Blockchain lobby pushes back against broader stablecoin yield ban in US Senate
The leading US crypto policy group is mounting a coordinated campaign in Washington to block an expansion of restrictions on stablecoin yields, warning that an aggressive reinterpretation of recent law could choke off innovation and distort competition in digital payments.
This week, the Blockchain Association spearheaded a large coalition effort urging top members of the Senate Banking Committee to reject proposals that would widen a ban on stablecoin rewards beyond what Congress explicitly approved. In a detailed letter, more than 125 crypto and fintech firms and trade bodies asked lawmakers not to allow regulators or banks to stretch the law to cover third‑party platforms.
Core dispute: what the GENIUS Act actually bans
At the center of the fight is the GENIUS Act, signed earlier this year by US President Donald Trump. The law includes a clear provision: issuers of permitted, regulated stablecoins are not allowed to pay interest, yield, or similar returns directly to the holders of those tokens.
Industry groups say that is where the prohibition starts and ends. The statute, they argue, was deliberately drafted to target only the primary issuers of stablecoins, not exchanges, wallets, apps, or other intermediaries that might choose to offer loyalty points, cashback, or yield‑like incentives funded from their own revenues.
Legal analyses cited by the coalition highlight that the law’s language leaves room for independent platforms to design their own reward programs so long as they are not acting as the stablecoin issuer itself. That flexibility, according to the Blockchain Association, was no drafting accident. It was a negotiated compromise meant to preserve competition in payments and allow non‑bank firms to experiment with new business models.
Banks warn of a massive deposit drain
Traditional financial institutions see the situation very differently. Banking trade associations, led by the American Bankers Association and joined by several other powerful lobbies, have been pressing Congress to “close the loophole” they say the GENIUS Act left open.
In their view, allowing exchanges, fintech apps, or other third parties to offer rewards on stablecoin balances is functionally no different from issuers paying yield. Bank groups argue that this structure could be used to sidestep the intent of the law while effectively turning stablecoin holdings into interest‑bearing substitutes for bank deposits.
Their concern is not hypothetical. Treasury analyses referenced by banking advocates suggest that in some stress or high‑adoption scenarios, stablecoins could attract more than $6 trillion away from conventional bank deposits. For banks, that number has become a centerpiece of their argument: if stablecoins are allowed to become high‑yield digital cash alternatives, they claim, there may be fewer funds left to support traditional lending to households, small businesses, and local communities.
Crypto industry: expansion would freeze innovation
The Blockchain Association and its allies counter that broadening the ban beyond issuers would do more harm than good. If regulators or Congress were to classify virtually any reward linked to a stablecoin balance as a prohibited “yield,” they argue, a wide range of legitimate products would suddenly be off‑limits.
That could include mobile apps that offer token‑denominated cashback on purchases, exchanges that share a portion of transaction fees with users who hold balances in a certain stablecoin, or payment services that incentivize adoption by offering small bonuses for keeping digital dollars on their platform.
Industry representatives warn that such a sweeping interpretation would likely entrench already dominant financial players — including the largest banks and card networks — while preventing smaller fintech platforms from competing on rewards and user experience. In their view, the result would be less innovation in how people move money, not more safety.
“Rewriting” a fresh law, or clarifying it?
Another major concern for the industry is procedural: the GENIUS Act is still in the early stages of implementation. Regulatory agencies are only beginning to draft formal rules and guidance, and market participants are still adjusting their products to comply.
From the perspective of the Blockchain Association, attempting to reinterpret or amend the law at this stage would be tantamount to reopening negotiations that lawmakers had already settled. They caution that changing the boundaries of the yield ban now would inject uncertainty just when companies most need clear, stable rules to plan around.
Supporters of a broader reading respond that they are not seeking to renegotiate the entire statute, but to align it with its original purpose: keeping stablecoins from functioning like unregulated savings accounts. They argue that if third‑party rewards can perfectly mimic interest on deposits, the spirit of the law is being undermined even if the letter is technically obeyed.
Consumer protection or market protection?
Lawmakers are being pulled between two conflicting narratives on consumer protection. Banking advocates frame an expanded ban as a way to protect everyday users from opaque, risky yield schemes wrapped in the language of “rewards.” They point to past episodes where high‑yield crypto products failed catastrophically, leaving retail customers with heavy losses.
Crypto and fintech groups, by contrast, stress that not all rewards are leverage‑fuelled yield products. Many are simply marketing tools, comparable to airline miles, credit card cashback, or points in a retail loyalty program. Banning such incentives outright when they involve stablecoins, they say, could confuse consumers more than it protects them, by drawing arbitrary lines between similar offerings.
