Clarity Act Update: Why Are Banks Fighting Against Stablecoin Yield?

The ongoing debate over stablecoin yields in the U.S. has led to significant legislative hurdles, with the proposed CLARITY Act facing delays and opposition from key industry players. Initially, U.S. banks believed the GENIUS Act, signed in July 2025, would curb competition from stablecoins by banning issuers from paying yield on their tokens. However, this provision did not extend to cryptocurrency exchanges, which soon began offering substantial yields on stablecoins like USDC, far exceeding traditional bank deposit rates.

The Emergence of a "Loophole" and its Impact

Following the GENIUS Act, exchanges such as Coinbase and Kraken started offering yields around 4-5% on stablecoins, while major banks like Chase offered only 0.01%. The crypto industry, represented by organizations like the Blockchain Association, argued that Congress had intentionally left this avenue open. This situation prompted concerns from the banking sector, with Bank of America's CEO estimating that up to $6 trillion in deposits could shift from U.S. banks to stablecoins. The Federal Reserve's own modeling suggested a potential reduction in lending capacity of up to $1.26 trillion in a high adoption scenario.

Legislative Efforts and Industry Pushback

In response to the banking industry's pressure, Congress introduced the CLARITY Act, aiming to extend the yield prohibition to all digital asset service providers. This move led to Coinbase withdrawing its support in January, causing a postponement of the Senate vote. Despite a March 1 deadline passing without a deal, a compromise was announced on March 20 by Senators Tillis and Alsobrooks, proposing a ban on passive yield while permitting activity-based rewards. However, Coinbase has since rejected this draft, stating it cannot support language that bans yield "directly or indirectly" or anything "economically equivalent to bank interest."

Conflicting Government Interests

The core of the legislative challenge lies in the U.S. government's divergent interests. While banks advocate for stricter regulations to retain deposits, the Treasury Department, under Secretary Bessent, anticipates stablecoins will drive significant demand for U.S. government bonds, potentially reaching $2 trillion. Tether, for instance, already holds over $130 billion in Treasuries. Negotiators are reportedly targeting committee action on the CLARITY Act by the end of April, making the situation a continued "wait-and-watch game" for the market.