Progress on virtual currency bill in Congress stalls due to debate over stablecoin yields

The U.S. Congress is closer than ever to defining federal rules for digital assets, but the question of whether stablecoins can offer yield is slowing the process more than agency turf wars or token classification.

Notably, the House of Representatives has already advanced the Digital Asset Market Transparency Act, outlining a path for certain tokens to move from securities regulation to CFTC oversight.

At the same time, the U.S. Senate is developing a parallel package that would divide responsibilities between the Agriculture and Banking Committees.

However, despite reaching a significant agreement, negotiators say the issue of stablecoin yields remains a sticking point.

This debate concerns whether payment stablecoins should be able to pass on a portion of short-term treasury profits to users, either as explicit interest or as promotional rewards provided by affiliates.

Democratic lawmakers argue that a high interest rate structure could accelerate the outflow of deposits from regional banks and raise funding costs. At the same time, Republicans argue that capping yields would protect existing financial institutions at the expense of consumers.

So what started as a technical rulemaking issue has become a broader discussion about the composition of the U.S. deposit base and the potential for digital dollars to compete with traditional bank accounts.

$6.6 trillion outflow scenario

The conversation shifted in mid-August after the Banking Policy Institute (BPI) highlighted what it said were gaps in the GENIUS stablecoin law enacted earlier this year.

Although the Act prohibits issuers from paying interest, it does not expressly prevent exchanges or marketing affiliates from providing compensation in connection with an issuer’s reserve assets.

According to BPI, this structure could allow stablecoin operators to offer cash-like benefits without having to obtain bank authorization.

To underline this concern, the group cited scenario analysis from governments and central banks that estimates that up to $6.6 trillion in deposits could migrate to stablecoins under a generous yield design.

Analysts familiar with the modeling stress that the numbers reflect a stress case, not a forecast, and assume high substitutability between traditional deposits and tokenized cash.

Still, the numbers have shaped the debate. Senate aides say this is a reference point in the debate over whether bounty programs qualify as shadow deposit practices and whether Congress should adopt anti-avoidance language that covers affiliates, partners and synthetic entities.

This concern is based on recent experience. Even though yields on Treasury bills have been above 5% for much of the past year, deposit beta rates remain low at many U.S. banks, with checking account payments often ranging between 0.01% and 0.5%.

This difference reflects the economy of bank funds. Stablecoin operators that hold reserves of short-term government bonds could theoretically be able to offer significantly higher returns while providing near-instant liquidity.

Given this, policymakers are concerned that this combination could draw capital away from lenders that support local credit markets.

narrow legal issue

The yield issue focuses on how Congress defines “interest,” “issuer,” and “affiliate.”

Under the GENIUS Act, issuers must maintain reserves and meet custody and disclosure standards, but cannot pay interest on tokens in circulation.

Legal analysts point out that exchanges and related entities that offer reward programs may create structures that deviate from the statutory definition but allow users to receive economic value similar to interest.

But banking industry groups are asking lawmakers to clarify that earnings flowing from reserve assets should be subject to the interest ban, whether distributed directly or through a separate entity.

Meanwhile, crypto industry insiders argue that these restrictions put stablecoins at a competitive disadvantage compared to fintechs that already offer reward programs that are close to yield.

They also note that other jurisdictions, including the UK and European Union, are building paths to tokenized cash products with different approaches to rewards.

For them, the policy challenge is how to support innovation with digital dollars while maintaining prudential boundaries, rather than how to completely eliminate yields from the ecosystem.

But Democrats counter that the pace of on-chain transfers creates a different dynamic than traditional banking competition.

Stablecoin balances can be quickly moved between platforms without settlement delays, and the reward structure tied to Treasury income can accelerate flows during times of market stress. They cite research showing that transferring deposits from community banks will have the greatest impact on rural lending, small business, and agricultural borrowers.

A recent Data for Progress poll found that 65% of voters believe the proliferation of stablecoins could have a negative impact on local economies, a view that is reflected across party lines.

Other Issues Holding Up Cryptocurrency Bills

Meanwhile, stablecoin yields are not the only unresolved issue.

Democrats have proposed adding ethics provisions that would restrict officials and their families from issuing or profiting from digital assets while in office, as well as a requirement for commissioners to hold full SEC and CFTC commissionerships before delegating new oversight authority.

They also want clearer tools to combat illicit financing on platforms that make it easier for Americans to access them, as well as a definition of decentralization that would prevent companies from avoiding compliance obligations by labeling themselves protocols.

These additions narrowed the legislative path. Senate staffers say the chances of a rate hike before the adjournment are currently low, raising the possibility that final negotiations could extend into 2026.

In that case, the ambiguity of the GENIUS Act regarding compensation would remain, and the SEC and CFTC would continue to shape the digital asset market through enforcement actions and rulemaking.