Crypto Regulations: CLARITY Act Draft Says No to Stablecoin Yield

Key Insights:

• Stablecoin yield ban proposed under Clarity Act compromise with the recent developments in US crypto regulations.
• Some crypto leaders view the proposal as overly restrictive, warning that vague definitions could limit innovation.
• The White House, lawmakers, and industry groups are reviewing the draft, with April markup targeted.

Amid the ongoing crypto regulatory developments in the U.S, the CLARITY Act draft has a major twist. As per reports, there is likely to be a major compromise on stablecoin yields and rewards. On March 23, the representatives from the crypto and banking industries discussed the same.

Crypto Regulations: Clarity Act Script Flips on Stablecoin Yields

Crypto journalist Eleanor Terrett reported that new details have emerged from the proposed CLARITY Act.

The legislative compromise focuses on stablecoin yield and rewards. This highlights changes in how they may be regulated. Following the legislative draft, industry stakeholders have had mixed reactions.

According to the email reviewed by Terret, the proposal would prohibit platforms from offering yield, directly or indirectly, for holding stablecoins. Thus, holding stablecoins will get no incentives similar to interest-bearing bank deposits.

Source: X

Terrett reported that these restrictions apply broadly to digital asset service providers, including exchanges and brokers. They also extend to their affiliates. The draft also bans incentives deemed “economically or functionally equivalent” to interest payments.

However, the proposal notes that there would be activity-based rewards. This includes loyalty, promotional, or subscription programs, provided they are not treated as interest.

The draft requests top regulators, such as the US SEC, CFTC, and the Department of the Treasury to work together. They must jointly define what rewards are permissible.

Industry reactions to the proposal were divided. One crypto industry leader described the draft as more restrictive than previously discussed. He warned that the “economic equivalence” standard could be interpreted broadly by future regulators.

Another industry participant called the proposal largely balanced. The participant added that it preserves transaction-based incentives while ensuring stablecoins do not function like interest-bearing deposit accounts.

Where’s The CLARITY Act Heading?

The White House is working with Thom Tillis and Angela Alsobrooks. They began collaborating after nearly two months of negotiations on the proposed CLARITY Act.

The discussions focus on banks’ concerns that stablecoin yield offerings could trigger deposit flight. They also warn that such yields may weaken traditional lending activity.

Industry representatives from crypto trade associations are scheduled to meet with the U.S. Senate Banking Committee. Similarly, the banking sector representatives will review the legislative text separately.

Wyoming Senator Cynthia Lummis recently suggested that crypto platforms could also be restricted from offering rewards framed as deposit-like yields. The timeline for further negotiations may be limited, as lawmakers are reportedly targeting an April markup.

Some of the additional parts of the Clarity Act legislation include DeFi oversight, token classification, and a tokenization framework. It will still require final revisions before Tim Scott schedules committee action.

Meanwhile, the White House Council of Economic Advisers plans to release a study on stablecoin yield. The study will examine potential risks of deposit flight. Sources indicated the analysis may present findings favorable to the crypto industry. This brings another aspect to the ongoing policy debate.

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