager to build upon the technology.