Recent developments in U.S. stablecoin regulation show meaningful progress in negotiations over stablecoin rewards, a key sticking point that has delayed broader crypto market structure legislation such as the CLARITY Act.
The White House has taken a more active role in mediating between banks and crypto firms, leading to a noticeable narrowing of differences. White House Crypto Council Executive Director Patrick Witt stated that the gap between the two sides has “shrunk considerably” following a closed-door meeting last week.
This comes after several sessions where the administration presented draft legislative text to bridge positions. The talks involve representatives from crypto entities like Coinbase, Ripple, and Andreessen Horowitz, as well as banking groups such as the American Bankers Association (ABA), Bank Policy Institute, and Independent Community Bankers of America.
Key Points of Progress and Compromise
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Yield on idle balances is effectively off the table: Offering interest or rewards simply for holding stablecoins resembling bank deposits is no longer viable under emerging proposals. This addresses banks’ primary concern that such rewards could drive deposit outflows, reduce lending capacity, and create systemic risks.
Focus shifting to limited, activity-based rewards: The debate has narrowed to allowing narrowly scoped incentives tied to specific user actions, such as transactions, network participation, or other activities—rather than passive holdings. The White House has favored some form of these limited rewards and urged banks to accept them to advance the legislation.
Restrictions would be narrow in scope: Draft language acknowledges bank concerns from their “Yield and Interest Prohibitions Principles” but emphasizes targeted limits rather than outright bans on all rewards.
Officials aim to resolve this issue by March 1, 2026, to clear the path for Senate debate on the broader package. This dispute stems from earlier laws like the GENIUS Act, which regulates stablecoin issuance but prohibits direct interest from issuers—though third-party platforms have offered reward-like programs.
Banks view unrestricted rewards as competitive threats and potential loopholes, while crypto firms argue bans stifle innovation and favor incumbents.Attendees from recent meetings including a February 19–20 session described discussions as constructive and cooperative, with incremental alignment on language.
However, no final deal has been sealed yet, and some reports note that Polymarket odds for CLARITY Act passage dipped to around 44–55% in recent fluctuations amid ongoing Senate hurdles. The closing gap—driven by White House leadership—suggests momentum toward a compromise that balances innovation with financial stability concerns, potentially unlocking stalled crypto legislation soon.
With the White House actively mediating and the gap between banks and crypto firms narrowing significantly, a compromise appears increasingly likely by the stated March 1 deadline. This could have substantial ripple effects across the financial system, crypto innovation, consumers, and broader markets.
The emerging framework—banning yield and rewards on idle and passive stablecoin holdings to avoid direct competition with bank deposits while permitting limited, activity-based rewards tied to transactions, liquidity provision, network participation, or other user actions—would represent a balanced middle ground.
Reduced risk of significant deposit outflows, as passive yield-bearing stablecoins which could mimic interest-bearing accounts are effectively prohibited. Banks have argued this protects lending capacity, credit creation for small businesses, farmers, homebuyers, and overall systemic stability.
Preservation of core revenue streams from deposits and payments estimated in hundreds of billions annually, avoiding what some critics call a “hidden tax” on households via lower competition.
Continued ability to offer incentives for active usage helps maintain user engagement, platform growth, and competitiveness—key for recruitment and innovation without fully conceding to banks’ demands for a total ban.
Avoids stifling development or handing incumbents an unfair edge, as crypto advocates have warned. Platforms like Coinbase, Ripple, and others could sustain or expand reward programs; transaction-based loyalty incentives, supporting adoption without resembling traditional banking products.
Enhanced regulatory clarity reduces uncertainty, potentially increasing trust and mainstream adoption of stablecoins for payments and remittances. Avoids a scenario where broad bans limit consumer options in a high-inflation and affordability environment.
Resolving this logjam could accelerate CLARITY Act progress in the Senate, unlocking broader crypto market structure rules. Polymarket odds for passage have fluctuated recently dipping to ~44-55% amid delays but showing recovery potential with progress; a deal by March 1 could boost confidence and reverse downward trends.
Positive momentum for U.S. crypto competitiveness globally, reducing risks of innovation migrating offshore. Delays or failure could keep the CLARITY Act stalled in the Senate, prolonging regulatory uncertainty and hindering bipartisan digital asset legislation.
If banks prevail with stricter prohibitions, crypto firms face reduced incentives ? slower growth, lower user rewards, potential competitive disadvantages. If banks concede more, risks of deposit flight and lending pressures rise, though evidence of major impacts from current stablecoin adoption remains debated.
Ongoing uncertainty has already pressured sentiment; prolonged deadlock could dampen investor enthusiasm and slow stablecoin and capital inflows. The White House’s direct involvement and Patrick Witt’s optimistic comments suggest momentum toward a pragmatic compromise that prioritizes financial stability while allowing targeted innovation.
If achieved by March 1, this could trigger faster legislative movement and benefit both sectors in the long run—balancing competition with safeguards. However, the exact language on “activity-based” scope remains a final hurdle, with bank trade groups still gauging member support.