Senator Thom Tillis announced that he would publicly release a draft on Monday, expecting to end the standoff between banks and crypto on stablecoin yields. However, both parties are not ready to accept this new draft.
Senator Thom Tillis and Sen. Angela Alsobrooks (D-Md.) worked together for months to draft a bill with the use of adequate language in the hopes of resolving a split between banking and crypto groups.
The latest draft was intended to resolve an ongoing argument about whether third parties like digital asset exchanges should be allowed to pay yield to stablecoin holders via rewards programs. However, both parties are not in agreement.
Real risk is long-term shift, not short-term numbers
The White House note last week made one thing clear: the impact of stablecoin yield on bank lending may be much smaller than what banks had been warning about. Banks are pushing back by saying the real risk is not the short-term numbers, but the longer-term shift of deposits away from the traditional banking system. Senator Tillis is now trying to draft compromise language that can keep the Clarity Act moving while addressing both sides. If banks and crypto firms still cannot agree, this issue could continue to delay the bill and keep the U.S. stuck in the same policy limbo.
Crypto Analyst Lavneet Bansal
The updated version of the bill was seen earlier this month by both parties, banks, and crypto; however, reports stated that bank representatives did not agree with the draft.
Tillis said that people are apprehensive because they haven’t seen the full text. “Directionally, it has been instructed by what we consider to be the legitimate issues that we have around deposit flight when we’re talking about yield.” He stated.
Banks want the bill to ban third-party stablecoin issuers
The main issue with the bills is the language that has been used. Bank lobbyists want a bill that bans third-party crypto companies from issuing yields on stablecoins, as they fear deposits in banks could have a major migration to stablecoins. Crypto companies desire a bill written in a language that fosters innovation and growth.
Banks want third-party stablecoin issuers restricted or banned as they see them as a direct threat to their core business model, especially in terms of deposits, lending, and payments.
Traditional banks rely on customer deposits to fund loans and generate income through interest margins. If users start to move money into stablecoins, it reduces the amount of capital available within the banking system and can weaken lending activity over time.
In addition, many non-bank stablecoin issuers operate in a way that resembles “shadow banking.” They hold reserves, facilitate payments, and sometimes even offer yield-like returns, all without being bound by the same strict regulations, capital requirements, or oversight that traditional banks require.
When this happens, it creates an uneven playing field and gives the crypto firms the upper hand as they can offer similar financial services with fewer constraints, and the banks become useless.
Another major concern is the loss of control over payments and money flows. Stablecoins allow instant, borderless, 24/7 transfers outside traditional banking rails. This removes the role of middlemen like banks, which threatens fee-based revenue streams.
Furthermore, banks argue that if stablecoins function like money or deposit substitutes, they should be regulated like banks to ensure stability and consumer protection.
Ultimately, the banks want to limit third-party issuers, as they want to prevent the rise of a parallel financial system that could operate outside traditional banking oversight and gradually pull financial activity away from the existing banking structure.
This disagreement comes after three failed White House-mediation meetings, which sought to find common ground between the two parties. In terms of time, the bill has been hanging since July of last year when the CLARITY Act was passed.
The CLARITY Act is a piece of U.S. legislation that brings clear regulatory structure to the cryptocurrency industry, which has long dwelled in a state of uncertainty. The primary goal of the act is to define digital assets and classify them and also clarify which regulatory body gets to oversee them.
The CLARITY act defines the SEC and CFTC roles
The CLARITY Act aims to resolve this by establishing clearer boundaries—typically assigning securities-like tokens to the SEC and commodity-like assets to the CFTC.
It will solve the ongoing confusion between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), with both agencies claiming jurisdiction over various aspects of the crypto market.
The bill also focuses on building a formal, robust framework for crypto market participants, including exchanges, brokers, and custodians. The goal is to make it safer for people who put their money in crypto. This will help people who invest. It will also help companies because they will know what to expect.
Many companies have had problems with the law because the rules were not clear. However, the act wants to fix this and reveal the grey areas by making the rules clearer and easier to understand so companies, like exchanges and brokers, can do their job without worrying about getting in trouble.
