The White House reportedly took the lead at the latest Crypto Council meeting, narrowing the stablecoin rewards dispute that has delayed progress on the long-awaited crypto market structure bill.
White House weighs in on CLARITY Act dispute
The White House held another meeting between the crypto industry and the banking sector on Thursday to negotiate the stablecoin yield dispute that has stalled the crypto market structure bill, known as the CLARITY Act, for the past month.
According to a report by journalist Eleanor Terret, the meeting was smaller than previous ones, with only a few representatives from each side. From the crypto industry, attendees included representatives from Coinbase, Ripple, a16z, the Blockchain Association, and the Crypto Council for Innovation (CCI).
During this time, no bank representatives were present; Bank voices were represented through trade associations, such as the American Bankers Association, the Banking Policy Institute (BPI), and the Independent Community Bankers of America (ICBA).
Terret sources claimed that there was a notable difference in yesterday’s meeting, as the White House “took the lead in leading the discussion, rather than letting crypto companies and transaction banking lead the discussion, as in previous meetings.”
For context, banks have heavily criticized the landmark stablecoin legislation, the GENIUS Act, due to “loopholes” that could pose risks to the financial system. The framework prohibits the payment of interest on holding or using stablecoins for payment purposes, but it only addresses issuers.
The banking side argues that allowing issuers and platforms to offer interest payments on stablecoins could distort market dynamics and affect credit creation in the country, thereby harming small and medium-sized financial institutions in the sector.
To address these concerns, the United States Banking Associations urged senators to include provisions in the CLARITY Act that would also prohibit digital asset exchanges, brokers, dealers, and related entities from offering yield on stablecoins.
The Senate Banking Committee’s plan proposed that issuers offer rewards for specific actions, such as account opening and cashback. However, it also prohibited issuers from paying interest to passive token holders.
The crypto side has criticized the proposed measures, with some industry leaders publicly opposing the project and withdrawing their support. As a result, a review session of the Senate Banking Committee portion of the bill was delayed.
Stable yield from the corner off the board
At Thursday’s meeting, Patrick Witt, executive director of the US President’s Council of Advisors on Digital Assets, reportedly presented draft text that served as an anchor for the discussion. Sources in the room told Terret that the draft text recognized the banks’ concerns raised in last week’s paper on the “Principles of Banning Yields and Interests.”
On this basis, “earning returns on unused balances (…) is effectively excluded,” said the journalist. The draft also clarifies that any future restrictions on rewards would be limited in scope. Therefore, the debate has now been limited to whether crypto companies can offer rewards tied to specific activities.
A crypto industry participant was quoted as saying that banks’ concerns “seem to stem more from competitive pressures than from deposit flight.” Meanwhile, someone from the banking industry told Terret that they are still pushing to include in the project a study examining the growth of payment stablecoins and their potential impact on bank deposits.
They also noted that the White House had proposed anti-avoidance language. The measure would give the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Treasury Department the authority to impose a ban on paying yield on unused stablecoin balances, as well as penalties of up to $500,000 per violation per day, against companies that violate the ban.
Now, representatives of the banking sector will “inform their members about today’s discussions and evaluate whether it is possible to make compromises to allow crypto companies to offer stable rewards,” Terret noted, adding that some participants believe that an end-of-month deadline is not unrealistic, as negotiations are expected to continue in the coming days.
The total crypto market capitalization sits at $2.28 trillion on the one-week chart. Source: TOTAL on TradingView
Featured image from Unsplash.com, chart from TradingView.com
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