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.
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 (COIN.O) 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 [stablecoins] 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.
