The fight over the CLARITY Act is increasingly centered on a deceptively simple question: should a crypto platform be allowed to pay customers for holding stablecoins?
Congress already addressed part of that issue through the GENIUS Act. The stablecoin law prohibits permitted payment stablecoin issuers from paying holders interest or yield solely for holding, using or retaining their stablecoins.
But that left an important distinction. Stablecoin issuers such as Circle cannot directly pay yield on their tokens, while exchanges and other intermediaries may structure rewards programs around stablecoin balances.
Banks argue that distinction is a loophole. Crypto companies argue that closing it would unnecessarily protect banks from competition. The unresolved dispute has now migrated into the CLARITY Act, the broader legislation intended to establish rules for U.S. crypto markets.
Banks Say Stablecoin Rewards Are Deposits in Disguise
The Senate Banking Committee’s May version of the CLARITY Act substantially tightened the rules. Section 404 was rewritten as “Prohibiting Interest and Yield on Payment Stablecoins” and introduced a broader test covering payments that are economically or functionally equivalent to interest or yield.
That matters because stablecoins can compete directly with bank deposits for cash. Banks earn money by accepting deposits and lending or investing those funds. Stablecoin reserves, meanwhile, are typically invested in highly liquid assets such as short-term U.S. Treasuries. Crypto companies can potentially share some of the resulting economics with customers through rewards.
Banking groups have consequently pushed lawmakers to prevent exchanges and affiliates from doing indirectly what stablecoin issuers cannot do directly.
The American Bankers Association, Independent Community Bankers of America and dozens of state banking associations have urged senators to strengthen those restrictions, arguing that yield-bearing stablecoin arrangements could pull deposits away from community banks and reduce their capacity to lend.
The crypto industry counters that rewards are not necessarily equivalent to bank interest and that platforms should remain free to fund incentives from their own revenues.
September Vote Leaves the Question Open
The dispute matters because the CLARITY Act still has a difficult legislative path. The Senate left Washington for its August recess without completing action on the bill. Senate Majority Leader John Thune filed a procedural motion setting up a potential September 15 vote, which would require 60 senators to advance the legislation.
That means Republican supporters will need Democratic votes. Stablecoin rewards are only one obstacle. Democrats have also demanded stronger restrictions involving government officials’ crypto interests and additional anti-money-laundering safeguards. Nevertheless, Reuters identified stablecoin rewards and their potential effect on community-bank deposits as one of the remaining points of negotiation.
The economic stakes extend beyond crypto exchanges. If platforms can continue paying meaningful rewards on dollar-backed tokens, stablecoins could increasingly resemble interest-bearing cash products from a consumer’s perspective even if they remain legally distinct from bank deposits.
If Congress broadly prohibits those rewards, stablecoins would retain their utility for payments, settlement and trading but lose one of their strongest tools for attracting idle consumer cash. The GENIUS Act settled who can issue regulated payment stablecoins and established that issuers themselves cannot simply pay holders interest.
It did not completely settle who else can pay customers for holding them. That is why the CLARITY Act’s stablecoin fight matters. Behind the technical language is a much larger question about whether digital dollars should compete with bank deposits on yield — and Congress still has not decided where that boundary belongs.
