Senate Crypto Market Bill Gets Tarnished by Banking Lobby's Stablecoin Reward Battle

The path toward U.S. cryptocurrency regulation has hit a significant bump as the financial sector wages an intense campaign against proposed stablecoin reward programs. What began as a focused effort to establish clear market structure rules for digital assets has become tarnished by competing interests between the banking industry and crypto platforms, with stablecoin yields emerging as the central flashpoint.

The Senate Banking Committee released a critical draft of the Digital Asset Market Clarity Act in the final days of January, marking a turning point in months of legislative negotiations. Yet embedded within that draft lies evidence of a fierce lobbying battle that has already extracted concessions from the crypto sector—concessions that industry players had explicitly fought to prevent.

Understanding the Stablecoin Yields Dispute

The controversy centers on a seemingly technical question: should platforms be permitted to offer rewards to customers who hold stablecoins like Circle’s USDC? The answer has tarnished what crypto advocates viewed as a settled issue.

In July 2025, Congress passed the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins), which explicitly prohibited stablecoin issuers themselves from paying interest directly to holders. However, the law intentionally preserved a crucial distinction—it allowed third-party platforms, intermediaries, and technology partners to offer rewards and incentives tied to customer activity.

This structure enabled companies like Coinbase to share benefits derived from stablecoin reserves. When an issuer earns interest by investing stablecoin backing, platforms could pass those gains back to users through rewards programs. Coinbase reported earning $355 million in stablecoin-related revenue during the third quarter, with rewards programs representing a significant component of that business.

The GENIUS framework reflected a carefully negotiated compromise that pleased the crypto sector. Seven months later, however, the banking industry began mobilizing against precisely this arrangement, arguing it represents an existential threat to the U.S. deposit system.

Why Banks Are Fighting Reward Programs

The American Bankers Association and allied institutions contend that stablecoin rewards function as an alternative to traditional bank deposits, potentially draining liquidity from community banks and undermining their lending capacity. Industry groups have warned that aggressive crypto reward programs could produce “a multitrillion dollar disruption to local lending.”

The Bank Policy Institute characterized crypto rewards as interest paid indirectly by stablecoin issuers to holders—merely disguising the true nature of the transactions to circumvent the GENIUS prohibition. This framing resonated during negotiations, creating pressure on policymakers to tighten the rules.

Yet crypto industry representatives push back forcefully on this characterization. Kara Calvert, Vice President of U.S. Policy at Coinbase, argues that the comparison fundamentally misunderstands how stablecoins differ from deposits. Bank deposits represent funds that financial institutions borrow and reinvest for their own profit-generating purposes. By contrast, crypto custody arrangements maintain customer assets in segregated accounts, with rewards flowing from platform activities rather than institutional borrowing.

“The irony is that these rewards programs are not competing with deposit products at all,” Calvert explained in recent interviews. Banks offer interest precisely because they leverage customer funds; stablecoin platforms operate under different financial mechanics entirely.

The Compromise That Has Left Everyone Frustrated

The Senate Banking Committee draft introduced a compromise that has tarnished the victory many crypto advocates expected. Under the new language, stablecoins cannot generate rewards when held passively—in ways resembling a traditional savings account. However, rewards tied to transaction activity or other economic participation remain permitted.

This represents a partial concession to banking interests while theoretically preserving crypto’s core business model. Yet the crypto sector views it as a retreat from the GENIUS framework, arguing the distinction between passive and activity-based rewards introduces ambiguity that could chill legitimate business practices.

“We negotiated the GENIUS Act back in July, and the banks have taken seven months now to ramp up a lobbying effort against that, and this issue is now potentially making or breaking a market structure bill,” Calvert said, highlighting the frustration within the industry at seeing a recently finalized compromise reopened.

Questioning the Real Stakes

Not all observers agree the banking sector’s concerns warrant such concessions. Corey Frayer, who previously served as a crypto adviser to former SEC Chair Gary Gensler and now works at the Consumer Federation of America, argues the restriction accomplishes far less than its language suggests.

“The prohibition on stablecoin yield does absolutely nothing,” Frayer stated. “The primary way platforms fund yield is through staking and on-lending activities, which are explicitly carved out of the prohibition.” From this perspective, the compromise language creates an appearance of action while preserving the substance of crypto business practices.

This assessment highlights a deeper dynamic: the battle may involve more than deposit protection. Wall Street institutions protecting their payments dominance and traditional financial infrastructure could be leveraging community banker concerns to advance their own interests. JPMorgan Chase executives acknowledged in recent earnings calls that competition from crypto represents a legitimate strategic concern.

The Legislative Road Ahead Remains Uncertain

The Senate Banking Committee markup hearing approached with amendments still being fielded. Thursday’s committee vote will determine whether this compromise language survives in committee-passed legislation.

However, this represents only half the required process. The Senate Agriculture Committee must undertake its own negotiations and voting procedures, with that panel postponing its markup until late January to allow more time for consensus-building. The two committees will subsequently need to reconcile their versions into unified legislation.

Wall Street and banking representatives will remain engaged throughout this process, though industry advocates from the crypto sector accuse them of negotiating in bad faith. Summer Mersinger, CEO of the Blockchain Association, warned that if banks succeed in “blowing up” the legislation through unreasonable demands, they will face a status quo—the GENIUS Act itself—that banking groups have publicly insisted is unworkable.

The broader question remains unresolved: whether U.S. lawmakers will craft market structure rules that balance legitimate banking concerns against crypto innovation opportunities, or whether entrenched financial interests will successfully water down protections for emerging technologies. For now, the legislative outcome has been tarnished by competing pressure campaigns, with the final form of U.S. cryptocurrency regulation still very much in flux.