A Senate bill, altered from its original intent, aims to ban interest payments on stablecoins. Supported by banking associations, this move is designed to eliminate competition from crypto, solidifying the traditional banking sector's monopoly on financial services under the guise of stability.

Banks oppose stablecoins because they disrupt a core profit center: the spread between low interest paid on deposits and high yields earned from investing those deposits in treasuries. Stablecoins can pass these yields directly to consumers, creating a competitive market.

A key provision in the crypto market structure bill, which could stall its passage, is the debate over allowing third parties to pay yield on stablecoins. Regulators fear this could trigger a mass exodus of deposits from the traditional banking system, while the crypto industry views it as essential for competition.

Large financial institutions like JPMorgan publicly oppose aspects of crypto regulation that threaten their business models, such as interest-bearing stablecoins. Simultaneously, they are investing heavily in their own private blockchain efforts, indicating a strategy to slow public innovation while preparing to dominate the new infrastructure themselves.

Banks are compelled to negotiate on the broader 'Clarity Act' for crypto regulation because it's their only path to prohibit stablecoin rewards, a practice allowed under current law. This dynamic gives the crypto industry significant leverage, as banks need the bill to pass to eliminate a competitive threat.

The banking lobby's opposition to interest-bearing stablecoins isn't just about competition. It's a defense of the century-old regulatory system (capital requirements, deposit insurance) that makes bank deposits safe. Allowing stablecoins to offer similar features without equivalent safeguards introduces systemic risk.

The US banking industry is fighting the proposed crypto Clarity Act over provisions for stablecoins. Banks fear that allowing stablecoin issuers to pay a yield (or "rewards") will incentivize customers to move funds out of traditional deposits, disrupting the banks' core lending model and harming the broader economy.

The crypto market structure bill is deadlocked. The banking industry opposes allowing crypto exchanges to offer interest on stablecoins, fearing it will pull deposits from the traditional banking system. Crypto firms see it as essential for adoption.

When asked if stablecoin "rewards" are the same as "interest," Armstrong highlights a legal nuance. "Interest" is associated with bank deposits under a fractional reserve system. Coinbase uses "rewards" to describe passing through earnings from underlying assets, maintaining a different legal and risk profile.