Banks vs. Crypto: Are They Hiding Your Returns? The CLARITY Act and the Battle for Stablecoin Yield
The U.S. regulatory landscape for crypto is undergoing a significant shift, particularly with the ongoing debate surrounding the CLARITY Act. While Congress progresses with the bill, the fundamental question of how to define the line between “crypto” and “securities” remains unresolved, spilling into public view and igniting a blame game. At the heart of this conflict lies a growing tension between traditional banking institutions and the burgeoning crypto industry, specifically concerning stablecoin yields and their potential to disrupt the established financial order. This article delves into the intricacies of the CLARITY Act, the pressure stablecoin rewards are placing on bank deposit rates, and the strategic implications for both sectors.
The CLARITY Act: A Battle for Market Structure and Control
The CLARITY Act is ostensibly presented as a market structure bill, aiming to provide regulatory clarity for the digital asset space. However, the most critical battleground isn’t necessarily about structure, but about distribution. Critics argue the bill’s current structure could inadvertently solidify advantages for regulated incumbents – traditional financial institutions – potentially hindering the growth and competitiveness of decentralized finance (DeFi). There’s a growing concern that centralized platforms are subtly influencing amendments to create barriers for DeFi, effectively limiting its ability to compete on a level playing field.
DeFi at Risk? The Unfinished Rules for Decentralized Platforms
A significant point of contention is that the CLARITY Act explicitly leaves the regulatory framework for DeFi largely undefined. This omission raises serious concerns about potential retail protection collapses if negotiations fail to address the unique characteristics of decentralized systems. Without clear guidelines, DeFi platforms could face significant legal hurdles, potentially stifling innovation and driving activity towards more regulated, centralized entities.
Stablecoin Yields: A Disruptive Force in the Banking Sector
Stablecoins, digital currencies pegged to a stable asset like the U.S. dollar, are rapidly gaining traction. Their ability to offer yield – a return on holding the currency – is proving to be a particularly disruptive force, directly challenging the traditional banking model. Holding dollars in a stablecoin is becoming a competing product category, and banks are fiercely resisting the normalization of these yields outside the traditional deposit system.
The Yield Gap: Banks Lagging Behind
As of December 15, 2025, the FDIC reported national deposit rates of 0.39% for savings, 0.07% for interest checking, and 0.58% for money market deposit accounts. Meanwhile, the Treasury reference yield for these non-maturity products stood at 3.89%. This substantial gap – 3.50%, 3.82%, and 3.31% respectively – highlights the significant difference between what banks offer and the prevailing government rates. While not a direct measure of bank profit, it quantifies how far retail deposit pricing can remain below government rates due to customer behavior, bundled services, and switching costs.
Stablecoin yields are compressing this gap, offering retail users an alternative place to hold dollar balances with returns approaching the short end of the yield curve. On November 28, 2025, the three-month Treasury yield was 3.88%, placing the market’s cash benchmark close to the FDIC’s reference yield. A stablecoin yield in this range fundamentally shifts the question for consumers from “Which bank pays the most?” to “Why is my cash return so far below the government rate?”
The Pressure on Bank Funding Costs
From a balance sheet perspective, the pressure is forward-looking. The critical decision point is the marginal funding cost, not legacy averages. If deposits migrate from checking and savings accounts into stablecoin balances, banks will be forced to respond by either raising deposit rates or seeking alternative funding through wholesale channels. Both options increase interest expense, and potentially, rapidly.
The Secured Overnight Financing Rate (SOFR), a benchmark for short-term funding markets, reflects the cost of borrowing cash overnight collateralized by Treasury securities. As retail deposit outflows push banks towards market funding, the price of that replacement funding can track policy rates more directly than traditional retail deposits.
The Strategic Risk: Losing the Retail Distribution Layer
Banks perceive the greatest strategic risk in the retail distribution layer. The hidden cost of increased reliance on bank funding is the potential for deposit flight. Platforms like Coinbase and Binance are offering attractive stablecoin rewards programs, further incentivizing this shift.
Coinbase and Binance: Leading the Charge with Stablecoin Rewards
Coinbase’s USDC Rewards program, funded by Coinbase, accrues rewards based on balance and membership tier (Coinbase One). Coinbase explicitly states it does not use or lend USDC without customer instruction. Currently, USDC rewards offer a 3.50% rate to Coinbase One members, requiring a monthly subscription fee starting at $4.99. Binance has also run time-bound campaigns with its Simple Earn product, offering bonus APRs on USDC and even allowing assets to be loaned to other users.
These programs present yield as a default feature of holding a cash-like balance, reducing the role of a traditional bank account as the primary place to park dollars. Banks distinguish between sustained yields and promotional offers, viewing the latter as marketing spend, but even temporary rewards can reset consumer expectations.
The Debate: Yield vs. Loyalty – A Semantic Battle
Regulation is beginning to address the extent to which stablecoins can offer yield. The GENIUS Act attempted to define stablecoins as “digital cash” by barring issuers from paying interest, but platforms circumvented this by marketing “rewards” that function similarly. This shifted the competitive impact to distribution.
The CLARITY Act debate now centers on drawing a line between “yield” and “loyalty.” Lawmakers are exploring language that would prohibit interest paid simply for holding a stablecoin, while still allowing activity-based incentives framed as payments or loyalty rewards. This distinction is crucial because it shifts the focus from issuers to distributors. Platforms could market a cash-like balance with a near-Treasury return without being labeled “interest-bearing,” a tactic banks argue is functionally equivalent to deposit interest.
The goal is to cap “hold-to-earn” expectations while leaving room for “use-to-earn” programs, coupled with disclosures designed to prevent rewards from being perceived as risk-free, bank-style interest.
The Near-Term Math: Retention, Repricing, and Replacement Funding
Banks are closely monitoring the combination of deposit retention, deposit repricing, replacement funding costs, and how quickly these inputs can change in response to stablecoin rewards. The current gap between Treasury yields and deposit rates is significant. For example, as of December 15, 2025, interest checking accounts offered 0.07% while the Treasury reference yield was 3.89%.
The Future of Finance: A Shifting Landscape
The battle between banks and crypto over stablecoin yields is far from over. The CLARITY Act represents a critical juncture in this conflict, with the potential to reshape the financial landscape. The outcome will depend on how regulators navigate the complex interplay between innovation, consumer protection, and the stability of the financial system. The stakes are high, with billions of dollars in potential revenue and the future of financial inclusion hanging in the balance.
Key Players:
- USDC: A leading stablecoin backed by Circle.
- Tether: The most widely used stablecoin, often subject to scrutiny.
- Binance: A major cryptocurrency exchange offering stablecoin rewards.
- Coinbase: A prominent cryptocurrency exchange with a growing suite of financial products.
- Tether Limited: The company behind the Tether stablecoin.
- Circle: The company behind the USDC stablecoin.