Stablecoins face uncertainty as CLARITY rewards deal stalls

Banks rejected the White House compromise over deposit-flight risk from stablecoin rewards

The U.S. crypto market bill is at a standstill after banks rejected a White House compromise over how the CLARITY Act would treat stablecoin rewards, focusing the fight on potential deposit flight from traditional banks into higher-yield digital dollars. As reported by Coingape, the setback centers on whether and how issuers or platforms can pay rewards or yield on stablecoin balances without undermining bank funding.

At issue is the risk that even narrowly permitted rewards could trigger large outflows from bank deposits into stablecoins seen as cash-like but more remunerative. Banking industry sources, as reported by Cointelegraph, view the current compromise language as insufficiently restrictive because certain reward structures would still be allowed and could entice customers to move funds out of the banking system.

CLARITY Act’s stablecoin rewards: proposed caps, safeguards, and gaps

Negotiators have weighed caps on rewards rates or dollar amounts, stricter reserve and segregation requirements, and robust consumer-protection and anti‑money‑laundering controls to contain incentives that might drain bank deposits. In a law‑firm commentary on the bill’s stall, Baker McKenzie said the process has entered “the second, more difficult phase,” where technical details rather than broad principles are determining outcomes.

A central design choice is whether rewards are paid on custodial balances held with a platform or only at the issuer level, and how to treat on‑chain, non‑custodial mechanisms. The commentary notes that drawing clear lines between issuer-funded rebates, platform‑funded yield, and protocol-level returns is critical to avoid regulatory arbitrage, especially if caps or prohibitions differ across these categories.

Analysts at Standard Chartered estimate that, if stablecoin rewards are broadly permitted, cumulative bank deposit outflows could reach as much as $500 billion by the end of 2028. That scenario analysis underscores why banks seek tight guardrails or outright prohibitions, while crypto firms argue that eliminating rewards would blunt the utility and competitiveness of compliant stablecoins.

Banking sources have also flagged operational concerns, how rewards would be disclosed, whether interest‑like payments trigger securities or banking law issues, and how prudential standards would apply to reserve portfolios backing reward‑bearing stablecoins. Those details, they contend, must be codified to prevent uneven enforcement and unintended risks.

Stakeholder positions, deposit-outflow risks, and congressional next steps

On the industry side, Coinbase has criticized provisions that, in its view, privilege incumbents by effectively constraining stablecoin rewards and entrenching traditional market power. As reported by Fox Business, CEO Brian Armstrong has argued that large banks are using the rulemaking process to stifle competition, framing aspects of the current drafts as regulatory capture.

The banking lobby has emphasized systemwide stability, urging lawmakers to avoid structures that could undermine insured deposits or raise funding costs during stress. According to the American Bankers Association, failing to manage deposit‑outflow risk from reward‑bearing stablecoins would pose serious threats to financial stability and economic growth.

At the political level, the White House has pressed for a deal, but The Block reported that the president’s call for banks to compromise is unlikely by itself to break the impasse. Meanwhile, Yahoo reported that Senate Democrats say Republicans have jeopardized bipartisan talks by advancing GOP‑drafted provisions without sufficient input, even as Democrats signal support for strong AML and consumer‑protection guardrails.

Procedurally, committee staff are expected to keep negotiating reward caps, issuer versus platform obligations, and disclosure standards, with the CLARITY Act’s stablecoin title seen as the gating item for broader market‑structure progress. If the dispute persists, calendar pressures could delay comprehensive action, leaving agencies and courts to fill gaps on a piecemeal basis until Congress revisits the package.

At the time of this writing, Bitcoin (BTC) traded around $72,539 with a neutral 14‑day RSI reading near 55.7 and medium volatility near 3.9%. This market context is descriptive and does not imply any view on the bill’s prospects or potential price impacts.