US Senate Poised to Close $6 Billion Crypto Rewards Loophole: What You Need to Know
The US Senate is on the verge of making a pivotal decision that could reshape the landscape of stablecoin rewards, impacting a staggering $6 billion in annual incentives. The GENIUS Act, while banning issuer-paid yield, left a critical question unanswered: can exchanges continue to route rewards around this restriction? The upcoming Senate markup of the CLARITY Act will determine the answer, and the outcome will dictate who controls the future of stablecoin incentives. This article dives deep into the legislative battle, the key players, and the potential consequences for the crypto industry and traditional finance.
The GENIUS Act and the Unresolved Question of Rewards
The GENIUS Act (now Public Law 119-27) established a framework for payment stablecoins, specifically prohibiting issuers from paying holders interest or yield solely for holding, using, or retaining the stablecoin. The rationale was clear: payment stablecoins should function as a means of exchange, not as deposit substitutes competing with regulated banks. However, the law deliberately left room for interpretation regarding rewards offered by platforms, exchanges, or affiliates funded from sources other than direct issuer yield.
This ambiguity is where the CLARITY Act comes into play. The markup scheduled for January 15th will define the enforcement perimeter and determine whether Congress intends a narrow firewall against issuer-paid yield or a broader prohibition encompassing the entire distribution chain. The stakes are incredibly high, with billions of dollars in incentives hanging in the balance.
Three Archetypes of Stablecoin Rewards
Currently, three distinct types of stablecoin rewards exist in the market:
- Issuer-Paid Yield: Direct yield sharing from the stablecoin issuer’s reserve income. This is explicitly blocked by GENIUS and is not under dispute.
- Platform-Funded Loyalty: Rewards paid by exchanges or wallets from their own revenue, designed to drive adoption and retention.
- Pass-Through T-Bill Economics: A complex structure that effectively routes reserve yield to users through affiliate arrangements and incentive programs, claiming independence from the issuer.
The core of the legislative debate revolves around whether CLARITY will treat rewards as a disclosure issue or impose substantive restrictions. A disclosure-only approach would allow exchanges to continue offering rewards with transparency, while tighter language could cap, condition, or outright prohibit them.
Coinbase Signals a Potential Shift in Support
The industry’s pro-crypto coalition is beginning to test its limits as the regulatory text becomes more specific. Bloomberg reported that Coinbase may reconsider its support for CLARITY if the bill moves beyond disclosure requirements to restrict rewards. This signals a significant point of contention, as rewards are a crucial component of Coinbase’s business model.
In Q3 2025, Coinbase reported $355 million in stablecoin revenue, attributing growth to rewards programs. Average USDC balances on Coinbase products reached $15 billion during that quarter, highlighting the economic impact of these incentives. Restricting rewards would therefore materially impact Coinbase’s revenue streams.
Banks Push for a Broad Prohibition
Traditional banks are actively lobbying for a broad interpretation of the GENIUS Act, seeking to close the “affiliate and partner loophole.” The American Bankers Association and 52 state bankers' associations have urged Congress to extend the prohibition to partners and affiliates, warning of deposit disintermediation and yield-like incentives that circumvent the issuer ban.
Banks argue that if platforms can offer rewards that functionally resemble yield, the issuer ban becomes ineffective. They view this as a structural issue that threatens the stability of the traditional banking system. Standard Chartered estimated stablecoin adoption could pull $1 trillion from emerging-market bank deposits over roughly three years, a projection predicated on stablecoins continuing to offer attractive incentives.
The Crypto Industry’s Counterargument
The blockchain industry contends that Congress deliberately distinguished between issuer-paid yield and platform rewards. The Blockchain Association-led coalition argues that the law bans issuer-paid yield while preserving the ability of platforms and third parties to offer lawful rewards and incentives. They warn that expanding the ban would stifle competition, create uncertainty, and penalize exchanges for utilizing their capital to drive adoption.
The Growing Scale of Stablecoins and the Rewards Pool
The urgency of this debate is amplified by the rapid growth of the stablecoin market. In 2025, stablecoins registered $33 trillion in transaction volume, a 72% year-over-year increase, with USDC and Tether accounting for the majority of flows. Bernstein projects the total stablecoin supply will reach approximately $420 billion by the end of 2026, representing roughly 56% growth. Citi’s longer-run forecast puts stablecoin issuance at $1.9 trillion in a base case and $4 trillion in a bull case by 2030.
These figures translate directly into the size of the potential rewards pool:
- Current Supply ($309 billion): A 1.5% to 2.5% annual rewards rate implies annual incentives of $4.6 billion to $7.7 billion.
- Bernstein’s 2026 Forecast ($420 billion): The pool grows to $6.3 billion to $10.5 billion.
- Citi’s 2030 Base Case ($1.9 trillion): Could reach $28.5 billion to $47.5 billion annually.
Key Questions to Watch at the Markup
Four critical questions will determine the outcome of the CLARITY Act markup:
1. Disclosure vs. Substantive Restriction
Will CLARITY require only disclosure of rewards, or will it impose substantive restrictions like caps or prohibitions? Disclosure allows for continued rewards programs with transparency, while restrictions would significantly alter the economics of stablecoin distribution.
2. Issuer-Only vs. Affiliates/Partners
Will the restrictions apply only to issuers, or will they extend to affiliated platforms and partners? This is the central point of contention between banks and exchanges.
3. Broad vs. Narrow “Reward” Definition
Will the definition of “reward” capture pass-through reserve yield economics, or will it be narrow enough to allow exchanges to route around it through loyalty programs? The interpretation of “solely” will be crucial.
4. Enforcement Path
Will enforcement rely heavily on agency rulemaking, or will the statute hard-code prohibitions and conditions? The level of agency discretion will significantly impact the final outcome.
The Future of Stablecoins and the Regulatory Landscape
The Bank for International Settlements has already cataloged how regulators globally approach stablecoin yields and rewards, including prohibitions and policy logic distinguishing payment instruments from investment products. The European Union and the United Kingdom are moving toward tighter perimeter controls, framing stablecoin regulation as systemic rather than experimental.
The US regulatory framework must align with global standards to avoid creating arbitrage opportunities. The CLARITY Act markup represents a critical juncture in this process, determining whether the US will embrace a narrow, issuer-focused approach or a broader prohibition that impacts the entire stablecoin ecosystem. The decision will have far-reaching consequences for the future of digital finance.
Mentioned in this article 
USDC 
Tether 
Coinbase 
Citigroup 
Standard Chartered