Congress Strikes Deal on Stablecoin Yield Ban, Clearing Path for CLARITY Act

Congress finally cleared a roadblock that had frozen the CLARITY Act for months. According to Gibson Dunn's Digital Assets Hub, Coinbase announced on May 1 that lawmakers struck a deal on the stablecoin yield provision, codified as Section 404 of the bill.

Traditional banks did not want crypto platforms paying interest-like rewards on stablecoins, because that looks a lot like an unregulated bank account competing with an actual bank account, minus the FDIC insurance and the capital requirements. Crypto platforms wanted to keep offering yield because it is one of the main reasons customers hold stablecoins instead of cash.

Section 404 bans "covered parties," meaning digital asset service providers and their affiliates, from paying interest or yield to U.S. customers simply for holding stablecoins. The bill goes further and also bans anything "economically or functionally equivalent" to bank-deposit interest. That second clause is designed to stop platforms from dressing up interest payments as something else to dodge the letter of the law.

But the bill carves out an exception for "activity-based or transaction-based rewards and incentives" tied to legitimate activity. The compromise becomes clearer here. The bill directs the SEC, the CFTC, and the Treasury Secretary to jointly write rules defining what counts as a permitted activity, and it explicitly says that list is non-exhaustive. Regulators can add to it later.

More notably, the bill states that permitted rewards "may be calculated by reference to a balance, duration, tenure, or any combination of the foregoing." A reward tied to how long you've held a stablecoin, or how big your balance is, can still qualify as a legitimate activity-based reward rather than banned interest. This leaves considerable room for crypto platforms to build reward programs that function an awful lot like yield, just labeled differently.

The banking industry got a headline restriction, a formal ban on paying interest on stablecoins. Crypto platforms got flexibility to keep offering balance- and duration-based rewards under a different name, with three regulators left to sort out where the line actually is. That regulatory rulemaking process is where this fight moves next, and it will take time.

A fair skeptic on the banking side would say this compromise is mostly cosmetic. If a stablecoin issuer can pay you more the longer you hold your balance, that is economically indistinguishable from paying interest, whatever Congress calls it in the statute. Banks spent months lobbying for a clean ban and may have ended up with a label swap instead of substance.

A fair skeptic on the crypto side would say the ban itself is unnecessary paternalism, that consumers understand what they are buying, and that stablecoin yield products have existed for years without the systemic bank-run risk that motivated the restriction in the first place. They would also point out that giving three separate agencies joint rulemaking authority, with a non-exhaustive list they can expand, creates years of regulatory uncertainty rather than resolving it.

Both arguments have merit and neither has been tested yet, because the rulemaking has not happened. The SEC, CFTC, and Treasury have not published proposed rules defining permitted activities as of this writing. Until they do, nobody knows exactly which reward structures will survive and which will get reclassified as disguised interest.

This stablecoin fight was not the only friction point in digital asset regulation moving through in parallel. Gibson Dunn's tracker also noted that Gemini announced on April 30 that an affiliate received a CFTC license to act as a derivatives clearinghouse, adding to a designated contract market approval the company received in December that let it launch a prediction market. Gemini has said it intends to pursue the full suite of CFTC derivatives licenses to eventually offer crypto futures, options, and perpetual contracts to U.S. customers. That is a separate regulatory track from the CLARITY Act fight, but it shows the same pattern: exchanges racing to build out fully licensed, all-in-one platforms while Congress and regulators work out the rules underneath them.

And on the enforcement side, the U.S. Attorney's Office for the Southern District of New York announced on April 28 that Maximilien de Hoop Cartier was sentenced to eight years in prison for running an unlicensed over-the-counter crypto exchange that laundered more than $470 million in criminal proceeds, including drug-trafficking money, through shell companies and crypto accounts. Cartier pleaded guilty to operating an unlicensed money transmitting business and conspiracy to commit bank fraud, and was ordered to forfeit roughly $2.36 million along with certain shell-company bank accounts, according to the same source. That case is a reminder that while Congress argues over stablecoin yield mechanics, federal prosecutors are still chasing plain old money laundering through crypto rails, no new legislation required.

The next concrete step is the joint rulemaking from the SEC, CFTC, and Treasury defining permitted activity-based rewards. No timeline for that rulemaking has been announced. Until those rules exist, stablecoin issuers are operating under a statute that bans interest in name while leaving the door open for reward programs that look a lot like it.