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Trump administration wants stablecoin bill passed this

year

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Coinbase CEO says crypto firms and banks should be treated

alike

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Banking trade group urges against yield on stablecoins

By Hannah Lang

April 3 (Reuters) - Some influential cryptocurrency

executives are making a last-minute pitch to Congress to allow

interest to be paid on U.S. dollar-pegged tokens as part of

popular legislation establishing a regulatory framework for

stablecoins.

That lobbying effort has been met with mixed reactions from

lawmakers, and has also raised concerns from financial industry

watchdogs who warn yield-bearing stablecoins could encourage

consumers to move deposits into uninsured crypto accounts and

out of the regulated banking system.

Stablecoins, a type of cryptocurrency designed to maintain a

constant value, usually a 1:1 dollar peg, are commonly used by

crypto traders to move funds between tokens. Their use has grown

rapidly in recent years, and proponents say that they could be

used to send payments instantly.

But some crypto executives and lawmakers are divided as to

whether stablecoins should be treated as equivalent to cash, or

if they are more like deposits at banks and should be able to

earn interest.

"The government shouldn't put its thumb on the scale to

benefit one industry over another," said Coinbase CEO

Brian Armstrong in a post on X this week. "Banks and crypto

companies alike should both be allowed to, and incentivized to,

share interest with consumers."

Stablecoin issuers like Tether and Circle hold U.S.

Treasuries and other cash equivalents to maintain a peg to the

U.S. dollar. Those firms earn yield on those assets, but don't

currently pass that on to token holders.

"Issuers already hold the assets. There's some yield on

them, so it will make sense to allow them to also share that

with the depositors," said Chen Arad, co-founder of Solidus

Labs, a crypto compliance company.

The push is coming to a head as Congress appears likely to

pass a bill creating stablecoin rules for the first time.

The House of Representatives and the Senate have both

introduced bills to create a regulatory regime for stablecoins.

The Senate Banking Committee advanced one measure last month,

and the House Financial Services Committee approved another

Wednesday.

The House bill currently prohibits stablecoin issuers from

paying interest. But the bill in the Senate is less specific,

excluding interest on some types of stablecoins but not

explicitly banning such a product.

"I don't view the same way I would view a bank

account," said Republican House Financial Services Committee

Chairman French Hill on Monday. "I hear the point of view, but I

don't think that there's consensus."

Dante Disparte, chief strategy officer and head of global

policy at Circle, which issues the stablecoin USDC, said payment

stablecoins are more akin to "regulated electronic money" than

other financial products.

"Our operating model since the beginning has been that any

interest-bearing features on fully reserved, regulated payment

stablecoins is a secondary market innovation," he said,

suggesting that paying interest should be up to the venue where

stablecoins are purchased, instead of an issuer like Circle.

Still, several lawmakers remain flexible on allowing a

provision in the final bill to allow for issuers to pay yield

and proponents plan to keep pushing for it to be included in a

final measure, according to a source familiar with the matter.

That has raised alarm bells for some, particularly given the

crypto industry's growing influence in Washington. The sector

spent more than $119 million backing pro-crypto congressional

candidates in last year's elections.

Some experts warn opening the door to interest-paying crypto

products could destabilize the banking system, as deposits

provide critical funds to banks to engage in lending and other

activities.

"This is an existential threat to the banking industry, as

well as to the financial system writ large," said Arthur

Wilmarth, a professor emeritus of law at George Washington

University, adding that taxpayers could ultimately be on the

hook.

President Donald Trump has sought to broadly overhaul U.S.

cryptocurrency policies after courting cash from the industry

during his presidential campaign.

Bo Hines, who leads Trump's Council of Advisers on Digital

Assets, said last month that the White House wants a stablecoin

bill passed before August. Hines did not comment on whether

stablecoin issuers should be allowed to pay interest.

In a statement to the House Financial Services Committee,

the American Bankers Association urged lawmakers against any

provisions that would encourage money to be held in the form of

stablecoins rather than bank deposits.

"This concept is not a mere competitive concern; rather it

poses significant risk to the fundamental role banks play in

credit intermediation," the group said.

If stablecoin issuers were permitted to pay interest,

though, it could be positive for consumers, said Navin Gupta,

CEO of blockchain analytics firm Crystal Intelligence.

"Would there be financial instability? Maybe, but would

there be a movement towards a better instrument that today

responds to the consumer needs? That answer would also be yes,"

he said.