The White House’s end-of-February deadline for banks and crypto firms to resolve the “stablecoin yield” debate exposes a structural fault line that was never going to stay buried.
This isn’t a speed bump on the road to crypto-friendly regulation. Instead, it’s a core collision that happens when digital dollars scale large enough to threaten the business model of deposit-taking itself.
According to multiple reports, the White House convened banks and crypto representatives with an explicit mandate: find common ground on whether platforms can offer rewards on stablecoin holdings, or risk broader market structure legislation collapsing in 2026.
Reuters confirmed the summit’s focus on “interest and other rewards,” framing it as an attempt to unstick a bill already delayed by this exact clash.
The stakes are binary.
If Coinbase, banks, and other stakeholders reach consensus this month, the CLARITY Act advances. However, almost certainly in a form that neither side currently recognizes.
If they don’t, the broader digital asset market structure package dies for the year, and crypto’s regulatory momentum fractures into agency-by-agency enforcement rather than comprehensive legislation.
What’s actually being fought over
The technical dispute centers on whether exchanges, wallets, or other intermediaries can pass Treasury yields to users as “rewards” on stablecoin holdings.
Stablecoin issuers earn yield on reserves, such as primarily short-dated Treasuries and overnight instruments. Yet, under the framework Congress designed, issuers themselves cannot pay interest directly to holders.
That prohibition was intentional: lawmakers wanted to distinguish payment stablecoins from deposit accounts.
Banks argue that allowing exchanges or affiliates to offer yield-like rewards circumvents that intent.
The American Bankers Association and Bank Policy Institute have urged senators to “close the loophole,” arguing that any third party paying rewards tied to stablecoin balances effectively converts a payment instrument into a savings product.
Coinbase and crypto trade groups counter that Congress deliberately preserved the ability for third parties to offer lawful rewards.
The Blockchain Association’s letters argue that GENIUS, the stablecoin framework, prohibited issuer interest but left room for platforms to design incentive structures tied to usage, transactions, or other engagement.
This isn’t semantic hairsplitting. It’s a distributional fight over who gets to route Treasury yields to consumers digitally, and whether doing so outside the banking system constitutes unfair competition or legitimate product innovation.
Why the fight matters now
Stablecoins crossed a threshold where hypothetical risk became quantifiable exposure.
Total stablecoin market capitalization sits around $305 billion as of early February 2026. That’s large enough for banks to model deposit flight scenarios and large enough for regulators to worry about financial stability.
Standard Chartered estimated roughly $500 billion in US bank deposit outflows by the end of 2028, tied to stablecoin adoption, explicitly noting that the trajectory depends on whether third parties can offer interest.
The Bank Policy Institute cited a Treasury-attributed estimate of up to $6.6 trillion in deposit outflows under certain assumptions. This is a high-end stress scenario designed for persuasion but reflective of the scale banks now see as plausible.
The global context tightens the clock.
Hong Kong’s regulator expects to issue its first stablecoin issuer licenses in March 2026.
The Bank for International Settlements documented three broad global approaches to stablecoin-related yields: complete bans, retail bans with institutional carve-outs, and no explicit prohibition.
The UK is designing a regime in which systemic payment stablecoin issuers hold a portion of their backing assets unremunerated with the central bank, specifically to prevent stablecoins from becoming savings products.
A deal happens, CLARITY advances
If consensus emerges by the end of February, the bill that moves forward will not resemble the clean House-passed version.
A crucial technical detail clarifies what “different format” likely means: the House Digital Asset Market Clarity Act’s Section 404 addresses exchange registration with the CFTC, not stablecoin rewards.
The controversial “yield Section 404” language exists in Senate Banking drafts, not the House chassis.
So “different format” almost certainly means a Senate Banking overlay that bolts a stablecoin inducements title onto the House market-structure framework.
Three drafting pathways map to what stakeholders are already signaling.
The most likely compromise is an “activity-based rewards” safe harbor. Senate-side language being discussed publicly centers on banning yield paid solely for holding a payment stablecoin while allowing rewards tied to activity: payments, transactions, loyalty programs, and settlement.
The bill would define “solely for holding” tightly, prohibiting time-based APY marketing while permitting behavioral incentives.
If this version passes, stablecoin rewards become a regulated marketing and product-structure engineering exercise. Expectations are that platforms will shift from “park USDC, earn 4%” to “transact or route payments, earn rebates.”
A second pathway involves a “reserve-at-community-banks” quid pro quo. Reports suggest compromise discussions include requiring stablecoin reserves to be held with community banks.
This is political and industrial policy: turn stablecoins into a new distribution channel for bank balance sheets rather than a substitute for them.
A third option splits retail and institutional treatment. A bill could prohibit retail “yield-like” rewards while allowing institutions to receive fee rebates or settlement incentives, subject to disclosure and capital rules.
This tilts stablecoin growth away from consumer savings substitution and toward B2B settlement, collateral, and treasury operations, which is precisely where banks also want to compete.
Standard Chartered’s $500 billion deposit outflow scenario assumes meaningful rewards remain available.
