Main Street Could Get Hosed If Swamp Compromise On Stablecoin Comes To Fruition

JUSTIN TALLIS/AFP via Getty Images

Senators Thom Tillis and Angela Alsobrooks released their long-awaited compromise on stablecoin yield last week.

The deal, embedded in Section 404 of the Digital Asset Market Clarity Act, bars stablecoin firms from paying yield that is “economically or functionally equivalent” to interest on a bank deposit. That sounds firm on paper. (RELATED: EXCLUSIVE: New Conservative Campaign Demands Senate Buck Big Banks In Crypto Spat)

In practice, it is riddled with gaps large enough to drive a trillion-dollar industry through.

This will have an enormous real-world impact. Despite the original intent of the GENIUS Act, cryptocurrency companies are currently marketing incentive structures as “rewards,” “cash back,” or similar benefits that are economically indistinguishable from interest when they are conditioned on holding stablecoin balances. As long as the prohibition on yield is limited to direct payments from issuers, platforms, exchanges, wallets and affiliated intermediaries will engineer structures to deliver the same economic return through different corporate architecture.

The Tillis-Alsobrooks text gives them the legal vocabulary to keep doing it.

The compromise bans stablecoin issuers from offering yield based on simply holding stablecoin reserves. But........

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