An important turning point has been reached in the stablecoin bill on the agenda in the US Congress. The legislation regarding the annual return that can be obtained from digital assets is expected to reach its final form in a short time. Senator Thom Tillis stated that negotiations on the regulation have reached the final stage and the final text may be ready next week.
Competition in Yield Mechanism: Banks and Crypto Platforms Face to Face
The most controversial point of the bill focuses on whether stablecoin issuers and cryptocurrency exchanges can offer yield on deposits. The big question here is whether crypto companies have the right to provide returns on users’ stablecoin assets without a banking license. Banks are of the opinion that this practice is similar to deposit collecting activity and requires legal guarantee and capital adequacy obligation. Crypto companies, on the other hand, argue that they transfer the return of their full reserve assets to the user, and that this is a different business model from traditional banks.
Intense negotiations over the regulation have continued between members of Congress and White House officials in recent weeks. Patrick Witt, the White House’s advisor on crypto assets, stated that the resolution of the return clause in the regulation will pave the way for general crypto regulation regulations in the market and that this step is a decisive domino stone.
The current bill has been pending in committee for a long time. The Senate Banking Committee is expected to take up the bill in April after the Easter recess. In addition, the financial regulatory bodies OCC and FDIC’s public comment period on stablecoin regulation will expire in May. Therefore, if a quick solution is not provided regarding returns with the law, regulators may come to the fore to strictly interpret current practices.
Impact of Yield Regulation on the Market
The provisions to be introduced in the law for returns will have decisive consequences for both the crypto ecosystem and the traditional financial sector. If the bill makes it possible for crypto exchanges and DeFi protocols to legally offer returns to their users, the biggest legal uncertainty in front of liquidity programs in the market will be eliminated and institutions will be able to develop new products. For platforms such as Coinbase and Kraken, yield programs stand out as the main customer acquisition tool.
On the other hand, if a solution emerges that will restrict returns on stablecoins, US-based users and companies will have to turn to zero-yield products. In this case, bank-led initiatives such as the Cari Network could gain an advantage in the token-based deposit market. In addition, the narrowing of liquidity incentives on the DeFi side and the decrease in the competitiveness of US-based projects may also come to the fore.
Due to the conflict of interest, attention is drawn to the details of expressions such as “linked return awards” and “direct transfer mechanisms” in the bill. The language of the final form will determine which party will gain an advantage in the market. Although the SEC’s recent softening of its safe harbor approach strengthens the possibility of a formula that the parties can agree on, it is a matter of curiosity what the final text will envisage.
Senator Moreno stated that the final negotiations of the regulation are about to be completed and that the bill is in the final stage. All eyes are now on the final text, which is expected to be shared next week, and what solution the committee will agree on.
