Stablecoin Yields: Explaining the Clarity Act Dispute Between Crypto and Banks

The issue of stablecoin yield is one that has cropped up on crypto news and crypto Twitter frequently over the last few months. Recently, Donald Trump came out strongly in support of the crypto lobby on the particular stablecoin yield issue. 

He said: “Americans should earn money on their money,” in a post on Truth Social that was reposted by his son Eric Trump on X.

The sticking point pertains to a loophole in the GENIUS Act – the bill passed last summer to regulate stablecoins in the US – which stipulated that although stablecoin issuers cannot provide yield on their stablecoins, third parties (like exchanges) are free to do so. 

This means that a company like Coinbase could offer users lucrative yields on their stablecoin holdings. Coinbase’s CEO, Brian Armstrong, is strongly lobbying for this loophole not to be closed.

In the next section, we explain why banks are so against this loophole. 

Why Banks Are Frightened

Banks have enjoyed a traditionally secure business model for a long time now. They take in customer deposits, pay out near-zero interest then lend that capital out at much higher market rates. 

If retail and institutional users can instantly swap their fiat currency for regulated stablecoin dollars and earn a 4% to 5% yield on-chain, the incentive to keep their money in a traditional bank account disappears.

The banks are scared of deposit flight. The CEO of Bank of America predicted up to $6 trillion in outflows. 

Banks argue that this would have a negative effect on the US economy – particularly SMEs – as lending dries up.

What Are The Potential Conflict Resolutions?

Banks and crypto companies have been holding meetings over the last few months to try and iron out a resolution. These meetings have been brokered by the White House. Until recently, Donald Trump had not expressed too much support for either side. Now, he seems firmly in favour of the crypto lobby. 

A few potential compromises between the two lobbies have been discussed and appeared in the media. These are mainly to do with activity-based rewards (rather than straight passive yield). 

• Transaction Incentives: Users could earn rewards for using stablecoins in actual commerce, remittances, or cross-border payments.

• Liquidity Provision: Yield generation would likely still be permitted for users who actively provide liquidity to decentralized protocols.

• Platform Loyalty Perks: Exchanges might pivot to "cashback" style rewards or fee-tier reductions rather than direct APY payouts on dormant holdings.

Coinbase has come out strongly against activity-based rewards and is pushing for passive yield to be maintained (as set out in the GENIUS Act loophole).

Coinbase

What If There Is No Resolution?

Technically, the already-passed GENIUS Act has already codified in law the rights of crypto third-parties to provide passive stablecoin yield. However, this does not mean that no resolution means the crypto lobby wins. 

Without statutory protection, federal regulators like the OCC (Office of the Comptroller of the Currency) will likely attempt to close the loophole through enforcement, targeting exchanges that offer passive yield and forcing them into legal battles. They can do this without Congressional approval.

President Trump has claimed that if the bill fails to pass, and the crypto industry continues in regulatory limbo, then big companies may relocate to China.