Banks Emerge Winners as Senate Moves to Shut Down Stablecoin Yield

Key Takeaways

• The Senate draft bans interest or passive yield for holding payment stablecoins
  
• Activity-based rewards, including transactions and staking, remain legal
  
• Banks argue the move protects up to $6.6 trillion in deposits

If you have ever wondered why stablecoins were starting to feel a little too much like savings accounts, Washington just stepped in. A newly released Senate crypto bill aims to draw a hard line between digital dollars and traditional banking products.

The updated draft blocks interest or passive yield on payment stablecoins, a move that banks have pushed for aggressively over the past year. Supporters say it protects deposits and lending. Critics argue it weakens one of crypto’s strongest use cases.

Banks Close the Door on Stablecoin Yield

At the center of the proposal is a simple rule. Digital asset service providers would no longer be allowed to pay any form of interest or yield just for holding a payment stablecoin. That includes cash payouts, token rewards, or any other compensation tied only to holding.

The provision builds on last year’s GENIUS Act, which banned issuers from paying interest but left gray areas around exchanges and affiliated platforms. Banks warned those loopholes were being exploited, allowing crypto companies to recreate yield through indirect reward programs.

According to the American Bankers Association, as much as $6.6 trillion in bank deposits could be at risk if yield-bearing stablecoins scale. Community banks, in particular, argued that deposit flight would reduce their ability to fund local mortgages and small business loans.

Crypto Still Gets Rewards, Just Not for Doing Nothing

Despite the headline ban, the bill does not eliminate rewards entirely. Activity-based incentives are explicitly allowed.

Platforms can still offer compensation tied to transactions, payments, transfers, remittances, or settlement activity. Loyalty programs are also preserved, along with rewards for liquidity provision, collateral use, governance participation, validation, and staking.

In practical terms, this means passive “park your stablecoins and earn” models are out. “Use the network and earn” models remain very much alive. For many crypto-native users, that distinction matters more than it sounds.

Clearer Disclosures, Fewer Illusions

The legislation also directs the Securities and Exchange Commission and the Commodity Futures Trading Commission to jointly craft disclosure rules within 360 days.

Any rewards offered must be explained in plain English. Platforms will need to clearly state who is paying the compensation and spell out that a payment stablecoin is not an investment product, not a bank deposit, and not insured by the FDIC.

For users who still assume stablecoins carry the same protections as a checking account, this section may be the most important part of the bill.

Lawmakers Push Back on the Timeline

The rollout of the draft has drawn criticism on Capitol Hill. Senators Jack Reed, Chris Van Hollen, and Tina Smith called for a public hearing before the scheduled committee markup.

In a letter to Banking Committee Chair Tim Scott, they warned that lawmakers and the public had less than 48 hours to review the bill and less than 24 hours to prepare amendments. That compressed timeline has raised doubts about whether the legislation can advance quickly.

Crypto analyst Nic Puckrin said delays are likely, noting that prolonged uncertainty continues to weigh on a market already struggling to regain momentum.

What This Really Means for Stablecoins

The fight over stablecoin yield has always been about more than rewards. It is about defining whether stablecoins compete with banks or simply complement them.

By banning passive yield, lawmakers are signaling that payment stablecoins should behave more like digital cash and less like interest-bearing financial products. Banks keep their advantage. Crypto platforms are forced to innovate elsewhere.

Whether that trade-off helps or hurts long-term adoption remains an open question.

The Bigger Picture for Crypto Regulation

This bill shows how much the regulatory tone has shifted. Lawmakers are no longer debating whether stablecoins should exist. They are deciding how far they are allowed to go.

For users, the message is clear. Stablecoins are for payments and utility, not yield farming. For builders, the challenge is equally clear. If passive rewards are gone, the next wave of innovation has to earn its value the hard way.

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