The most consequential legislative battle in stablecoin history is unfolding not in Congressional hearing rooms but in the White House Diplomatic Reception Room, where a February 10 mediation session between Wall Street's largest banks and crypto's most powerful firms ended in deadlock. At the ce...
The most consequential legislative battle in stablecoin history is unfolding not in Congressional hearing rooms but in the White House Diplomatic Reception Room, where a February 10 mediation session between Wall Street's largest banks and crypto's most powerful firms ended in deadlock. At the center of the impasse: Section 404 of the Digital Asset Market Clarity Act (CLARITY Act), a provision that would ban all passive yield on payment stablecoins held on centralized platforms — effectively deciding whether digital dollars function as savings instruments or are restricted to pure payment rails.
The stakes are not theoretical. The total stablecoin market capitalization has surged past $308 billion, yield-bearing stablecoins have grown from $4 billion to over $13 billion since November 2024, and JPMorgan projects the yield-bearing segment could capture 50% of the entire stablecoin market.[^1] Against this trajectory, Bank of America has modeled a scenario in which $6 trillion in U.S. bank deposits migrate to higher-yield stablecoin products — a capital flight that would fundamentally restructure the funding base of American banking.[^2]
With a White House-imposed deadline of late February for compromise language, both sides have now published competing principle documents. The Digital Chamber released its counter-framework on February 13, conceding ground on passive interest while drawing hard lines on DeFi liquidity rewards and ecosystem participation incentives.[^3] The outcome will define not just the regulatory architecture of stablecoins in the United States, but the competitive positioning of American digital dollar infrastructure globally — as Europe, Hong Kong, and Singapore have already established their own yield frameworks.
Section 404 of the CLARITY Act — formally the Digital Asset Market Clarity Act of 2025 (H.R. 3633) — proposes that digital asset service providers cannot provide "any form of interest or yield solely in connection with the holding of a payment stablecoin."[^4] The language is deliberately broad: it targets not just explicit interest rates but any financial consideration, rebate, or reward mechanism that compensates users for simply holding stablecoins on a platform.
The provision carries a critical nuance, however. It carves out "activity-based rewards and incentives," permitting compensation tied to specific behaviors: transaction settlement, wallet or platform usage, loyalty programs, and subscription services. This creates a regulatory gray zone in which the distinction between "passive yield" and "activity reward" becomes the billion-dollar question.
For DeFi, the implications are even more ambiguous. Providing liquidity to a decentralized lending pool and earning a return could be classified as either a passive yield (banned) or an activity-based reward for liquidity provision (permitted). The classification will determine whether protocols like Aave, Compound, and MakerDAO's Spark can continue to operate yield-generating stablecoin products in the U.S. market.
The GENIUS Act — signed into law in July 2025 — already addressed stablecoin reserves, licensing, and redemption requirements. But it deliberately preserved third-party rewards as part of a negotiated bipartisan compromise.[^5] Section 404 of the CLARITY Act now threatens to retroactively narrow that compromise, which is why the Blockchain Association has formally opposed the broadening effort in a letter to Congress.[^6]
The banking industry's opposition to stablecoin yield is not ideological — it is existential. The yield differential between traditional bank deposits and stablecoin products has created a structural arbitrage that, at scale, threatens the core funding mechanism of American banking.
The numbers tell the story:
| Product | Typical Yield | Market Size | |---------|--------------|-------------| | U.S. bank savings accounts | 0.1% – 0.5% | ~$18 trillion in total deposits | | Money market funds | 4.0% – 4.5% | ~$6.8 trillion | | Circle USDC (platform yield) | 3.5% | $74 billion market cap | | Ethena sUSDe | ~5.0% | Part of $13B yield-bearing segment | | Ondo USDY | 4.25% | ~$700 million market cap |
Bank of America CEO Brian Moynihan's $6 trillion migration warning is grounded in a U.S. Treasury modeling exercise that examined deposit outflows under various stablecoin yield scenarios.[^2] The Treasury's analysis concluded that if yield-bearing stablecoins offered between 3% and 5% with institutional-grade trust and regulatory clarity, up to $6.6 trillion — roughly 37% of total U.S. bank deposits — could migrate to stablecoin-denominated savings products over a decade.
This is not a hypothetical concern. Money market funds already demonstrated this dynamic during the 2023-2024 rate hiking cycle, absorbing over $1 trillion in bank deposit outflows as the yield differential widened. Stablecoins represent the next iteration of this disintermediation — but with the added advantage of 24/7 settlement, programmability, and global accessibility.
