New Agreement Bans Stablecoin Yields

A recent agreement has put a stop to stablecoin yields as part of an updated approach to the controversial Cryptocurrency Market Structure Bill. This mirrors discussions that have been ongoing since early this year.

The proposed Digital Asset Market Transparency Act, revealed on Friday, outlines that stablecoin issuers cannot offer yields based solely on their reserves. This compromise, crafted by Senators Thom Tillis (R-N.C.) and Angela Alsobrooks (D-Md.), emphasizes that “custodians provide financial services essential to the strength of the U.S. economy.” It suggests that stablecoin issuers providing similar services could potentially disrupt these institutions.

The agreement now in place likely sets the stage for a Senate Banking Committee hearing, which could be a significant step towards the bill’s passage in the Senate. However, several negotiating points remain unresolved.

Coinbase CEO Brian Armstrong expressed urgency, stating, “Mark it up, please,” on social media. His company is heavily involved in these discussions and could face considerable losses due to the new limitations on stablecoin rewards.

Paul Grewal, Coinbase’s chief legal officer, commented as well, indicating that the current language “maintains activity-based rewards tied to actual participation” in crypto platforms, aligning with what the banking lobby desires. He added that their focus is on getting the bill passed and that the current provisions should not trigger opposition.

The legal language, in short, asserts, “A covered party shall not pay any form of yield… to any restricted recipient.” This means no payments related to stablecoin holdings that mimic interest on bank deposits.

That said, this restriction doesn’t apply to incentives related to genuine activities or transactions that differ from typical bank deposit yields. The text suggests that this could allow loyalty programs and similar initiatives to remain in place.

One industry official mentioned that this could push digital asset companies to rethink how they generate yields, transitioning from a “buy-and-hold” model to a “buy-and-use” approach, aligning with the outlined trading conditions. Yet, there’s a fair amount of ambiguity on how this transition will take shape, particularly given a rulemaking clause that tasks the Treasury Department and the Commodity Futures Trading Commission with clarifying yield offerings within a year of the bill’s passing.

Corey Freyer from the Consumer Federation of America noted that the rulemaking provision could allow regulators flexibility in defining yield products for crypto companies. This might enable such companies to engage in various activities and return profits to customers based on several factors, including the nature and length of the activities involved.

Furthermore, the provisions include guidelines aimed at preventing the circumvention of these rules.

Senators Allbrooks and Tillis have been working through these details following a delay in the Senate Banking Committee’s review of the Clarity Act last January. Since then, inputs from bank lobbyists and crypto insiders have been sought, including discussions held with the White House.

In March, lawmakers announced an agreement to forbid crypto firms from offering yields resembling interest on deposits, while permitting them to establish rewards programs that do not compete directly with traditional banks.

Cody Carbone, CEO of the Digital Chamber of Commerce, praised the public release of the stablecoin yield language, calling it a crucial step in resolving one of the last hurdles before markup. He reiterated their commitment to advocating for rewards as a way to enhance consumer utility, competition, and innovation in the digital asset space.