Tillis, Alsobrooks drop new stablecoin yield compromise

• Key insight: The bipartisan pair of Senators made public legislative text that they hope will thread the needle between competing crypto and bank interests on stablecoin yield, a sticking point that has held up a crypto market structure bill for months. 
• What’s at stake: Banks have argued that offering stablecoin yield could drain deposits from the banking system. 
• Forward look: The compromise sets market structure legislation up for a markup potentially in the coming month.

WASHINGTON — A new compromise from lead negotiators on crypto market structure legislation would ban rewards on stablecoins if they are “economically or functionally equivalent” to bank deposits. 

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Sens. Thom Tillis, R-N.C., and Angela Alsobrooks, D-Md., have for months led bipartisan negotiations between the White House and the bank and crypto lobbies to craft language for a section of crypto legislation that would outline how crypto companies can issue rewards related to stablecoins. 

Banks have long feared that such arrangements could mimic bank deposits and thus drain deposits from the banking system. Crypto firms, for their part, worry that prohibiting the rewards entirely will undermine their fledgling business model.

Under the lawmakers’ newest text, first published by Punchbowl News and shared Friday evening with American Banker, crypto firms would not be able to issue rewards for stablecoin balances that are “economically or functionally equivalent” to an interest-bearing bank deposit. 

The Treasury Department and Commodity Futures Trading Commission would issue a rulemaking to determine that equivalency standard, the bill says. That rulemaking would address the specifics of what crypto companies’ rewards and staking programs would need to include to pass that equivalency threshold. 

Coinbase, the powerful crypto company that stopped an earlier version of the compromise, publicly supported this one. 

“Mark it up,” Coinbase CEO Brian Armstrong said on X. 

“In the end, the banks were able to get more restrictions on rewards, but we protected what matters — the ability for Americans to earn rewards, based on real usage of crypto platforms and networks,” The company’s chief policy officer Faryar Shirzad said on X.