A brewing showdown over stablecoin rewards is threatening to derail Congress’s latest push to regulate digital assets, as banks and crypto firms clash over who should be allowed to pay yield.
The fight has intensified following the release of a sweeping Senate bill that would reshape oversight of the crypto industry just days before a critical committee vote. However, much of the immediate attention has centered on how the bill treats rewards tied to stablecoins.
Lawmakers, industry executives, and banking groups are now combing through dense legal language ahead of a fast-approaching amendment deadline. Under the current draft, digital asset service providers would be barred from paying interest or yield to users simply for holding payment stablecoins.
However, the bill includes carve-outs that allow activity-based incentives linked to specific actions. Those actions include making transactions, staking assets, providing liquidity, or posting collateral.
That distinction has placed stablecoin rewards at the heart of a broader policy struggle. Banks argue that any form of yield connected to stablecoins risks draining deposits from the traditional banking system. Meanwhile, crypto firms say the proposed limits threaten a core feature customers already expect.
Banking groups have sharply criticized a previous stablecoin law known as GENIUS, which passed over the summer. That law prohibits stablecoin issuers from paying direct interest. However, it allows third-party platforms, including Coinbase Global Inc. (NASDAQ: COIN), to offer rewards tied to stablecoin balances.
Banks say that gap creates an uneven playing field. Additionally, they warn that community banks could suffer if customers shift funds into yield-bearing crypto products. Conversely, crypto advocates argue the issue was debated extensively before GENIUS passed.
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Stablecoins sitting idle would not earn yield
The latest bill text appears to reflect a compromise floated last week by Angela Alsobrooks, a Democrat involved in negotiations. However, a person familiar with the talks said the language does not align with that agreement.
According to that person, the current draft allows too many exemptions. Consequently, it fails to establish a clear prohibition on passive yield. Alsobrooks’ proposal would permit rewards only when users actively engage with their stablecoins, such as selling or transacting them.
Under her framework, stablecoins sitting idle in an account would not earn yield. Furthermore, the intent was to draw a bright line between engagement-based incentives and passive interest.
That disagreement may soon escalate. One source said a more restrictive amendment is likely to be filed before the Senate Banking Committee’s markup. Additionally, that amendment may already have the votes needed to advance out of committee.
The prospect of tighter restrictions has alarmed parts of the crypto industry. Summer Mersinger, chief executive of the Blockchain Association, accused large banks of negotiating in bad faith.
She said crypto firms have engaged constructively while banks continue to push what she described as unreasonable demands. Furthermore, she warned that derailing the bill would leave banks stuck with the GENIUS framework they previously criticized.
According to Mersinger, that outcome would expose who is acting in consumers’ interests. She added that it would also reveal who is trying to preserve entrenched market power.
The American Bankers Association, which has followed the negotiations closely, declined to comment on the latest developments.
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Meanwhile, staff and lobbyists described the mood in Washington as intensely focused. One person familiar with the process said stakeholders were working through the text line by line. Additionally, amendments are due by 5 p.m. Tuesday, leaving little time to resolve deep disagreements.
Beyond yield, another unresolved issue looms over the bill. Democratic lawmakers continue to press for ethics provisions tied to President Donald Trump and his family’s crypto ventures.
Over the past year, Bloomberg has estimated that Trump earned more than USD$600 million from crypto-related projects. Those ventures include decentralized finance platforms and the stablecoin project World Liberty Financial. Additionally, the Trump family holds a 20 per cent stake in the private mining firm American Bitcoin (NASDAQ: ABTC).
Key Democrats have described ethics language as a red line. Furthermore, they argue the bill cannot advance without safeguards addressing potential conflicts of interest.
According to reporting from Punchbowl News, several Democratic senators have made ethics provisions a non-negotiable condition. However, those talks remain unresolved.
This week, Patrick Witt, executive director of the President’s Council of Advisors for Digital Assets, said negotiations with Democrats had not produced an agreement. He argued that provisions targeting the president or his family could face constitutional challenges.
Witt said the administration would not accept language he believes singles out specific individuals. Additionally, he warned that such measures could derail bipartisan cooperation.
Despite the friction, Democratic aides say talks remain active. One aide involved in negotiations said Democrats agree digital asset legislation is necessary. However, they oppose moving forward on an arbitrary timeline.
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The Senate Banking Committee plans to hold its markup
According to that aide, roughly six major issues remain unresolved. Those include yield restrictions, ethics language, and ensuring regulatory decisions are made by fully constituted commissions. Consequently, Democrats say they are not yet ready to support advancing the bill.
The Senate Banking Committee plans to hold its markup Thursday, where amendments will be debated and voted on. Meanwhile, attention is also shifting to the Senate Agriculture Committee, which oversees the CFTC.
That committee postponed its own digital asset hearing until later in January. Subsequently, any bill advancing from Banking will need to be reconciled with Agriculture’s version before reaching the Senate floor.
Democratic support remains critical at every stage. Additionally, most major legislation requires 60 votes to clear the chamber, giving the minority party substantial leverage as negotiations continue.
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