As exhausted crypto lobbyists continue to pore over the latest — and most important — draft of the bill that could decide their regulatory fate in the U.S., it wasn’t a dispute between political parties that was the greatest disruption in what they hoped to get into the document, but the arrival of bank lobbyists at the negotiating table.
Yield and rewards for stablecoins became the battleground in a lobbying brawl between the banking industry and the crypto industry. In the end, though the bill released at midnight by the Senate Banking Committee seems to still include a number of elements that the crypto crowd hoped would be there, its hard-won fight to protect rewards for stablecoin users took a step backwards.
“What is threatening progress is not a lack of policymaker engagement, but the relentless pressure campaign by the big banks to rewrite this bill to protect their own incumbency,” said Summer Mersinger, CEO of the Blockchain Association.
After getting the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act into law last year, the crypto sector has been moving forward on its business plans for offering rewards programs for customers. The law concluded that issuers couldn’t offer yield on stablecoins, but it didn’t prevent affiliates and third parties from doing so. Platforms like Coinbase can share back a portion of the benefits they may get from an issuer, such as the interest they may receive from the reserves set aside to protect Circle’s USDC. Bankers stepped forward after the passage of GENIUS — and well into the long process for negotiating the market structure bill in Congress — to contend that this was a fundamental threat to the depository system that underpins the U.S. banking sector and its lending. It could jeopardize the survival of community banks, they suggested.
The American Bankers Association was one of the groups involved in the legislative talks, trying to make a case that squeezing bank deposits could lead to “a multitrillion dollar disruption to local lending.” The ABA didn’t immediately respond to a request for comment on Tuesday.
“The crypto industry is working hard to disguise the ‘rewards’ they offer on their stablecoins from what they truly are: interest paid indirectly by stablecoin issuers to stablecoin holders,” according to an online argument posted at the website of the Bank Policy Institute.
Until Monday night, the crypto firms were counting on the GENIUS Act as the law of the land, but the new market structure draft bill — still using the name of the version that passed the House of Representatives, the Digital Asset Market Clarity Act — included a section that demonstrated the bank lobbyists had scored a partial point. The bill, which will be considered for a committee vote on Thursday, settled on what had been pitched as a compromise: Stablecoins can’t offer rewards if they’re just held in a static way that resembles a savings account. However, the rewards can still come as a result of activity and transactions.
“We negotiated the GENIUS Act back in July, and the banks have taken seven months now to ramp up a lobbying effort against that, and that issue now is what is potentially making or breaking a market structure bill,” said Kara Calvert, vice president of U.S. Policy at Coinbase, in an interview with CoinDesk. “This is not a market structure issue, and there are so many other important, critical parts of this bill that we need to make sure that Congress gets right.”
Crypto lobbyists, including those working for Coinbase, have accused the bank representatives of hiding behind community bankers by lamenting the danger posed by crypto operations to Main Street bankers’ deposit business, though Wall Street firms are trying to protect their lucrative payments dominance.
Calvert said it’s “pretty farcical” that megabanks are making this debate about deposits and aren’t focusing on the payments interests. (Though JPMorgan Chase & Co.’s chief financial officer acknowledged in an earnings call on Tuesday that competition is a concern.)
“The irony here is that you know these rewards programs and these balances are not competing with those deposit products,” Calvert said. “They are not deposits,” she argued, because bank deposits are reinvested for the banks’ own purposes, unlike a crypto firm’s custody of clients’ stablecoin holdings. “That’s why banks have [Federal Deposit Insurance Corp.] insurance,” she said. “That’s why banks pay you interest, because they’re using your money, and they’re earning interest on it too.”
Coinbase CEO Brian Armstrong publicly threatened last month that his company, which reported earning $355 million in stablecoin-related revenue in the third quarter, wouldn’t support a bill that gives in to bankers and makes crypto firms stop offering rewards to customers.
Also in December, the united industry sent a letter to leading senators to dispute the merits of reversing the GENIUS Act on this point, which it said would “reopen a settled issue, undermine a carefully negotiated compromise, reduce consumer choice, suppress competition, and inject uncertainty into the implementation of a new law before regulations have even been proposed.”
“Congress prohibited stablecoin issuers from paying interest or yield to those holding stablecoins, while intentionally preserving the ability of platforms, intermediaries, and other third parties to offer lawful rewards or incentives to consumers,” the letter said, summarizing what GENIUS had done last year. “That distinction was not accidental.”
Still, others suggest that crypto’s setback on yield may not be that big a deal.
“The prohibition on stable coin yield does absolutely nothing, full stop,” said Corey Frayer, who had worked as a crypto adviser for former U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler and is now at the Consumer Federation of America. “The primary way in which platforms fund yield is through activities like staking and on lending, which are explicitly carved out of the prohibition. So this is language that has the veil of banning yield on stablecoins, but doesn’t actually.”
What happened in this week’s market structure draft release isn’t necessarily the last word. The committee is fielding amendments today that the members may consider in the markup hearing. And it’s far from certain that — due to any number of other potential sticking points — that the bill’s advocates have lined up enough Democrats to get on board. Also, this represents half of the required legislative effort, because a similar process needs to take place in the Senate Agriculture Committee. That panel postponed its own markup hearing until the end of the month to allow for more negotiations between the parties. And if both committees pass a bill, it still must be mashed together into a single version before the entire Senate can vote on it.
Wall Street lobbyists will remain at the table as the final details are worked out, though Mersinger accused them of failing to negotiate in good faith.
“If they succeed in blowing up this legislation with unreasonable demands, they will be left with language in the GENIUS Act — a status quo that they themselves have insisted is completely unworkable,” she said. “That outcome would be self-inflicted, and it would expose exactly who is fighting for consumers and who is fighting to preserve monopoly power.”
