Clarity Act to Curb Stablecoin Yield Rewards : Reports

A revised draft of the Crypto Clarity Act has triggered fresh concerns, as stablecoin rewards may be curbed in the US. Lawmakers shared the updated clause with industry participants during a closed-door session on Capitol Hill earlier this week.

Early responses imply that the proposal could significantly restrict how companies structure incentives for users of stablecoins. At the core of the discussion is the clause that does not allow companies to offer yield simply for holding stablecoins.

This provision, introduced by Senators Angela Alsobrooks and Thom Tillis, draws a clear line between passive holdings and activity-based rewards. As per the draft, any structure that resembles interest earned on bank deposits would be curbed.

Clarity Act Won’t Allow Stablecoin Yield Rewards

Industry leaders who saw the text described the language as narrow and, in parts, difficult to interpret. Even as it allows rewards of user activity, the draft does not clearly say how such programs actually work. This lack of clarity may leave firms uncertain about rules, particularly as scrutiny around crypto regulation steps up.

Pressure on traditional financial institutions to ban balance-based rewards is growing. Thus, financial groups have warned that an interest-like return on stablecoins could directly compete with deposit schemes. They worry that such a structure could draw customers away from banks and dampen lending activity. Lawmakers seem to be guiding the bill in the direction of a compromise that separates crypto incentives from traditional models of banking.

The rewritten draft is one of many efforts to push the legislation forward after negotiating for months. Earlier drafts of the Clarity Act have already progressed through portions of Congress, and the bill has been under discussion across multiple committees. A previous version of the same bill passed in the House of Representatives last year, and another version cleared a markup stage in the Senate Agriculture Committee.

The next major step lies with the Senate Banking Committee. Progress there would allow lawmakers to consolidate different versions of the bill into a final proposal for a full Senate vote. But timelines remain uncertain. 

Senate Majority Leader John Thune recently said that the bill is unlikely to pass the committee before April, suggesting further delays may be ahead. Stablecoin yield has become among the bill’s most controversial aspects.

An effort to persuade lawmakers from both the crypto sector and the banking sector has molded the current draft. Note that the latest language tries to resolve conflicting interests, but it may also restrict the flexibility used by crypto firms to draw users to them.

The argument stretches well past stablecoins. Questions about the oversight of decentralized finance continue to split lawmakers. But some Democrats have favored tighter precautions in DeFi protocols to address illicit finance risks within DeFi protocols. These issues are unresolved and may determine the ultimate form of the bill.

Another politically sensitive issue involves restrictions on government officials engaging with the crypto industry. Some officials have requested provisions to deny senior officials personal crypto profits. The proposal has made negotiating even more complicated, as it has political implications.

Even so, the Clarity Act is considered quite significant for the crypto market in the U.S. An earlier milestone came with the passage of the Guiding and Establishing National Innovation for US Stablecoins Act, which established rules for stablecoin issuance. But industry participants view that law as only part of a greater regulatory effort.

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