An outlook has emerged that the U.S. banking sector could revive efforts to legislate a ban on exchanges and platforms paying interest or rewards on stablecoins. An analysis put the chances of Congress codifying this within the next two years at only 10 percent.
On Nov. 9, blockchain outlet Bitcoin Magazine reported that TD Cowen Washington policy analyst Jaret Seiberg said banks would likely again demand a stablecoin interest ban in the next Congress after Democrats won the midterm elections.
The issue is whether exchanges and intermediary platforms should be allowed to pay interest or rewards to users holding dollar-pegged stablecoins. Seiberg said pursuing a standalone interest ban rather than a broad bill could make it easier to secure 60 votes in the Senate, but he assessed the odds of legislation advancing to passage as low given the complex interests surrounding cryptocurrencies.
The debate stems from the scope of regulation under the Genius Act, which U.S. President Donald Trump signed on July 18 last year. The law bans licensed payment stablecoin issuers and foreign issuers from paying interest or returns solely because users hold, use or maintain stablecoins. It did not explicitly list exchanges and other intermediary platforms as being subject to the ban.
The American Bankers Association (ABA) and state banking associations urged Congress late last year to treat rewards paid by platforms as prohibited interest. The ABA and the Independent Community Bankers of America (ICBA) later pressed the Senate to strengthen wording in the Clarity Act to block rewards paid based on balances held or the length of time holdings are maintained.
What banks worry about is deposit outflows. The ICBA has warned that yield-bearing payment stablecoins could draw deposits away from community banks and, as a result, reduce lending capacity in local communities. Seiberg also said community banks are adept at persuading Congress with this logic and that there is precedent for small banks' demands leading to legislation.
Talk of standalone legislation comes amid the stalemate over the Clarity Act. The bill failed to secure the 60 votes needed to end debate in the Senate on Sept. 15, with 49 votes in favour and 50 against. Seiberg assessed that after Democrats' midterm victory, momentum to push the bill through the current Congress has effectively disappeared. That is why there is speculation that banks may pursue only an interest ban provision instead of the broader bill.
Changes in the Senate's makeup could work in the banking sector's favour. Sherrod Brown (셰로드 브라운), a long-time industry critic, held on to Ohio's Senate seat even though the cryptocurrency industry spent about $64 million to try to defeat him.
But views also differ within the Democratic Party. Some lawmakers may oppose handling the stablecoin interest issue separately from a comprehensive bill that includes ethics and investor protection provisions. Seiberg analysed that it is hard to expect passage of the Clarity Act because Trump would find it difficult to accept the provisions Democrats are demanding.
There are also differences over the scope of any ban. Senator Angela Alsobrooks (안젤라 올스브룩스), who leads Democratic discussions on crypto policy, has distinguished between interest paid for simple holding and rewards tied to actual use. Her stance is that paying interest in return for holding stablecoins should be restricted, while rewards tied to use could be allowed.
Voter backlash is also a burden. Seiberg questioned whether the Democratic leadership would push for a vote that could be seen as taking away income opportunities for individual investors.
Executive branch rules also did not impose a blanket ban on platform rewards. Final rules under the Genius Act by the U.S. Office of the Comptroller of the Currency (OCC), scheduled to take effect in January 2027, call for third-party rewards to be reviewed case by case. With the across-the-board ban banks had hoped for not implemented, demands for additional regulation through Congress could continue.
Whether there is regulation could also affect how exchanges attract funds. Stablecoins are used at major exchanges as the base asset for bitcoin trading. If interest and rewards are restricted, users may have less incentive to hold stablecoins, and changes are expected in exchanges' competition to attract customer balances and their strategies to secure liquidity.
House Democrats are also preparing a separate market structure legislative plan that would expand the role of the Securities and Exchange Commission (SEC). Seiberg said a stablecoin interest ban among banks' demands could have room to secure 60 votes in the Senate, but he remained sceptical about its chances of passing. The key will be whether, in the next Congress, banks can pursue the issue separately from broader crypto legislation and overcome divisions within the Democratic Party and concerns about investor backlash.
