The debate over yield on stablecoins and the regulatory framework surrounding US crypto markets has sharpened as lawmakers expand the CLARITY Act’s reach. Industry figures argue that prohibiting yield on stablecoins could erode the dollar’s competitiveness against China’s Digital Yuan, a narrative that gained urgency as the People’s Bank of China moves forward with yield opportunities for digital currency deposits. The policy stance comes amid a broader reckoning over how to balance innovation, consumer protection, and the resilience of traditional banking systems.
Key Considerations
- •The CLARITY Act tightens the prohibition on yield-bearing stablecoins, intensifying tensions between crypto markets and incumbent banks.
- •Critics warn the move could weaken US dollar competitiveness versus the Digital Yuan, which is exploring yield-bearing features.
- •Industry leaders, including Anthony Scaramucci and Brian Armstrong, argue the policy risks dampening innovation and market competition.
- •Regulators frame the measures as a shield for traditional financial stability, even as debates about capital flows and stability continue.
Regulatory Impact on Stablecoins
The expanded prohibition on yield-bearing stablecoins in the CLARITY Act tightens the leash on US issuers seeking to offer rewards to stablecoin holders. Critics argue that this restriction, framed as a consumer-protection measure, effectively blocks a competitive mechanism that helps US-issued stablecoins stay relevant in global markets. Anthony Scaramucci, founder of SkyBridge Capital, pointed to the policy as part of a broader misalignment in the US approach to crypto market structure. He noted that banks may resist competition from stablecoin issuers by denying yield, while other nations press ahead with yield-bearing digital assets, potentially shaping how emerging markets choose their rail systems. The full context for his remarks can be traced to ongoing discussions around the CLARITY Act and its implications for the crypto ecosystem.
“The Banks do not want the competition from the stablecoin issuers, so they’re blocking the yield. In the meantime, the Chinese are issuing yield, so what do you think the emerging countries will choose as a rail system, the one with or without yield?”
China's Digital Yuan and Yield Opportunities
The policy environment is evolving alongside broader monetary experiments. In January, the People’s Bank of China began allowing commercial banks to pay interest on digital yuan deposits, a development that underscores the central bank’s willingness to integrate traditional yield incentives into a digital currency framework. The move is seen by some as a strategic signal that digital currencies can coexist with, or even supplant, traditional fiat in certain use cases, particularly in cross-border and retail transactions. For observers, the juxtaposition with the United States’ tight stance on yield-bearing stablecoins highlights a growing divergence in how major economies are treating central bank digital currencies and market-based incentives.
Industry Concerns on Competitiveness
Brian Armstrong, chief executive of Coinbase, has warned that prohibiting yield on US stablecoins could make the dollar less competitive in international markets relative to the Digital Yuan. He underscored that rewards on stablecoins are unlikely to alter lending dynamics, but they do influence competitiveness and the willingness of users and institutions to deploy US-issued tokens in various jurisdictions. Armstrong’s comments reflect a broader industry concern that policy choices in Washington could have outsized effects on where global capital flows through stablecoins and other crypto rails.
Broader Market Structure and Regulatory Frameworks
The stance on stablecoin yields feeds into a broader debate about market structure in the US. The ban on yield-bearing stablecoins has been described by executives as a tactical move to choke off competition to the traditional banking system, a concern echoed across industry circles that view US regulation as lagging behind technological and financial innovation. The discussion around stablecoins and yield also connects to ongoing conversations about the GENIUS Act and related regulatory frameworks aimed at stabilizing dollar-backed digital currencies while safeguarding financial stability.
Potential Impact on Traditional Banking
The CLARITY Act’s expanded scope, which builds on earlier measures, places additional emphasis on how stablecoins interact with traditional banking and monetary policy. Bank of America executives have warned of potential collateral effects, including outflows that could stretch into trillions of dollars in deposits and constrain lending capacity if stablecoin ecosystems divert a significant portion of consumer funds from banks. Moynihan’s remarks, reported during an earnings call, underscore the belief that a yield-bearing stablecoin regime could redefine the flow of funds in the US financial system. $6 trillion in bank deposit outflows is the figure cited in some discussions, illustrating the scale of potential disruption.
Balancing Innovation and Financial Stability
The policy trajectory also intersects with ongoing debates about how the US should balance innovation with systemic risk. Regulators argue that a disciplined framework can shield consumers and the financial system from destabilizing incentives, while critics insist that excessive restrictions could push innovation abroad and reduce the US’s influence over a rapidly evolving global digital currency landscape. As lawmakers refine the GENIUS Act and related measures within the CLARITY Act’s updated mandate, the industry will be watching closely how these rules translate into practical compliance, cross-border competition, and the ultimate resilience of crypto markets in the United States.