Key Takeaways
- Stablecoin yield is increasingly viewed as incompatible with payment-focused stablecoins rather than a product feature to be refined.
- The CLARITY Act is being used to prevent crypto products from evolving into bank-like deposit substitutes.
- Stablecoin reward programs face heightened regulatory risk, even when structured as non-interest incentives.
- The most consequential CLARITY Act changes are likely to emerge from Senate negotiations, not the existing House text.
On February 10, senior banking executives, crypto firms, and trade groups gathered at the White House for a focused discussion on one of the most unresolved issues in U.S. digital asset regulation: whether and how stablecoins should be allowed to offer yield or rewards.
According to participants, the meeting was smaller and more substantive than earlier discussions. At the center of the conversation was a written set of “yield and interest prohibition principles” prepared by banks and banking trade associations.
These principles are not yet law. They are also not fully written into the publicly available text of the CLARITY Act. Instead, they reflect a Banking Committee–driven draft position, discussed in the presence of Senate Banking Committee staff, that could shape amendments to the CLARITY Act or parallel stablecoin legislation.
This article examines five rules embedded in those draft principles and related CLARITY Act provisions, rules that are easy to miss, but which would significantly reshape how stablecoins operate in the United States if ultimately enacted.
1. Stablecoins Are Legally Framed as Payments, Not Financial Products
What the Draft Says
The banking draft begins from a core assumption carried over from earlier stablecoin proposals: payment stablecoins are designed to function as payment instruments, not as investment or savings products. The draft explicitly states that market-structure legislation should reinforce this design choice.
While the publicly released CLARITY Act text (H.R. 3633) does not yet contain detailed stablecoin-yield language, this framing aligns with how lawmakers are attempting to separate digital commodities and payments from interest-bearing financial products.
How Stablecoins Work Today
In practice, stablecoins today function as more than just payments:
- They are widely used as trading collateral
- They are held for extended periods as stores of value
- They are sometimes paired with rewards, incentives, or “earn” features
There is no single federal rule that restricts stablecoins to pure transactional use.
What Changes If the CLARITY Act Is Passed
If this draft principle is incorporated into the final CLARITY Act framework:
- Stablecoins would be legally anchored as payments-only instruments
- Any product feature that makes holding a stablecoin economically attractive on its own would face heightened scrutiny
- Stablecoin issuers would be structurally separated from bank-like deposit products, even if the stablecoin remains fully backed
This rule quietly reshapes the entire design space for stablecoins before any explicit yield ban is applied.
2. Yield Is Prohibited Broadly — Not Just “Interest”
What the Draft Says
The draft prohibits any financial or non-financial consideration provided to a stablecoin holder in connection with the purchase, use, ownership, custody, holding, or retention of a payment stablecoin.
This language is intentionally expansive. It does not rely on traditional financial terms like “interest” or “APY.” Instead, it focuses on economic benefit, regardless of how that benefit is described.
How Stablecoins Work Today
Today, many stablecoin-related programs are structured to avoid explicit interest:
- Cashback-style rewards
- Points or credits
- Promotional incentives tied to usage or holding
Because there is no clear statutory prohibition, these programs often exist in a regulatory gray zone.
What Changes If the CLARITY Act Is Passed
If this rule becomes law:
- Simply rebranding yield would not avoid compliance issues
- Non-cash benefits could still be prohibited if they function as consideration for holding or using a stablecoin
- Regulators would evaluate substance over form, focusing on economic outcomes rather than labels
This would significantly narrow the ability of platforms to use rewards as a growth strategy for stablecoins.
3. Exemptions Are Technically Allowed — but Designed to Be Rare
What the Draft Says
The draft allows for exemptions from the yield prohibition, but only if they are:
- Extremely limited in scope
- Structured so they do not undermine the general prohibition
- Designed not to encourage deposit flight from traditional banks
- Not harmful to traditional lending markets
This is notable because banks had previously resisted any exemptions at all.
How Stablecoins Work Today
Currently, there is no federal standard governing exemptions because there is no federal yield ban. Platforms have broad discretion to design incentive programs, subject mainly to general consumer protection laws.
What Changes If the CLARITY Act Is Passed
If exemptions are permitted under the CLARITY Act:
- They would likely be narrow, transaction-based, and regulator-defined
- Balance-based rewards or passive yield would be unlikely to qualify
- Firms would need regulatory clarity before launching even modest incentive programs
In practice, this means exemptions would exist more as safety valves than as open design freedom.
