Stablecoins face yield ban under CLARITY Act proposal

Automatic interest on idle stablecoin balances would be banned

Draft language under the CLARITY Act is expected to prohibit automatic interest accrual on idle stablecoin balances. As reported by Eleanor Terrett, the stablecoin yield ban targets passive crediting of returns simply for holding tokens.

The focus is on automatic interest accrual rather than all rewards. The distinction matters because promotional or activity‑tied rewards are being debated separately from interest paid on idle balances.

Why the stablecoin yield ban matters to consumers and banks

For consumers, a ban on automatic interest accrual would likely push APY on idle stablecoin holdings toward zero, curbing passive earnings. That could shift comparisons back toward insured bank products and money market funds.

For banks, removing stablecoin yield may reduce deposit disintermediation risk and align regulatory burdens across products that compete for cash. For platforms, eliminating automatic accrual could trim costs but weaken customer acquisition and retention.

At the time of this writing, based on data from Yahoo Finance, Coinbase Global (COIN) traded around $171 in delayed quotes, while headlines highlighted that potential passage of the CLARITY Act could affect crypto platforms.

If enacted as drafted, platforms that automatically credit yield on idle balances would need to halt accrual and update disclosures, terms, and user interfaces. Clear labeling separating interest from promotional rewards would become essential.

As reported by ChainCatcher, negotiators have floated strict enforcement to prevent workarounds, including civil penalties that could reach $500,000 per day for violations that mimic interest via rewards.

Platform offerings could pivot toward usage‑based or loyalty rewards, if permitted, rather than passive accrual. Issuers that do not pay interest directly would remain within existing constraints, while exchanges reassess APY displays and product menus.

Stakeholder positions and regulatory debate

American Bankers Association’s rationale and enforcement push

The American Bankers Association frames yield or rewards on payment stablecoins as economically comparable to deposits but without equivalent protections such as FDIC insurance. The association argues this dynamic risks deposit outflows and seeks to close perceived loopholes where rewards function like interest.

In that context, the trade group supports explicit definitions and strong penalties to deter circumvention. The figures discussed include large per‑day fines for non‑compliance, intended to make attempted workarounds uneconomic.

Coinbase and Circle arguments on competition and consumer impact

Exchange and issuer leaders counter that allowing rewards promotes competition, improves consumer outcomes, and supports U.S. engagement in digital dollars without endangering banks. They argue that activity‑tied rewards differ from issuer‑paid interest and can coexist with the traditional system.

After warning that a ban could hurt consumers even if it reduced platform costs, Brian Armstrong, a crypto exchange CEO, said, “we’d rather have no bill than a bad bill.” Leadership at a major U.S. stablecoin issuer also rejects bank‑run concerns, likening rewards dynamics to money market funds that have long coexisted with bank lending.

FAQ about stablecoin yield ban

Are exchange rewards or loyalty programs for stablecoins still allowed under the current draft?

Automatic interest on idle balances would be banned; activity‑tied rewards may remain permissible, subject to final statutory language and enforcement.

How would a stablecoin yield ban affect consumers’ APY and platform offerings from companies like Coinbase and Circle?

Consumers could see idle‑balance APY drop to zero; platforms may remove automatic yield and rework loyalty features, depending on final rules and penalties.