US Senators strike crypto deal to break Senate gridlock on stablecoin rules

A major crypto bill has made headway after lawmakers reached a tentative deal on stablecoin rules, putting a hold months of delays in the Senate.

The issue of stablecoin rewards has held up the Digital Asset Market CLARITY Act in the Senate Banking Committee since January, as senators and the White House tried to find common ground.

Senators and the White House reach a deal to move the crypto bill forward.

Senators and the White House finally agreed on how to handle stablecoin rewards after Republican Thom Tillis and Democrat Angela Alsobrooks reached an “agreement in principle.” The discussions happened recently as White House officials and the senators worked together to review updated versions of the text just days before this breakthrough.

Sen. Alsobrooks spoke about the agreement and said, “I think what it will do is to allow us to protect innovation, but also gives us the opportunity to prevent widespread deposit flight.” 

Similarly, Sen. Tillis shared his view, saying, “In working with the White House, I think we have an agreement.” However, he explained that the work isn’t complete when he said, “Now we have to vet it with industry, because they are a party to an ultimate deal.”

In simple terms, the final version of the bill depends on whether crypto companies and traditional financial institutions accept this compromise, as the rules directly affect them.

According to reports, banks and crypto firms may only access the full details of the agreement after internal sharing, possibly by early the following week, as they currently aren’t available publicly. 

The top White House policy adviser, Patrick Witt, praised the efforts of Tillis and Alsobrooks and said they were “bridging the partisan divide to tackle a difficult issue.” He also explained that there’s still much to do when he said, “More work to be done to close out this and other outstanding issues, but this is a major milestone toward passing the CLARITY Act.”

An agreement between crypto firms and banks could increase the likelihood that lawmakers hold a formal hearing in late April to turn it into law. Overall momentum around the bill has also resurfaced, as the agreement is a turning point for the crypto industry after months of delay. Even though there is still more work to do, investors remain hopeful of more favorable guidelines for digital assets in the United States.

Lawmakers limit stablecoin rewards to reduce risks to banks and the financial system

The root of the disagreement between banks and crypto companies better explains why lawmakers are just now making progress after months of delay.

Crypto companies want to offer users rewards for holding stablecoins, just like interest on bank deposits, to attract more investors to crypto platforms. However, banks argued that stablecoin rewards act like bank deposits but don’t follow the same rules as these financial institutions, nor do they offer the same level of protection to users. 

According to traditional financial institutions, stablecoin rewards will reduce interest in bank deposits, leading banks to have less money to lend, and access to credit will decline, weakening the economy’s financial stability.

Because of these risks, lawmakers had to find a solution that protects the financial system without barring innovation in the crypto industry. Now, as per the new agreement, users can’t earn rewards simply by holding stablecoins, and Sen. Angela Alsobrooks explained this clearly when she said, “The proposal would bar yield payments on a passive balance.”

The new agreement allows activity-based rewards linked to how people use their stablecoins. For example, users may still earn rewards from transactions, service use, or platform activities, reducing the risks that worry banks, while still allowing crypto platforms to offer useful features. 

However, lawmakers still need to define what counts as a “passive balance,” explain the types of rewards allowed under active use, and decide how to enforce these rules in real situations.

Meanwhile, crypto companies like Circle and Coinbase continue to advocate for greater flexibility, saying strict limits will slow innovation and push activity outside the country. According to them, competing with platforms in other countries with fewer restrictions will become difficult while operating in the US.

On the other hand, banks want to avoid large movements of money that could increase risk across the financial system because of stablecoin concerns. They also want to stop loopholes that allow similar products to exist outside the traditional system and outside financial regulations. 

The agreement between senators and the White House aims to create a system that both banks and crypto firms can accept. However, lawmakers still need to finalize the full text of the bill and must wait for industry stakeholders to share their feedback on the proposal. Furthermore, discussions, revisions, and voting are still required in the formal approval process. 

At the same time, there are other pressing issues in the bill that still need to be resolved. For example, lawmakers still need to know how to regulate decentralized finance, address risks associated with illegal financial activity, and introduce stronger safeguards into the system. The process is even more complex because lawmakers must also coordinate this bill with another version that already passed through a different Senate committee, so progress could still face more delays even after the recent breakthrough.

Nevertheless, the recent agreement offers the industry hope that lawmakers will find solutions to many of the existing issues, as they are finally moving past one of its biggest problems.

After months of little to no movement, the deal between senators and the White House is a big step toward building a system that allows the crypto industry to grow while keeping the financial system safe. 

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