WASHINGTON — The new crypto market structure bill language circulating among stakeholders isn’t winning over banks, due to its inclusion of loopholes for stablecoin and crypto companies to continue to offer yield-like products, four people briefed on the language said.
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Bankers and crypto firms saw draft language earlier this week that had been developed over the prior weeks by Sens. Thom Tillis, R-N.C., and Angela Alsobrooks, D-Md., and the White House. That language was aimed at bridging banks’ and crypto firms’ concerns with rules around crypto companies’ ability to offer subscriptions and monetary rewards for using or moving stablecoins.
The bill still doesn’t define “staking,” one of the people said, and doesn’t close a loophole that banks fear will allow crypto firms to essentially offer yield on stablecoins. There are other concerns, as well, including the potential for crypto exchanges to offer subscription products that also offer yield, or that firms could bypass the prohibition on issuing yield-like products for simply holding stablecoins by setting up a computer programming mode to just move money back between two accounts electronically, one of the people said.
The language is still being drafted and could still change before lawmakers make the entire text public.
Over the last year, talks on a crypto market structure bill have been stalled in part because of the conflict between the crypto and banking industries over yield-like rewards on stablecoin holdings. The crypto industry wants to offer yield on stablecoins as an incentive to woo customers, but bankers say the rewards are too similar to interest paid on deposits. A flight of bank deposits to stablecoins could thus limit banks’ ability to lend and impact economic growth, banks argue.
The GENIUS Act, the stablecoin law passed last year, does restrict stablecoin issuers from offering yield, but bank lobbyists want the prohibition to be more explicit and to cover all parties involved in stablecoin issuance, including crypto exchanges. The market structure bill is their best opportunity to enshrine such a ban.
But bankers didn’t get the wholesale prohibition on stablecoin issuers and any third-parties from offering yield-like products that they wanted, the people said, although there have been some changes that bankers have asked for. There are roughly five pages of exemptions that bankers worry will allow crypto firms to bypass the ban on offering yield.
On the other hand, certain parts of the crypto industry, notably Coinbase — which previously tanked efforts to get final language on this issue passed — has told Senate offices that it also can’t yet support the bill, three people familiar with the exchanges’ thinking said.
Lawmakers last week tried to project confidence that a final deal that would satisfy both the crypto and the banking industry was close at hand, with Senate Banking Committee Chair Tim Scott, R-S.C., saying that language could be available as early as last Friday.
“This is about having both sides at the table, fighting over the differences, and at the same time having all players — the industry and the financial services, the banks — at the same table,” Scott said at the Blockchain Summit in Washington last Tuesday. “And I believe that this week we will have the first proposal in my hands to take a look at, and if that actually happened before the end of this week — and I think that it will — we’ll at least know what the sketch looks like in person. If that’s the case, I think we’re gonna be in much better shape.”
Sen. Cynthia Lummis, R-Wyo., one of the most pro-crypto lawmakers in Congress, however, hinted last week that banks might not be happy with the deal.
“I know that we have to get the banks to swallow hard and accept something less than perfect,” Lummis said.