If the deal sharply constrains retail rewards, adoption tilts away from “savings substitute” and toward “payments rail,” lowering outflow risk relative to the high-end bank memos.
| Draft pathway | What it bans | What it allows | What Coinbase sells to users | What banks get | Who wins / loses | Regulatory implication |
|---|---|---|---|---|---|---|
| Activity-based rewards safe harbor | Rewards paid solely for holding a payment stablecoin; time-based APY marketing; “park-and-earn” framing | Rewards tied to activity: payments, transactions, loyalty programs, settlement/routing; clearly disclosed platform-funded incentives | “Earn rebates for using stablecoins” (spend/route/pay) rather than “earn yield for holding” | Reduced risk of stablecoins behaving like deposit substitutes; clearer boundary between payments vs savings | Winners: compliant platforms + payments-focused stablecoins. Losers: passive-yield products and “savings wrapper” UX | Forces product-structure engineering + marketing rules: definitions, disclosures, audit trails around what counts as “activity” |
| Reserve-at-community-banks quid pro quo | (Typically) unconstrained rewards without reserve-placement/partnering conditions; reserve structures that bypass local bank channels | Some rewards may remain, but reserves (or a portion) must be held via community banks / bank channels; creates a banking “participation” requirement | “Rewards stay (maybe), but backed by a more bank-integrated plumbing” | A direct balance-sheet foothold in stablecoin growth; political cover via “local lending” narrative | Winners: community banks and issuers/platforms that can operationalize reserve routing. Losers: issuers/platforms designed to minimize bank dependence | Turns stablecoins into industrial policy: codifies which institutions get the reserve float, adds operational compliance and concentration/eligibility rules |
| Retail vs institutional split | Retail-facing yield-like rewards; consumer products that resemble savings accounts | Institutional fee rebates / settlement incentives under conditions (disclosure, risk controls, capital treatment); B2B settlement/collateral use cases | “Retail won’t earn yield for holding; institutions get efficiency rebates” | Retail deposit protection; banks can compete where they already play: treasury, settlement, collateral | Winners: institutions, market makers, treasury platforms; banks in wholesale rails. Losers: retail exchanges/wallets relying on yield to acquire users | Accelerates a two-track stablecoin market (retail constrained, institutional permissive), shifting growth toward B2B rails and formal supervisory perimeter |
No deal, CLARITY dead for 2026
If no consensus emerges by the deadline, two things happen simultaneously.
The first is that legislative momentum stalls. Reuters framed the White House summit as an attempt to unstick a bill already delayed by the bank-crypto clash. Commentary points to the midterm timing and the lack of bipartisan runway as structural risks to passage if this drags on.
Even if everyone stays “pro crypto,” the calendar can kill the package. However, regulatory momentum fragments instead of vanishing.
Even if CLARITY slips, stablecoin rules still move via existing law and implementation. GENIUS implementation questions are part of why “loophole” fights matter. The US ends up with a stablecoin regime but no unified market-structure perimeter.
That means enforcement and agency interpretation fill the gap.
“No CLARITY” doesn’t mean “no regulation.” It means more path dependence: case-by-case constraints, uneven state and federal overlays, and product design shaped by enforcement risk rather than statutory clarity.
Stablecoins move faster than the broader token market because they touch banks, deposits, and payments, areas where regulators already have tools.
Tribalism survives even if CLARITY passes
The stablecoin yield fight exposed that “crypto” is not a single lobby but competing profit centers with different optimal rules.
The coalition is business models versus business models, and not “crypto versus banks.” The fault lines now run through the industry itself.
Brogan Law reported that Tether’s US operation told Senate Banking members it supports the draft approach restricting yield and distanced itself from Coinbase’s decision to take the fight public.
The logic is clear: Coinbase and USDC distribution economics make rewards central to growth, while Tether’s dominant offshore footprint makes it less dependent on US retail reward mechanics.
The split matters because it sets expectations for future legislative fights.
Once “stablecoin yield” becomes the gating factor for market structure, it becomes a reusable veto point. Next time Congress tries to legislate DeFi, custody, or taxation, expect firms to defect early if the draft threatens their profit-and-loss statements.
This has permanent effects even if a deal is struck.
Banks now have a template: pair financial stability memos with community-bank “local lending” narratives and force a hard yes-or-no on economic incentives.
Additionally, global competitive framing hardens, as other jurisdictions actively license and structure regimes. Meanwhile, the US indecision becomes part of the story firms tell boards about where to base product lines.
The question that remains open
The stablecoin yield war is a structurally inevitable collision that occurs when payment instruments scale large enough to function as deposit substitutes, routing the risk-free rate to consumers.
Regulators worldwide agree on a principle: payment stablecoins should not resemble savings products. The US tried to thread that needle by banning issuer interest while leaving third-party rewards ambiguous.
That ambiguity is now the battleground. Whether it results in an activity-based compromise, a reserve-placement deal, or a retail-versus-institutional split, the outcome determines not just CLARITY’s fate but also the blueprint for every future crypto bill.
The fight clarifies what “crypto-friendly regulation” actually means: not frictionless adoption, but negotiated settlements where someone’s business model loses.
The deadline is February 28. What happens next determines whether the US enacts comprehensive digital asset legislation in 2026 or watches stablecoin rules advance while market structure fragments into agency enforcement and jurisdictional patchwork.
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