The battle over stablecoin yields is blocking U.S. cryptocurrency regulation legislation.

Written by: Oluwapelumi Adejumo

Translated by: Saoirse, Foresight News

This legislation, supported by the President and aimed at establishing a more comprehensive regulatory framework for the U.S. cryptocurrency market, is nearing a political deadline in Congress. Meanwhile, the banking industry is pressuring lawmakers and regulators to ban stablecoin companies from offering yields similar to bank deposit interest.

This battle has become one of the most core unresolved issues on Washington’s crypto agenda. The controversy centers on whether stablecoins pegged to the dollar should focus solely on payments and clearing functions or if they can expand into financial products that compete with bank accounts and money market funds.

The Senate’s market structure bill, called the CLARITY Act, has stalled over negotiations regarding so-called “stablecoin yields.”

Industry insiders and lobbyists say that if the bill is to have a realistic chance of passing before the election cycle tightens, late April to early May will be the practical window for advancing the legislation.

Congressional Research Service Sharpens the Legal Dispute

The Congressional Research Service (CRS) has a narrower interpretation of this issue than the public debate suggests.

In a report issued on March 6, CRS noted that the GENIUS Act prohibits stablecoin issuers from directly paying yields to users, but it does not fully clarify the legality of the so-called “third-party model”—where exchanges and other intermediaries act between issuers and end users.

CRS states that the bill does not clearly define “holders,” leaving room for dispute over whether intermediaries can still transfer economic benefits to customers. This ambiguity is precisely why the banking industry wants Congress to explicitly clarify this in broader market structure legislation.

The banking sector argues that even limited yield incentives could make stablecoins strong competitors to bank deposits, especially threatening regional and community banks.

However, crypto firms believe that incentives linked to payments, wallets, or network activity can help digital dollars compete with traditional payment channels and potentially elevate their status in mainstream finance.

This disagreement also reflects differing views on the future development of stablecoins.

An infographic shows that as the use of digital dollars expands, there is a serious divide between banks and crypto firms over “who should own stablecoin yields.”

If lawmakers mainly see stablecoins as payment tools, stricter restrictions on related rewards are more justified. Conversely, if they view stablecoins as part of a major transformation in how digital platforms transfer value, supporting limited incentives becomes more plausible.

The Banking Association has urged lawmakers to close what they call “regulatory loopholes” before such reward mechanisms become more widespread. They argue that allowing idle balances to earn yields could lead depositors to withdraw funds from banks, weakening the core funding source for loans to households and businesses.

Standard Chartered estimated in January that by the end of 2028, stablecoins could drain about $500 billion from the U.S. banking system, with small and medium-sized banks under the greatest pressure.

An infographic compares why banks and crypto companies are concerned about the stablecoin legislation, highlighting deposit outflows, impacts on lenders, cash-back rewards, and banking protectionism.

The banking industry is also trying to demonstrate to lawmakers that their position has public support. The American Bankers Association recently released a poll showing:

When asked whether “allowing stablecoin yields could reduce bank lending funds and impact community and economic growth,” respondents supported banning stablecoin yields at a 3:1 ratio;

And at a 6:1 ratio, they believed that legislation related to stablecoins should be cautious to avoid disrupting the existing financial system, especially community banks.

Crypto industry critics argue that banks are simply trying to block digital dollar competition to protect their own funding models.

Industry figures, including Coinbase CEO Brian Armstrong, say that under the GENIUS Act, stablecoin issuers are required to hold reserves more strictly than banks—full backing by cash or cash equivalents.

Market Volume Elevates Washington’s Stakes

The scale of the market has made this yield dispute impossible to dismiss as a niche issue.

Boston Consulting Group estimates that last year, the total circulation of stablecoins was about $62 trillion, but after excluding bot trading and internal exchange flows, real economic activity was only about $4.2 trillion.

The huge gap between apparent trading volume and actual economic use explains why the “yield” debate has become so critical.

If stablecoins mainly serve as settlement tools for trading and market structure, lawmakers are more likely to restrict them to payment functions. But if yield mechanisms turn stablecoins into widely used cash storage tools within apps, the pressure on banks will rise rapidly.

In response, the White House earlier this year attempted to broker a compromise: allowing some yields in peer-to-peer payments but banning returns on idle funds. Crypto firms accepted this framework, but banks rejected it, leading to a deadlock in Senate negotiations.

Even without congressional action, regulators may tighten yield policies through rules.

The U.S. Office of the Comptroller of the Currency (OCC) proposed that if stablecoin issuers provide funds to affiliates or third parties, and those entities pay yields to stablecoin holders, it would be considered a disguised form of prohibited yield distribution.

This means that if Congress fails to set clear rules, administrative agencies might define the boundaries through regulation.

Limited Time in Congress

Currently, the battle is split into two lines:

Whether Congress will resolve the issue through legislation;

Whether regulators will define the boundaries of corporate behavior within existing legal frameworks.

For the Senate bill, time is the biggest pressure.

Alex Thorn, Research Director at Galaxy Digital, wrote on social media:

If the CLARITY Act does not pass committee review by the end of April, the chances of it passing in 2026 are very low. It must be sent to the full Senate for a vote in early May. Time is running out, and each day reduces the likelihood of passage.

He also warned that even if the yield dispute is resolved, the bill’s prospects remain uncertain:

Many believe that the stablecoin yield controversy is blocking the CLARITY Act. But even if a compromise is reached on yields, the bill could still face other obstacles.

These could include regulation of decentralized finance, regulator authority, or even ethical issues.

Ahead of the midterm elections in November, crypto regulation is likely to become a larger political battleground. This makes the current deadlock more urgent—delays could mean facing a busier political schedule and tougher legislative environment.

Market sentiment has also shifted. In early January, Polymarket estimated an 80% chance of the bill passing; after recent setbacks (including Armstrong’s statement that the current version is unworkable), the probability has fallen to around 50%.

Kalshi data shows only a 7% chance of passing before May, but a 65% chance of passing by the end of the year.

Failure of the bill would shift more decision-making to regulators and markets.

The impact of failure goes beyond the yield debate. The core purpose of the CLARITY Act is to clarify whether cryptocurrencies are securities, commodities, or other categories, providing a clear legal framework for market regulation.

If the bill stalls, the industry will rely more heavily on regulatory guidance, interim rules, and future political shifts.

This is one reason why the market is highly focused on the bill’s fate. Matt Hougan, Chief Investment Officer at Bitwise, said earlier this year that the CLARITY Act would enshrine the current favorable regulatory environment for crypto into law; otherwise, future governments might reverse current policies.

He wrote that if the bill fails, the crypto industry will enter a “prove-yourself” period, needing about three years to demonstrate its importance to the public and traditional finance.

Under this logic, future growth will depend less on legislative certainty and more on whether stablecoins and asset tokenization products can achieve large-scale adoption.

This presents two very different paths:

If the bill passes → investors will price in stablecoin and tokenization growth early;

If the bill fails → future growth will depend more on actual adoption, with increased uncertainty from shifting Washington policies.

A flowchart shows the countdown to Senate decision-making on stablecoins, with deadlines on March 6 and late April or early May leading to two paths: legislative action bringing regulatory clarity and faster growth; or inaction leading to uncertainty.

Currently, the next decision lies in Washington. If senators restart the market structure bill this spring, they can define: how much value stablecoins can transfer to users, and how broad the crypto regulatory framework can be written into law. If not, regulators are clearly prepared to set at least some rules on their own.

Regardless of the outcome, this debate has long gone beyond “whether stablecoins are part of the financial system,” delving into how stablecoins will operate within the system and who will benefit from their development.