Critics of the banks also note that traditional institutions have a strong commercial incentive to limit the attractiveness of stablecoins. In this telling, the stablecoin yield debate is not only about safety, but also about who captures future profits from payments and savings in a digital‑first economy.
Competition, payment rails, and the future of digital dollars
The final shape of the rules could have far‑reaching consequences for the competitive landscape in payments. Stablecoins are increasingly being used for cross‑border transfers, on‑chain settlement, remittances, and real‑time commerce. Rewards tied to these tokens can be a powerful tool for acquiring and retaining users in this emerging ecosystem.
If exchanges and fintech apps are barred from offering any form of stablecoin‑based incentive, the economic appeal of using these tokens for everyday payments could weaken. That might push more activity back toward traditional bank‑issued products or centralized card systems, where large incumbents already dominate.
On the other hand, leaving room for controlled, transparent forms of rewards may encourage more merchants, wallets, and payment processors to experiment with stablecoin rails. That could lower transaction costs, speed up settlement times, and push banks to improve their own offerings in response.
How might regulators draw the line?
One of the practical challenges facing regulators is distinguishing between prohibited “yield” and permitted “rewards.” Some policy experts have suggested that agencies could focus on the source and structure of the benefit:
– Direct, guaranteed returns funded from interest earned on customer stablecoin balances might be treated as prohibited yield.
– Non‑guaranteed, promotional rewards funded from a platform’s own revenue, and not marketed as savings products, could be seen as permissible incentives.
– Programs that resemble securities or investment contracts, with pooling of funds and expectations of profit from others’ efforts, might fall under existing securities laws regardless of the stablecoin rules.
Such a framework would require careful drafting and clear disclosures to users, but it could allow regulators to target genuinely risky products without banning all forms of innovation around stablecoin use.
Implications for smaller fintechs and startups
For early‑stage fintech startups, the outcome of this debate could be especially important. Many younger companies lack the scale and brand recognition of established banks and card networks, so they rely on inventive incentives to attract users — from fee rebates to tokenized loyalty programs.
If the stablecoin yield prohibition is interpreted narrowly (issuer‑only), these firms can still design lawful reward structures. If the prohibition is expanded to capture most forms of stablecoin‑related incentives, many smaller players may find their core business models either unviable or legally risky.
This dynamic could tilt the field toward large institutions that already benefit from cheaper funding, broader distribution, and easier access to regulators, potentially reducing competition in consumer finance at precisely the moment when digital options are proliferating.
Global context: what other jurisdictions are watching
Although the current clash is centered in Washington, its outcome will be closely monitored abroad. Stablecoins are inherently cross‑border, and global regulators often borrow concepts from one another. If the US adopts a particularly strict approach to stablecoin rewards, other jurisdictions might emulate it, leading to a tighter global regime.
Conversely, if US policymakers manage to carve out a balanced framework that protects consumers while still enabling platforms to offer responsible rewards, that model could become a template for other countries seeking to regulate digital assets without stifling them.
International firms operating in multiple markets are especially sensitive to these developments, as fragmented or contradictory rules around stablecoin incentives could raise compliance costs and slow adoption.
What happens next in Congress
Senate Banking Committee staffers are now reviewing submissions from both the banking sector and the crypto‑fintech coalition as they prepare for a series of upcoming hearings. Lawmakers are considering whether “technical fixes” or clarifying language are needed to guide how the GENIUS Act should be enforced.
Regulators charged with implementing the law have been urged by banks to adopt rules that treat third‑party stablecoin rewards as potential evasion of the yield ban. At the same time, industry groups are lobbying for guidance that sticks closely to the statute’s text and leaves room for benign, innovation‑driven uses of incentives.
Depending on how those discussions unfold, Congress could ultimately:
– Leave the law unchanged and let regulators interpret it through guidance and rulemaking.
– Pass narrowly tailored amendments addressing specific practices that raise systemic risk concerns.
– Or, under pressure from either side, attempt a more comprehensive rewrite of the stablecoin yield provisions — a move that would reopen the broader policy battle over how digital dollars should fit into the financial system.
For now, the GENIUS Act’s stablecoin yield ban remains one of the most consequential — and contested — pieces of the emerging US crypto regulatory framework. How far that ban ultimately reaches will help determine not only how Americans earn (or don’t earn) returns on digital dollars, but also which institutions dominate the next generation of money and payments.