US Banks Target CLARITY Act Stablecoin Rewards to Combat Deposit Flight
Banks aim to prevent stablecoin rewards from competing with deposit accounts.
1Banking Industry's Pushback on Stablecoin Rewards
A coalition of 78 banking groups is urging amendments to the CLARITY Act to restrict stablecoin rewards, arguing they could function like deposit products. Banks warn these incentives might trigger outflows from traditional deposit accounts, undermining lending capabilities.
2Loopholes in Current Legislation
The draft bill prohibits returns 'solely' for holding stablecoins, but banks claim this wording allows loopholes. They propose removing 'solely' and replacing the 'economically equivalent' test with a stricter 'substantially similar' standard to curb creative reward structures.
3Deposit Flight Concerns
Banking groups caution that attractive stablecoin yields could divert funds from deposit accounts, potentially reducing capital available for mortgages, small-business loans, and agricultural credit—key pillars of traditional banking.
4Impact on Regulated Issuers
If adopted, the amendments would complicate yield offerings by compliant issuers like Circle and Paxos, limiting their ability to compete with offshore crypto platforms while maintaining regulatory compliance.
5Shift Toward Payment Infrastructure
The proposals refocus stablecoins as payment and settlement tools, with revenue models tied to transactional use cases (transfers, integrations) rather than consumer-facing yield products—a strategic pivot for the industry.
6Legislative Battle Ahead
These amendments will shape how payment stablecoins coexist with traditional banking products under the CLARITY Act, marking a critical juncture in the competition between legacy finance and fintech innovation.