A new draft of the US Senate’s CLARITY Act would allow cryptocurrency firms to provide activity-based rewards to stablecoin users. The proposal, formally known as the Digital Asset Market Clarity Act, makes clear that certain incentives linked to the use of stablecoins are permitted and that offering such rewards would not turn a stablecoin into a security or a bank like product.

“Families and small businesses benefit from clear rules of the road,” Senate Banking Chair Tim Scott said in a statement when releasing the amended draft. “This bill reflects months of serious work, ideas, and concerns that have been raised across the Committee, and it gives everyday Americans the protections and certainty they deserve.”

The issue of stablecoin rewards has become one of the main fault lines between crypto firms and traditional banks. Banking groups argue that yield bearing stablecoin products look similar to deposit taking or unregulated investment schemes, while crypto companies maintain that these programs are closer to loyalty rewards or payment incentives commonly seen in fintech.

What types of rewards the draft would allow

Under the current text, the ban would not apply to incentives tied to routine financial activity. This includes rewards connected to payments, transfers, remittances and settlements, as well as benefits linked to the use of wallets, accounts, platforms or blockchain networks. Loyalty and promotional schemes, subscription-based perks and rebates tied to stablecoin use are also included.

The carve out goes further into crypto native use cases. The draft indicates that rewards related to providing liquidity or collateral, as well as taking part in governance, validation, staking or wider ecosystem activity, would also be allowed. At the same time, the bill specifies that a digital asset service provider “may not pay any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding of a payment stablecoin.”

Separately, the US Senate Agriculture Committee has postponed its markup of the broader crypto market structure legislation until the final week of January, with Chairman John Boozman saying more time is needed to build broad bipartisan backing.

Banks and crypto groups clash over yield

Community banks have been pushing back against these provisions. A group of US community bankers recently called on Congress to change the GENIUS Act, arguing that stablecoin issuers are taking advantage of a loophole that allows yield to be passed on to token holders indirectly through exchanges and other intermediaries. They warned that reward programs offered by crypto platforms could divert billions of dollars away from community banks, reducing their capacity to lend to small businesses, farmers, students and homebuyers.

Crypto advocacy organizations, including the Crypto Council for Innovation and the Blockchain Association, rejected those claims in a letter to the Senate Banking Committee last month. They argued that “payment stablecoins are not used to fund loans” and said the proposed changes would curb innovation and limit consumer choice.

Sources:

https://cointelegraph.com/news/senate-crypto-market-structure-stablecoin-rewards-draft

https://www.banking.senate.gov/imo/media/doc/market_structure_draft.pdf