The stablecoin yield clash that won't go away has banks, crypto battling over tradition

"The banks will not accept it that way," he said. "We'll fight it. If we lose, we lose."

GENIUS

Stablecoins were designed as the private-sector equivalent of a digital dollar. Some of them — most notably the global leader, Tether's USDT — exist outside of the direct supervision of national regulators. But last year's Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act formally established the U.S. rules for stablecoin issuers, making these assets a formal component of the U.S. financial system.

The GENIUS Act is the current law of the land on stablecoins, and the crypto industry contends that it allows their businesses to offer the full range of stablecoin rewards that their banking adversaries seem to fear. So the bank lobbyists have been pressing for the Clarity Act to overhaul the year-old GENIUS on several points about stablecoin rewards, and though they won a number of concessions, their continued fight may contribute to the bill's failure if it doesn't manage to find 60 Senate supporters by mid-September.

So if they kill Clarity, they may be stuck with the status quo of GENIUS. While the new law bans stablecoin issuers from offering yield to holders, it's less explicitly restrictive on what the exchanges that handle customers' stablecoin transactions can do. However, when the regulators eventually turn the law into rules, whatever they decide about "anti-evasion language, particularly as it relates to indirect yield such as distribution-fee arrangements, will determine how much daylight exists for issuer-affiliated rewards programs," the American Bankers Association wrote in an opinion on its website.