Sens. Thom Tillis (R-N.C.) and Angela Alsobrooks (D-Md.) have released legislative text to restrict interest and yield payments tied to stablecoins, which would allow legislation to create a regulatory framework for cryptocurrencies to move forward, Punchbowl News reported.
The Genius Act bans payment stablecoin issuers from paying interest or yield on payment stablecoins, but the restriction can be bypassed when exchanges or other affiliates offer yield or rewards to stablecoin holders. The American Bankers Association and others have called on lawmakers to use another bill, the Clarity Act, to close the loophole.
Punchbowl obtained a copy of the agreement reached by the two senators. It includes a broad prohibition on rewards offered “in a manner that is economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit,” according to the news outlet. It would also direct regulators to propose new stablecoin regulations, including lists of permissible reward activities.
The Clarity Act is currently before the Senate Banking Committee, which has held off action on the legislation while all sides negotiated on a compromise.
Following the release of the proposed language, ABA and four other banking trade groups issued a joint statement.
“We appreciate the work by Sen. Tillis and Sen. Alsobrooks to address the concerns from banks of all sizes around the risk of deposit flight from paying yield on stablecoins,” the associations wrote. “Now that their proposed language is public, we are working to provide feedback that balances both the innovation and the community lending necessary to ensure that America’s economy is the strongest and most resilient in the world.”
The groups said that while the senators are working toward “the correct policy goal” of prohibiting the payment of yield and interest on stablecoins, the proposed language “falls short,” adding that it’s “imperative that Congress get this right.” The associations cited research that yield-earning stablecoins could reduce consumer, small-business and farm loans by one-fifth or more, adding that it is “essential” for the prohibition to be “clear and transparent.”
As currently drafted, the language permits exchanges and other crypto intermediaries to pay interest or yield for a user’s participation in an exchange’s membership program, so long as the payments are not calculated or distributed like banks’ payment or distribution of interest or yield, the associations said, calling it “a significant loophole.” According to the trade groups, the proposal also allows for permissible rewards to be calculated by reference to duration, balance and tenure. “Overtly incentivizing the idle holding of payment stablecoins for extended periods of time, and for specific balances, would negate the goals of the upfront prohibition (to deter deposit flight) while tying rewards directly to how much/long customers hold payment stablecoins in wallets or exchanges,” they wrote.
The trade groups said they would share suggestions with lawmakers for strengthening the proposed language “in the coming days.”
