Crypto Leaders Split Over Stablecoin Yield Deal as Industry Backlash Builds
Legislative text containing details of a compromise causing industry heartburn could be released as soon as today
Welcome to the Wednesday edition of the Crypto In America newsletter!
What you’ll read: Crypto leaders are divided over the new stablecoin yield deal; the House holds a hearing on tokenization; and SEC Chairman Paul Atkins joins the podcast. Plus, the week’s top stories.
Crypto policy leaders are split over new legislative text that would ban companies from paying their customers yield on passive stablecoin balances, but allow activity-based rewards.
An industry conference call on Tuesday descended into a “yelling match” between representatives from crypto exchanges, fintech and venture capital firms over the text, with some calling it unworkable and others defending it, two sources familiar with the proceedings told Crypto In America.
Meanwhile, crypto’s real-time sentiment gauge, “crypto Twitter,” was alight with criticism that Senate lawmakers had sold out to banks, and that industry adoption could take a major hit as a result. Illustrating the point, Circle’s stock fell 20%, with analysts tying the drop in part to backlash over the proposed yield ban, alongside news that rival Tether had hired a major U.S. accounting firm to audit its reserves. Coinbase shares closed down around 10% Tuesday.
The panic was largely sparked by new details that emerged after a small group of industry leaders were invited to Capitol Hill Monday to review the text. The draft legislation was the product of nearly two months of negotiations between the White House, Senate Banking Committee members, and industry and bank stakeholders over how crypto companies could offer yield and rewards to customers on their stablecoin holdings without triggering deposit flight from banks.
According to attendees interviewed by Crypto In America, the Monday meetings were held in 30-minute increments, and participants were given copies of the text to review and take notes, but not to keep.
On its face, the proposal would ban platforms from offering yield “directly or indirectly” on stablecoins. The law would apply broadly to digital asset firms, and bar anything “economically or functionally equivalent” to interest. Activity-based rewards like loyalty or promotional programs would still be permitted, and regulators would be tasked with defining permissible incentives and anti-evasion rules within a year.
Reactions began trickling out Monday evening, with one major trade association telling Crypto In America the new language was restrictive for crypto, and marked a departure from what had been discussed with the White House in prior meetings. Another trade group leader said that the text appeared “largely in line with expectations,” and that it struck a balance between preserving rewards and barring interest-like stablecoin products.
“This is the best possible result,” they said, noting the text appeared broader than the original proposal floated by Senators Thom Tillis (R-NC) and Angela Alsobrooks (D-MD). “People will still get their rewards.”
Banking industry representatives traveled to Capitol Hill to review the text Tuesday afternoon, and one attendee told Crypto In America that while reactions are still forming, the language appears “reflective of the compromise that Tillis, Alsobrooks, and the White House set out to achieve.”
While the Senate Banking Committee has only shared the text with a select few, two industry sources expect it could be released widely as soon as Wednesday.
House Holds Hearing on Tokenization
The House Financial Services Committee will hold a hearing at 10:00 a.m. called Tokenization and the Future of Securities: Modernizing Our Capital Markets, examining how tokenization is being used in capital markets, and whether current securities laws are sufficient.
The hearing is set to explore regulatory gaps, risks to investors, and how tokenization could impact market structure and capital formation. It will also consider draft legislation directing the SEC and CFTC to study tokenized markets, and clarifying how existing market participants can use blockchain technology.
Witnesses include:
Kenneth Bentsen Jr., president and CEO, SIFMA
Summer Mersinger, CEO, Blockchain Association
Christian Sabella, managing director and deputy general counsel, DTCC
John Zecca, EVP and global chief legal, risk and regulatory officer, Nasdaq
Salman Banaei, general counsel, Plume Network
Crypto In America Turns One with SEC Chairman Paul Atkins
This week on Crypto In America, we marked our one-year anniversary with a conversation with SEC Chairman Paul Atkins.
From shifting sentiment in Washington to the push toward on-chain markets, the conversation with Atkins broke down how far crypto has come over the past year, and what’s next.
Chairman Atkins discussed the SEC’s move away from regulation by enforcement, the agency’s new token taxonomy, and why not all crypto assets are securities — including his view that investment contracts can have a shelf life.
We also covered the potential for tokenization and on-chain settlement to modernize markets, his relationship with former SEC Chair Gary Gensler, and what’s keeping him up at night (hint: it’s not just markets, and it’s not Netflix either)!
Watch this episode on all platforms here.
We also want to extend a big THANK YOU to our readers, listeners and sponsors for your support in our first year. With over 3.5 million views across platforms, Crypto In America wouldn’t be what it is today without you. We’re excited to keep growing, and we’ll have more to share soon!
— Eleanor, Jacquelyn and Gerald
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Midweek Recap
ICYMI: Here are some of the biggest stories making headlines this week.
The CFTC is launching an Innovation Task Force that would set clearer rules for crypto, AI, and emerging technologies in the U.S. derivatives markets.
Tether has hired one of the “Big Four” accounting firms to conduct its first full independent audit of USDT reserves, but did not name the firm.
Circle stock fell 20% on Tuesday following Tether’s audit news and concerns over the latest Clarity Act draft. Cathie Wood’s Ark Invest bought $16M in CRCL shares.
NYSE is partnering with tokenization platform Securitize to build its tokenized securities platform. The exchange named Securitize as its first digital transfer agent eligible to mint blockchain-native securities for corporate and ETF issuers.
In his annual shareholder letter, BlackRock CEO Larry Fink said tokenization could help accelerate the future by updating the plumbing of the financial system, making investments easier to issue, trade, and access.
Delaware lawmakers introduced two bills to bring digital assets under state oversight: Creating a licensing regime for stablecoin issuers, and allowing state-chartered banks to custody and manage digital assets in a fiduciary capacity.
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