Stablecoin rewards provisions face industry test in Senate crypto bill

The legislative effort to establish a comprehensive framework for digital assets in the U.S. Senate has encountered significant industry resistance, specifically targeting provisions governing stablecoin rewards and yield generation. Several proposed bills, including ongoing drafts of bipartisan legislation, suggest stricter regulatory treatment for stablecoin issuers who provide yield to holders, regardless of whether that yield is derived from traditional treasury management or decentralized finance (DeFi) lending.

The core conflict centers on defining whether these reward-bearing stablecoins constitute securities or if the yield amounts to interest on deposits. Current draft language proposes that stablecoin issuers offering rewards must either adhere to stringent banking regulations—including capital adequacy and deposit insurance requirements—or face classification under the Securities and Exchange Commission (SEC), potentially requiring complex registration processes.

Industry participants, including major stablecoin issuers and crypto advocacy groups, are actively lobbying to refine these definitions. They argue that yield derived from the conservative management of collateral reserves (e.g., holding U.S. T-Bills) should not automatically trigger security classification under the Howey test, provided the stablecoin maintains its primary function as a transactional medium. They warn that overly restrictive security definitions would stifle legitimate innovation and drive yield-generating activities to unregulated offshore markets, reducing consumer protections.

The industry test now involves demonstrating to lawmakers the distinction between passive yield from reserves and active yield from shared investment pools. The outcome of this debate will determine the viability of regulated, interest-bearing dollar tokens in the U.S. market and set a precedent for how Congress views stablecoins relative to traditional banking deposits.

Source: Stablecoin rewards provisions face industry test in Senate crypto bill