The biggest hurdle to the CLARITY Act‘s approval in the Senate appears to be the issue of stablecoin holders generating yield. The bugaboo here is legacy banks, which tend to hold deposits and pay little to no yield to their customers. As these same banks then lend the money out and earn income from providing credit, they effectively get free money to run their business. Banking incumbents are concerned that stablecoins may make this model untenable or, at least, more difficult.
One thing banks are very good at is lobbying. The whole sky is going to fall if stablecoin holders earn yield should have been a non-starter from the start. But some elected officials prefer the Bank PAC dollars to continue and ongoing support from these constituents, even though it means screwing over the little guy.
Banks are getting into the stablecoin business, too. They will be able to compete with non-bank stablecoin issuers on a level playing field. They just don’t like this and would prefer a regulatory moat so they can keep the easy money going. But a consensus may be forming.
At last week’s crypto meeting, Patrick Witt, Executive Director of the President’s Council of Advisors on Digital Assets, who is leading negotiations, reported that there was a “big step forward” and that they are closer to an agreement.
“Provided we continue to have good faith engagement from both sides on this issue, I fully expect we will meet our deadline.”
Paul Barron echoed the positive sentiment, stating the “White House is now leaning on banks, and the banks are holding the CLARITY Act hostage.”
The White House has set a soft deadline for the CLARITY Act by the end of this month. Could President Donald Trump provide an update at tomorrow’s State of the Union address? It is possible.
The banking industry’s fearmongering is a losing argument. The train has left the station, so don’t stand in front of it. In the end, stablecoin yield will enhance the economy, encourage more individuals around the world to hold dollars, and, in turn, lead issuers to purchase more Treasuries. This is a win-win that banks can be a part of, or they can turn their backs on innovation and change, looking to become the next Blockbuster Entertainment.
The US is at an inflection point. Lead the world in digital asset innovation or make old banks happy and push against change. This is classic disruptive innovation. The banking community has a choice. Let’s hope they make the right one.