For banks, the arithmetic is devastating. The U.S. banking system's net interest margin — the spread between what banks earn on loans and what they pay on deposits — was approximately 3.3% in 2025.[^7] If deposits migrate to stablecoin products offering 3.5%–5.0%, banks face a choice: match the yield (compressing margins to unsustainable levels) or lose the deposits entirely (reducing their lending capacity proportionally).
On February 10, 2026, Patrick Witt — executive director of the President's Council of Advisers on Digital Assets — convened what was expected to be a breakthrough session in the White House Diplomatic Reception Room. Over two hours, delegations from JPMorgan Chase, Goldman Sachs, Citigroup, and Bank of America sat opposite representatives from Coinbase, Circle, Ripple, Crypto.com, and Kraken, flanked by their respective trade associations.[^8]
The banks arrived with a one-page position paper titled "Yield and Interest Prohibition Principles," which called for a blanket prohibition on "any form of financial or non-financial consideration to a payment stablecoin holder in connection with the payment stablecoin holder's purchase, use, ownership, possession, custody, holding or retention of a payment stablecoin."[^9] The scope was remarkable: it targeted not just interest payments but cashback rewards, loyalty points, airdrops, and any mechanism that could be construed as an inducement to hold stablecoins.
Crypto industry representatives rejected the framing entirely, arguing that the banks were effectively demanding that stablecoins be stripped of the yield characteristics that drive adoption and economic utility. The session ended with no agreement. Witt set a late-February deadline for both sides to return with draft bill language — a deadline that now appears unlikely to be met.[^8]
The political dynamics are complex. The Trump administration has positioned itself as pro-crypto, having signed the GENIUS Act and established the Council of Advisers on Digital Assets. But the banking lobby retains enormous legislative influence, and the CLARITY Act must pass through the Senate Banking Committee, where traditional financial institutions have deep relationships. The administration is caught between its crypto-friendly posture and the systemic stability concerns that a $6 trillion deposit migration would create.
Following the White House impasse, both sides have formalized their positions in written principles, transforming the negotiation from a closed-door discussion into a public lobbying war.
The Banking Position: The American Bankers Association, the Independent Community Bankers of America, the Bank Policy Institute, and the Financial Services Forum have coalesced around a maximalist ban. Their core arguments: (1) stablecoin yield functions as uninsured interest and creates systemic risk, (2) yield-bearing stablecoins undermine the deposit insurance framework that stabilizes the banking system, and (3) stablecoin issuers are not subject to the same prudential oversight as banks, creating an asymmetric competitive advantage.[^9] America's Credit Unions joined the coalition, arguing that stablecoin yield constitutes an "inducement" that should be explicitly banned.[^10]
The Crypto Industry Position: On February 13, the Digital Chamber — the largest blockchain trade association with over 250 members — released its counter-framework. The document makes strategic concessions: it accepts that passive yield on static stablecoin holdings (the closest analogue to a savings account) can be restricted. But it draws hard lines on two categories it wants explicitly protected: rewards tied to DeFi liquidity provision and rewards tied to ecosystem participation.[^3]
Critically, the Digital Chamber also accepted the banks' request for a two-year study on how stablecoins affect bank deposits — but only if the study does not trigger automatic regulatory rulemaking. This is a significant tactical move: it signals willingness to delay the yield question while preserving the DeFi ecosystem's ability to function.
The Blockchain Association took a harder stance, arguing that Congress already resolved this question in the GENIUS Act by deliberately preserving third-party rewards, and that the CLARITY Act should not reopen the debate.[^6]
The yield-bearing stablecoin segment has been one of crypto's fastest-growing sectors. From approximately $4 billion in combined market capitalization in November 2024, the top yield-bearing stablecoins have surged to over $13 billion — a 225% increase in roughly 14 months.[^1]
The leading protocols face varying degrees of regulatory exposure:
Ethena (USDe/sUSDe): Ethena's delta-neutral strategy — staking ETH as collateral while hedging via perpetual short positions — generates approximately 5% yield for sUSDe holders. Because the yield derives from derivatives activity rather than interest on reserves, it occupies an ambiguous position under Section 404. If "activity-based rewards" are preserved, Ethena's model may survive. If the ban is interpreted broadly, the entire basis trade that underpins USDe becomes a regulatory liability.
Ondo Finance (USDY): USDY is backed by U.S. Treasury bills and investment-grade bonds, with a 4.25% annualized yield distributed monthly. Its $700 million market cap reflects institutional confidence, but its structure — directly passing through Treasury yield to token holders — is precisely the model that banks want banned.[^11]
MakerDAO (sDAI): The Dai Savings Rate mechanism allows DAI holders to earn yield by depositing into a savings contract. As a decentralized protocol without a centralized issuer, sDAI may fall outside Section 404's jurisdiction — but the regulatory uncertainty itself is already dampening institutional appetite.
