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.

A key dispute in the U.S. Clarity Act is whether stablecoin intermediaries can offer yield. Allowing this, even partially, would expand stablecoins' use from payments to digital savings. This could attract rate-sensitive global holders, significantly increasing long-term demand for the U.S. dollar and strengthening its monetary policy transmission abroad.

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.

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 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.

To avoid being classified as a bank, Coinbase's stablecoin model offers "rewards" for user activity like payments or trading, rather than paying interest directly on balances. This is a crucial legal distinction under new regulations allowing them to pass on yield from treasury reserves.

A US-endorsed stablecoin could offer T-bill-like security and yield directly to global consumers, bypassing banks. This poses a threat to the traditional financial system, which is viewed as inefficient, with 80% of its loans being non-productive (consumption or financial speculation) from a statecraft perspective.