A coalition of 78 US banking groups led by the American Bankers Association is pushing Senate lawmakers to tighten restrictions on stablecoin rewards ahead of a July 17 hearing on the CLARITY Act. The groups sent a letter demanding changes to Section 404, which currently bans returns paid solely for holding stablecoins. Banks want the word “solely” removed to prevent issuers from structuring hybrid reward programs that legally bypass the restriction while delivering similar economic benefits.
The coalition argues stablecoin yield products could trigger deposit flight, draining funding from traditional banks and threatening mortgage and small-business lending. They also propose replacing the current “economically or functionally equivalent” standard with a stricter “substantially similar” test to limit platform-based rewards. If adopted, these amendments would force regulated issuers like Circle and Paxos to redesign products around payment infrastructure rather than yield-like incentives, making US offerings less competitive against offshore crypto platforms.
FXnCO Insight
Watch for potential margin compression at regulated stablecoin issuers if amendments pass, as revenue models shift away from user rewards toward transaction fees and reserve management.
Source: Finance Magnates