Circle (USDC): Circle's 3.5% platform yield on USDC balances would be a direct casualty of Section 404. As the second-largest stablecoin issuer with a $74 billion market cap, Circle has the most to lose from a broad ban — and the most to gain from activity-based carveouts that reward transactional usage of USDC.[^12]
The U.S. stablecoin yield debate is not occurring in a vacuum. Europe, Hong Kong, and Singapore have already established their regulatory frameworks, creating a global divergence that could shift the competitive landscape for digital dollar infrastructure.
Europe (MiCA): The Markets in Crypto-Assets Regulation explicitly bans interest payments on payment-type stablecoins but permits yield through established investment vehicles. Europe's position: stablecoins are payment instruments, not savings products. Yield belongs in regulated fund structures with appropriate disclosures and suitability requirements.[^13]
Hong Kong: The Hong Kong Monetary Authority has adopted a licensing model that appears to permit interest payments on stablecoins from licensed issuers, with first licenses expected as early as March 2026. This positions Hong Kong as potentially the most yield-friendly regulated jurisdiction.[^14]
Singapore: The Monetary Authority of Singapore will enforce its Stablecoin Framework 2.0 in 2026, capping non-bank issuer supply at S$10 million initially, with a cautious approach to yield that prioritizes systemic stability.[^14]
The risk for the United States is clear: if Section 404 implements a broad yield ban, stablecoin yield innovation migrates to Hong Kong and other jurisdictions. If it implements narrow carveouts, the U.S. retains its competitive position but introduces regulatory complexity. The PYMNTS analysis concluded that the U.S. risks falling behind Europe and Asia — both of which have already provided clearer rules — while Washington debates.[^14]
From an economic value distribution perspective — the foundational analytical framework for evaluating blockchain economics — the stablecoin yield question is ultimately a fight over value capture.
In the current architecture, stablecoin yield flows through three layers:
Reserve yield generation: Stablecoin issuers invest reserve assets (primarily U.S. Treasuries) and earn approximately 4.0%–4.5% annually. On a $308 billion stablecoin market, this represents roughly $12–14 billion in annual reserve income.
Issuer value capture: Most of this yield is retained by issuers. Tether reported $13 billion in profit for 2024; Circle retains the majority of reserve income from USDC. The yield ban debate is functionally about whether any of this value flows to end users.
User value capture: Yield-bearing stablecoins redistribute a portion of reserve income (or synthetically generated yield) to holders. If Section 404 bans this redistribution, it effectively mandates that all reserve yield accrues to issuers and their institutional partners — a value capture structure that mirrors traditional banking but without the deposit insurance obligation.
The banking lobby's argument, stripped to its economic essence, is that yield redistribution to stablecoin holders without deposit insurance creates systemic risk. The crypto industry's counter-argument is that mandating yield retention by issuers without redistribution creates a rent extraction structure that is worse than the banking model it replaces.
The economic reality is that someone captures the yield generated by $308 billion in dollar-denominated reserves. The legislative question is whether that yield flows to stablecoin holders, stablecoin issuers, or — through the deposit migration that yield-bearing stablecoins would prevent — back to the banking system.
Section 404 of the CLARITY Act proposes a broad ban on passive stablecoin yield, targeting any financial consideration for simply holding payment stablecoins on centralized platforms, while preserving a narrow carveout for "activity-based rewards."
Bank of America's $6 trillion deposit migration warning is grounded in U.S. Treasury modeling showing that 37% of American bank deposits could flow to yield-bearing stablecoins under certain scenarios, threatening the core funding mechanism of the banking system.
The February 10 White House mediation session ended in deadlock, with banks demanding a blanket ban and crypto firms rejecting the framing. A late-February deadline for compromise language appears unlikely to be met.
Yield-bearing stablecoins have grown from $4 billion to $13 billion since November 2024, with JPMorgan projecting the segment could capture 50% of the total stablecoin market — making the regulatory outcome a multi-hundred-billion-dollar question.
The Digital Chamber's February 13 counter-framework concedes passive yield restrictions while drawing hard lines on DeFi liquidity rewards and ecosystem participation incentives — the lifeline that decentralized protocols need to function.
Global regulatory divergence is accelerating: MiCA bans stablecoin interest, Hong Kong appears poised to permit it under licensing, and the U.S. remains deadlocked — creating competitive risks for American digital dollar infrastructure.
