Senate Reaches Breakthrough Deal on Crypto Stablecoin Yield Restrictions

Banking Industry Wins Key Concessions in Crypto Compromise

After months of heated negotiations, Senators Thom Tillis and Angela Alsobrooks have finalized a compromise on one of the most contentious issues in cryptocurrency regulation. The newly released Digital Asset Market Clarity Act text prohibits stablecoin yield that's functionally equivalent to bank deposits , addressing banks' fears that crypto products could undermine their traditional lending business.

Banks worry that if users hold stablecoins and earn interest or generate yield, it will undermine their traditional lending business, which relies on paying little or nothing for deposits and then lending the same funds at a considerably higher rate. The compromise represents a significant victory for the banking lobby, which had pushed aggressively for restrictions on crypto yield products.

Section 404 of the bill bars covered parties from paying any form of interest or yield to U.S. customers solely for holding stablecoins, or anything economically or functionally equivalent to interest on an interest-bearing bank deposit. This language effectively prevents crypto firms from offering passive returns that could compete directly with traditional savings accounts.

Crypto Firms Retain Activity-Based Reward Programs

While banks secured major restrictions, crypto companies preserved what they consider essential business functions. The prohibition does not apply to activity-based or transaction-based rewards tied to bona fide activities. This means users can still earn rewards for actively using crypto platforms, making payments, or participating in network governance.

The text directs the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Treasury Secretary to jointly issue rules within one year defining a non-exhaustive list of permitted activities, expected to include payments, transfers, market-making, staking, governance and loyalty programs. These regulatory guidelines will clarify exactly which activities qualify for rewards.

For Coinbase, the outcome has direct financial implications. The exchange reported $1.35 billion in stablecoin revenue in 2025, much of it from rewards-driven distribution payments tied to its USDC partnership with Circle. The compromise allows the company to maintain its core reward programs while restructuring them around user activity rather than passive holdings.

Political Path Forward Clears Major Hurdle

The deal closes a months-long stalemate that has repeatedly knocked the broader market structure bill off track. The Senate Banking Committee canceled a planned January markup at the last minute after Coinbase pulled its support over an earlier version of the yield language , demonstrating the high stakes involved in these negotiations.

Coinbase CEO Brian Armstrong wrote "Mark it up" on social media, while the company's chief legal officer said the language "preserves activity-based rewards tied to real participation on crypto platforms and networks." Industry leaders are now pushing for swift committee action to advance the legislation.

Galaxy Digital head of research Alex Thorn said the release of the text suggests the Senate Banking Committee could schedule a markup "as soon as the week of May 11." However, significant challenges remain, as other complex issues like DeFi protections and tokenization rules still need resolution before the bill can advance to a full Senate vote.

Broader Implications for Digital Asset Regulation

The stablecoin yield compromise represents more than just a technical fix—it establishes a framework for how digital assets will coexist with traditional banking. Firms will need to restructure rewards programs from a "buy and hold" model to a "buy and use" one to comply with the transaction caveats. This shift could fundamentally change how crypto companies design their products and engage users.

Covered parties cannot market stablecoins as investment products, claim they are backed by the full faith and credit of the United States, or say they are FDIC-insured, while violations can bring civil penalties of up to $5 million per violation assessed by the Treasury Department. These compliance requirements signal a new era of oversight for the crypto industry.

The compromise may set a precedent for future crypto regulation, showing how competing industries can find middle ground through targeted restrictions rather than blanket bans. As digital assets continue gaining mainstream adoption, this framework could become a model for addressing similar conflicts between traditional finance and emerging technologies.