4. Enforcement Is Mandatory and Penalty-Backed
What the Draft Says
The draft directs regulators to enforce the yield prohibition and explicitly authorizes the use of civil monetary penalties. This language removes ambiguity about whether enforcement is discretionary.
The publicly available CLARITY Act text already preserves broad anti-fraud and enforcement authority for regulators over digital asset intermediaries, making it straightforward to integrate these penalties if yield provisions are added.
How Stablecoins Work Today
Today, enforcement related to stablecoin rewards is fragmented:
- Some actions are taken under securities law theories
- Others rely on general consumer protection statutes
- Many programs operate without clear federal guidance
What Changes If the CLARITY Act Is Passed
Once codified:
- Compliance would become proactive rather than reactive
- Stablecoin issuers and platforms would face direct penalty exposure
- Legal and compliance review would become a prerequisite for product design
This would mark a shift from regulatory ambiguity to regulatory certainty, with real consequences.
5. Marketing and Disclosure Are Regulated as Strictly as the Product Itself
What the Draft Says
The draft prohibits marketing or representations that suggest a stablecoin:
- Earns interest
- Is comparable to an insured bank deposit
- Is backed by FDIC or NCUA insurance
- Is risk-free
- Pays returns funded by someone other than the actual payer
Regulators are instructed to require accurate disclosures and prevent misleading implications.
How Stablecoins Work Today
Marketing today often relies on implication rather than explicit claims:
- Emphasizing “safety” or “stability”
- Avoiding technical disclosures
- Allowing users to infer protections that may not exist
What Changes If the CLARITY Act Is Passed
If enacted:
- Implicit claims could trigger enforcement
- Disclosure obligations would tighten
- Consumer perception would become a regulated issue, not just product structure
Marketing teams would face the same regulatory scrutiny as product designers.
What Happens If the CLARITY Act Is Passed?
If these draft principles are incorporated into the final CLARITY Act or related stablecoin legislation:
- Payment stablecoins would be firmly confined to transactional use
- Yield and reward programs would face near-total prohibition
- Any exemptions would be narrow, explicit, and regulator-controlled
- Enforcement would be mandatory and penalty-backed
- Stablecoins would be cleanly separated from deposit-like financial products
The February 10 White House meeting made clear that compromise is still being discussed, but also that the banking side’s red lines are now written down. Whether those lines become law will depend on how the CLARITY Act evolves as it moves through the Senate and toward final passage.
FAQs
As of now, the publicly available CLARITY Act text does not explicitly ban stablecoin yield. However, banking-driven draft principles discussed with Senate Banking Committee staff propose a broad prohibition on yield and rewards for payment stablecoins. These principles could be incorporated into the final legislation or into companion stablecoin bills.
Under the draft principles, yield is defined broadly as any financial or non-financial consideration tied to the purchase, use, holding, or retention of a stablecoin. This means that rewards, points, rebates, or other incentives could be treated the same as interest if they provide economic value to the holder.
If the draft principles are enacted:
- Stablecoins would be legally treated as payments-only instruments
- Passive income or holding-based rewards would likely be prohibited
- Marketing claims would face stricter disclosure and enforcement standards
- Platforms would need regulatory approval for even limited incentive programs
This would significantly narrow how stablecoins can be designed and promoted in the U.S.
The CLARITY Act has passed the House but still requires Senate action. Stablecoin yield provisions are currently under negotiation and could be added during Senate committee markup or as amendments. If passed, implementation would likely occur after regulators issue follow-on rules, meaning changes would roll out over time rather than immediately.
The information provided in this article is for informational purposes only. It is not intended to be, nor should it be construed as, financial advice. We do not make any warranties regarding the completeness, reliability, or accuracy of this information. All investments involve risk, and past performance does not guarantee future results. We recommend consulting a financial advisor before making any investment decisions.
Onkar Singh has three years of experience as a digital finance content creator. Throughout his career, he has collaborated with various DeFi projects and crypto media outlets. In his leisure time, he enjoys fitness activities at the gym and watching movies across different genres. Balancing his professional and personal interests, Onkar continues to contribute to the digital finance landscape while pursuing his hobbies.
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