A significant new rule for stablecoins is taking shape in the U.S. Senate.
The latest draft of the CLARITY Act maintains a key provision: a ban on earning interest just for holding stablecoins. This is often called 'passive interest'. However, the bill does allow for rewards linked to specific actions, such as using stablecoins for payments, staking them in a network, or providing them as collateral. The core idea is to encourage active use rather than passive holding.
So, why is Congress making this distinction? The main reason is to protect the traditional banking system. Regulators and banks are concerned that if stablecoins offer high, easy returns, they could become a direct competitor to bank savings accounts. This might lead to a mass withdrawal of funds from banks, known as a 'deposit outflow', which could reduce banks' ability to lend and potentially destabilize the financial system.
The journey to this proposed rule has several key steps. First, the stablecoin market grew to a systemically important size, surpassing $300 billion, which put it on the regulatory radar. Second, influential analyses from institutions like the U.S. Federal Reserve highlighted the potential risks to bank deposits, providing a theoretical basis for the ban. Third, banking industry groups actively lobbied for this prohibition, arguing it was necessary to maintain a level playing field and prevent financial instability.
This potential ban directly impacts the business models of major crypto platforms like Coinbase and Circle, which profit from the interest earned on the reserves backing their stablecoins (like USDC) and share some of it with users as rewards. If the law passes as drafted, these companies will need to redesign their reward programs to be based on user 'activity' rather than just balances. This could mean shifting to models like subscription benefits or transaction-based incentives, fundamentally changing how users interact with and benefit from stablecoins.
- Glossary
- Stablecoin: A type of cryptocurrency whose value is pegged to another asset, such as the U.S. dollar, to maintain a stable price.
- Passive Interest: Earnings or yield received by a user simply for holding a digital asset in a wallet, without any other required activity.
- Deposit Outflow: A situation where a large number of depositors withdraw their money from banks at the same time, often due to concerns about the banking system's stability or the availability of better returns elsewhere.