According to a report this afternoon, a compromise has been reached on the CLARITY Act and stablecoin yield.
The CLARITY Act, or crypto market infrastructure legislation, has been held up by the banking industry, which fears competition from the digital asset sector. Banks worry that if users hold stablecoins and earn interest or generate yield, it will undermine their traditional lending business, which relies on paying little or nothing for deposits and then lending the same funds at a considerably higher rate.
According to Punchbowl News, which first revealed the update, Senators Thom Tillis and Angela Aslobrooks have agreed upon language pertaining to stablecoin rewards. The bill now clarifies that digital asset firms may offer rewards tied to stablecoin holdings, but there is a prohibition on rewards offered “in a manner that is economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.”
The legislation is apparently ready to move to a markup in the Senate Banking Committee and, from there, to a full Senate Vote. As the House has already approved its version of the legislation, the bill is nearing a trip to the White House for signature into law.
While a compromise had been debated for weeks, not all industry insiders were completely pleased with the hobbling language, which is clearly a win for legacy banks.
Coinbase Chief Policy Officer Faryar Shirzad declared that it is time to get CLARITY done, while adding a caveat that the debate was based on imagined risk and not real evidence, nor a real understanding of how crypto actually works.
“In the end, the banks were able to get more restrictions on rewards, but we protected what matters – the ability for Americans to earn rewards, based on real usage of crypto platforms and networks. We also ensured the US can be at the forefront of the financial system, which in this competitive geopolitical era is paramount. That’s important for innovation, consumers, and America’s national security. Now that this issue is behind us, it’s time to focus on the broader bill. While this debate has been underway, lots of progress has been made in other areas like token classification, DeFi, and tokenization. We’re excited to review the full, final text, and for the bill to move forward. It’s time to get CLARITY done.”
While a win for legacy banks, which always have the option to compete on a level playing field, there is an expectation that, over time, innovation and benefits to consumers will eventually topple the moat established by financial firms that fear change. Effectively, it will be a short-term win for the banking industry, which has always excelled at lobbying and using regulation to stifle competition.
Perhaps the most disappointing aspect of the disagreement was that policymakers sided with banks and not consumers.
An announcement regarding a markup hearing should be posted by the Senate Banking Committee soon.