The fundamental economic question is value capture: $12–14 billion in annual reserve income is generated by stablecoin reserves. Section 404 will determine whether that yield flows to holders, issuers, or back to the banking system through preserved deposit dominance.
The CLARITY Act yield ban is not a regulatory technicality. It is the defining economic policy question for the $308 billion stablecoin market — and, by extension, for the future architecture of dollar-denominated finance. The White House deadline is approaching with no compromise in sight, the competing frameworks reveal fundamental disagreements about who should capture the yield embedded in digital dollar reserves, and the global regulatory landscape is fragmenting in ways that will reward jurisdictions that achieve clarity first.
For market participants, the implications are immediate. Yield-bearing stablecoin protocols face existential regulatory risk in the U.S. market. Stablecoin issuers must prepare for scenarios ranging from a broad ban to narrow activity-based carveouts. And banks must reckon with the possibility that even a favorable regulatory outcome may only delay, not prevent, the structural disintermediation that programmable yield-bearing digital dollars represent.
The $6 trillion question is not whether deposits will migrate to stablecoins. It is whether the United States will build the regulatory framework that governs that migration — or cede that architecture to Hong Kong, Singapore, and Europe.
[^1]: JPMorgan sees yield-bearing stablecoins growing from 6% to 50% of market share, The Block, 2025. https://www.theblock.co/post/348449/jpmorgan-yield-bearing-stablecoins-growth
[^2]: Stablecoin Yield Will Attract $6 Trillion in Bank Deposits: Bank of America, The Crypto Basic, January 2026. https://thecryptobasic.com/2026/01/15/stablecoin-yield-will-attract-6-trillion-in-bank-deposits-bank-of-america/
[^3]: Crypto group counters Wall Street bankers with its own stablecoin principles for bill, CoinDesk, February 13, 2026. https://www.coindesk.com/policy/2026/02/13/crypto-group-counters-wall-street-bankers-with-its-own-stablecoin-principles-for-bill
[^4]: Digital Asset Market Clarity Act of 2025, H.R. 3633, 119th Congress. https://www.congress.gov/bill/119th-congress/house-bill/3633/text
[^5]: The GENIUS Act Becomes Law: Key Provisions from the Federal Stablecoin Regulatory Framework, Covington & Burling LLP, July 2025. https://www.cov.com/news-and-insights/insights/2025/07/the-genius-act-becomes-law-key-provisions-from-the-federal-stablecoin-regulatory-framework
[^6]: CLARITY Act Update: Crypto Group Fires Back at Banks With New Principles, CoinPedia, February 2026. https://coinpedia.org/news/clarity-act-update-crypto-group-fires-back-at-banks-with-new-principles/
[^7]: CLARITY Act: Washington Promised Certainty, Crypto Got a Civil War, Disruption Banking, February 11, 2026. https://www.disruptionbanking.com/2026/02/11/clarity-act-washington-promised-certainty-crypto-got-a-civil-war/
[^8]: Crypto's banker adversaries didn't want to deal in latest White House meeting on bill, CoinDesk, February 10, 2026. https://www.coindesk.com/policy/2026/02/10/crypto-s-banker-adversaries-didn-t-want-to-deal-in-latest-white-house-meeting-on-bill
[^9]: No Compromise on Stablecoin Yield as Banks Push Total Ban, Stalling CLARITY Act Talks, Daily Crypto Briefs, February 2026. https://dailycryptobriefs.com/news/white-house-stablecoin-yield-ban-clarity-act-impasse/
[^10]: Ban on stablecoin inducements should be included in Clarity Act, America's Credit Unions, February 2026. https://www.americascreditunions.org/news-media/news/ban-stablecoin-inducements-should-be-included-clarity-act
[^11]: Best Yield-Bearing Stablecoins to Hold in 2026, Stablecoin Insider, 2026. https://stablecoininsider.org/yield-bearing-stablecoins-2026/
[^12]: Stablecoin Giant Tether Reports Record $187 Billion USDt Cap Amid Crypto Slump, All Cryptocurrency Daily, February 2026. https://www.allcryptocurrencydaily.com/latestnews/2026/02/06/stablecoin-giant-tether-reports-record-187-billion-usdt-cap-amid-crypto-slump/
[^13]: While US Debates Stablecoin Yield, Europe and Asia Set Clearer Rules, PYMNTS, February 2026. https://www.pymnts.com/cryptocurrency/2026/while-us-debates-stablecoin-yield-europe-and-asia-set-clearer-rules/
[^14]: Global stablecoin regulations 2026: What enterprises need to know, BVNK, 2026. https://bvnk.com/blog/global-stablecoin-regulations-2026