Banks and Crypto Platforms Battle Over Stablecoin Rewards in Senate Bill

TLDR

• Senate Banking Committee released 278 pages of bill text dividing crypto oversight between SEC and CFTC, with stablecoin rewards becoming a major dispute
• Current bill text prohibits payment of interest on payment stablecoins held by users but allows activity-based rewards for transactions, staking, or providing liquidity
• Banking groups oppose stablecoin rewards, claiming they could draw deposits away from community banks, while crypto industry accuses banks of limiting competition
• A more restrictive amendment on stablecoin rewards may be filed and could have enough votes to pass the Senate Banking Committee
• Ethics concerns remain unresolved around President Trump’s crypto ventures, which Bloomberg estimates have generated over $600 million, with Democrats calling ethics language a “red line”

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Senate Banking Committee Chair Tim Scott released 278 pages of proposed legislation on Monday aimed at regulating digital assets. The bill would split oversight between the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission.

The proposal attempts to clarify which digital assets qualify as securities versus commodities. It also establishes new disclosure requirements for the industry.

Banking Industry Versus Crypto Platforms

One of the most disputed sections involves how stablecoin rewards should be treated. Banking groups have criticized the GENIUS stablecoin law that passed last summer.

While GENIUS bars stablecoin issuers from paying direct interest to holders, it does not stop third-party platforms like Coinbase from offering rewards. Banks argue this creates an uneven playing field.

Banking groups have warned that allowing stablecoin rewards could pull deposits away from traditional banks. Community banks could be particularly affected by this shift.

The crypto industry says the issue was already debated before GENIUS passed. Some industry members accuse banks of trying to limit competition through new restrictions.

The current bill text prohibits digital asset service providers from paying interest or yield for simply holding payment stablecoins. However, it allows exceptions for activity-based rewards.

Users could earn rewards for making transactions, staking, providing liquidity, or posting collateral. This appeared to reflect a compromise proposed by Senator Angela Alsobrooks last week.

A source familiar with negotiations said the current text does not align with the Democratic compromise position. The person said the bill allows many exemptions and lacks a clear prohibition.

Alsobrooks’ proposal would let crypto exchanges offer yield if customers take specific actions like selling their stablecoins. Yield could not be earned on stablecoins sitting idle in accounts.

Amendment Could Tighten Restrictions

The language on stablecoin rewards may not be final. One source said an amendment will likely be filed that is more restrictive than the current text.

That amendment could have enough votes to pass the Senate Banking Committee. Amendments to the bill text were due by 5 p.m. Tuesday.

Blockchain Association CEO Summer Mersinger criticized banks for acting in bad faith. She said the crypto industry is negotiating in good faith while big banks are not.

Mersinger warned that if banks succeed in blocking the legislation with unreasonable demands, they will be left with the GENIUS Act language. She said banks have called that existing law unworkable.

The American Bankers Association did not respond to a request for comment. Banking groups have been following the negotiations closely.

Ethics concerns about President Trump’s crypto ventures remain unresolved in the bill text. Bloomberg estimates Trump has made over $600 million from crypto ventures in the past year.

Trump’s investments include DeFi and stablecoin project World Liberty Financial. The Trump family holds a 20% stake in mining firm American Bitcoin.

Key Democratic senators have called ethics language essential for passing the bill. They have described it as a “red line” in negotiations.

Patrick Witt, executive director of the President’s Council of Advisors for Digital Assets, said Democrats and Republicans have not reached a deal on ethics provisions. He said the administration will not accept provisions targeting the president or his family.

A Democratic aide said roughly half a dozen issues remain unresolved as of Tuesday evening. These include yield, ethics, and ensuring decisions are made by fully constituted regulatory commissions.

The Senate Banking Committee will hold its markup on Thursday to amend and vote on the bill. The Senate Agriculture Committee postponed its hearing from Thursday to later in January.

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