WASHINGTON— A key Senate Democrat is signaling that lawmakers may be nearing a compromise in the increasingly contentious fight over whether crypto firms should be allowed to offer stablecoin “rewards” that banks and credit unions warn could drain deposits from traditional financial institutions.
Sen. Angela Alsobrooks (D-MD) said Tuesday she is working with Sen. Thom Tillis (R-NC) on language to address what FIs call a loophole in the GENIUS Act that could let crypto companies effectively bypass the law’s ban on paying interest on stablecoins, Law360 said.
Alsobrooks, speaking at a Washington banking event, said protecting community banks is a bipartisan issue and suggested both the crypto industry and traditional lenders may have to accept an imperfect outcome to keep broader digital asset legislation moving. The dispute has become one of the biggest obstacles facing the stalled CLARITY Act, with lawmakers and lobbyists battling over whether “activity-based” rewards tied to payments or transfers should be treated differently from straightforward yield on held stablecoins, Law360 noted.
The fight is drawing intense attention from banks and credit unions because of the potential funding impact. Reuters reported last week that a White House-brokered compromise to allow limited stablecoin rewards failed to satisfy FIs, which argued the approach still risked deposit flight. Reuters also noted that Standard Chartered has estimated stablecoins could pull roughly $500 billion in deposits from U.S. Fis by the end of 2028, underscoring why traditional lenders are pressing for tighter restrictions.