At first glance, the debate over the yield provisions of the CLARITY Act appears to be a fight between the banking and crypto industries. In reality, it’s a debate about where Americans keep their money — and whether that money continues to fuel economic growth in communities across the country.
The GENIUS Act specifically prohibited the issuers of payment stablecoins from paying yield. The reason is very simple: A payment stablecoin is a tool for making payments, just like dollar bills in your wallet or coins in your pocket. You don’t earn interest on the money in your pocket because it’s not working; it’s sitting there, waiting to be spent, just like a payment stablecoin.
When you take money out of your wallet and deposit it in the bank, you earn interest on that money because it is put to work in the economy through loans to individuals, families and businesses. Those loans finance homes, businesses and local economic development. This is one of the primary ways your savings drive economic growth. And that’s why Congress was careful to prohibit paying yield on payment stablecoins — to prevent wealth from sitting idle in stablecoins and keep excess deposits flowing into the economy so people can continue to get loans.
But shortly after the GENIUS Act was passed, the crypto lobby developed a workaround. Instead of paying yield directly to stablecoin holders, issuers paid fees to the exchanges where the stablecoins were held, and the exchanges began paying yield to the holders. This approach clearly undermines the intent of the current law and has been a focus of much attention in the debate over the CLARITY Act.
The CLARITY Act now includes a section that clearly restates the public policy that stablecoins cannot offer yield in any way similar to a bank deposit account. But during last-minute negotiations in the Senate Banking Committee, language was also inserted that creates several massive loopholes that reverse the fundamental policy objectives and would dramatically erode lending in America.
If Congress doesn’t adequately address the GENIUS Act loophole in CLARITY, the Treasury Secretary predicts trillions of dollars of American wealth will flow into payment stablecoins, outside the traditional banking system. The crypto companies that issue stablecoins will make billions, but that’s about it. Those trillions in American wealth will sit idly in U.S. Treasuries, financing the beltway’s out-of-control spending and no longer available to fund bank loans to individuals, families or businesses across the nation. This will have a significant impact on everyone.
So, while the back and forth appears to be a fight between the banks and the crypto lobbyists, in reality, the outcome will impact everyone and determine whether trillions of dollars remain available to finance homeownership, small businesses and community investment — or sit idly in stablecoin balances to make a handful of stablecoin issuers very rich.
Utah Sen. John Curtis sees this issue clearly and has taken the initiative in educating his colleagues about the impact of this decision on the people and communities they represent. It may seem like just another small, technical detail in a massive new congressional proposal, but the economic implications will be far-reaching. I am proud that our senator is speaking truth to power on this important issue. It is not an easy task, but it will be consequential.
