Senate's Crypto Bill Proposal Limits Stablecoin Yield—Banking Industry Celebrates Policy Victory

The latest draft of the crypto bill circulating through the U.S. Senate Banking Committee introduces sweeping restrictions on how digital asset service providers can compensate stablecoin holders, marking a significant policy shift that has energized traditional financial institutions.

The Core Restriction: What Changes for Stablecoin Holders

Under Section 404 of the updated legislation, labeled “Preserving Rewards for Stablecoin Holders,” digital asset intermediaries face a clear prohibition: they cannot offer “any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding of a payment stablecoin.”

This language represents the culmination of sustained pressure from the banking sector, which has consistently warned policymakers that passive yield on stablecoins poses an existential threat to traditional deposit bases. The American Bankers Association’s Community Bankers Council quantified this risk last week, citing a Treasury analysis indicating that up to $6.6 trillion in deposits could migrate to crypto platforms if yield restrictions weren’t implemented.

Kadan Stadelmann, Chief Technology Officer at Komodo Platform, characterized the proposal as a fundamental shift in the competitive landscape. “Stablecoins originally emerged as a direct challenge to traditional banking infrastructure, particularly around the yield proposition,” Stadelmann explained to Decrypt. “This legislative approach essentially neutralizes that advantage, forcing crypto platforms to compete on different terms.”

Where Activity-Based Rewards Survive

Notably, the crypto bill doesn’t eliminate all forms of compensation tied to stablecoins. The legislation carves out broad exceptions for what it terms “activity-based rewards or incentives,” which encompass:

• Transaction, payment, transfer, conversion, and remittance activities
• Loyalty and referral programs
• Rewards for providing liquidity or collateral
• Compensation for governance participation, network validation, and staking activities

This distinction proves crucial for the broader ecosystem, as it allows crypto platforms to maintain engagement mechanisms while adhering to the spirit of the restriction.

The bill additionally mandates that the SEC and CFTC jointly establish comprehensive disclosure standards within 360 days. These rules will require all compensation offerings to be presented in “plain English,” with explicit identification of payers and clear statements that payment stablecoins are “neither investment products nor deposits” and lack Federal Deposit Insurance Corporation coverage.

The Timeline Pressure and Legislative Uncertainty

Despite the banking industry’s satisfaction with the policy direction, the legislative process itself faces significant headwinds. Senators Jack Reed (D-RI), Chris Van Hollen (D-MD), and Tina Smith (D-MN) sent a formal letter to Banking Committee Chair Tim Scott (R-SC) expressing concern about the compressed timeline. With the committee markup scheduled for Thursday morning, lawmakers and the public would have less than 48 hours to review the complete text and fewer than 24 hours to prepare amendments.

“The acceleration of this process creates real uncertainty about whether the crypto bill can achieve consensus,” according to Nic Puckrin, digital asset analyst and co-founder of the Coin Bureau. “Committee members are likely to struggle with the implications of these proposed changes, and I’d anticipate further delays rather than swift passage.”

Puckrin’s assessment reflects broader market concerns that legislative delays could continue to weigh on digital asset momentum, which has already faced headwinds over recent months.

The Historical Context: From GENIUS Act to Current Measures

The stablecoin yield debate traces back to last summer’s passage of the GENIUS Act, which initially prohibited stablecoin issuers from directly paying interest. However, legal questions persisted about whether affiliated platforms could circumvent the restriction by offering rewards through separate entities.

The banking industry specifically highlighted this loophole in August, warning that “the restriction remains easily exploited because exchanges or other third parties can still offer rewards to stablecoin holders.” This concern catalyzed the current crypto bill’s more expansive approach.

Behind-the-scenes negotiations between rival stakeholders—including SIFMA representatives and crypto industry advocates—have intensified as each side attempts to shape final language. Sources characterized these discussions as “constructive” while noting the securities industry’s continued push for retroactive enforcement measures against yield-generating stablecoin products.

Market and Policy Implications

The passage of this crypto bill language, if enacted, would fundamentally reshape how digital asset platforms compete for user capital. Rather than relying on passive yield to attract deposits, platforms would need to emphasize transaction utility, governance participation, and ecosystem engagement.

For the traditional banking sector, the legislation represents validation of their concerns and a concrete policy framework addressing what they perceived as an existential competitive threat. For crypto market participants, the outcome signals that regulators are willing to implement restrictions on platform economics while preserving activity-based incentive structures.