A fierce battle is unfolding in Washington, and it could shape the future of both traditional banking and the cryptocurrency industry.
At the center of the debate is a seemingly simple question: Should stablecoins be allowed to pay interest to their holders?
For banks, the answer is a firm no. They warn that interest-bearing stablecoins could pull trillions of dollars out of the banking system, weaken lending, and disrupt the financial sector. The crypto industry sees it differently, arguing that users deserve to earn the yield generated by the assets backing their stablecoins instead of letting issuers and banks keep the profits.
The disagreement has become one of the biggest roadblocks to advancing the CLARITY Act in the U.S. Senate, turning a technical financial issue into one of the most important policy battles in digital assets today.
Why stablecoin yield has become such a big issue
Stablecoins are digital tokens backed by reserves such as U.S. Treasury bills, cash, and short-term government securities. These reserves generate billions of dollars in annual interest income.
Currently, under the GENIUS Act, payment stablecoin issuers are not allowed to pass that interest directly to users. Instead, the reserve income stays with the issuer and, in some cases, distribution partners.
Crypto companies argue that this model is unfair.
Their view is simple: if users provide the dollars that back stablecoins, they should also receive the interest earned on those reserves—similar to how money market funds distribute returns to investors.
Banks strongly oppose that idea, believing it could fundamentally change how deposits flow through the financial system.
Banks warn of trillions leaving the financial system
The banking industry believes allowing stablecoins to offer yield would encourage consumers to move money out of traditional savings and checking accounts.
The American Bankers Association (ABA) estimates that as much as $6.6 trillion in deposits could eventually leave U.S. banks if interest-bearing stablecoins become widely available.
Bank of America CEO Brian Moynihan has also warned that roughly one-third of transaction deposits could migrate to digital dollars if they begin offering competitive yields.
Banks argue that deposits are the foundation of their lending business.
When customers keep money in bank accounts, financial institutions use those deposits to finance mortgages, business loans, and consumer credit. If large amounts of money shift into Treasury-backed stablecoins instead, banks would have fewer resources available for lending, potentially increasing borrowing costs across the economy.
The White House sees far less risk
Not everyone agrees with the banking industry’s projections.
The White House Council of Economic Advisers (CEA) reached a much smaller estimate, suggesting that deposit displacement would likely amount to only around $2.1 billion under current market conditions.
According to the CEA, today’s stablecoin demand is largely driven by cryptocurrency trading, international payments, and demand for U.S. dollars outside America—not by consumers moving large portions of their everyday bank savings.
In other words, while banks model the maximum possible long-term impact, government economists believe the short-term effects would be much more limited.
The difference between the two estimates highlights just how uncertain the future of stablecoin adoption remains.
The debate reaches Congress
The disagreement over stablecoin yield has now become one of the biggest obstacles facing the CLARITY Act, legislation designed to establish a clear regulatory framework for digital assets in the United States.
Although the bill primarily focuses on defining regulatory responsibilities between the SEC and the CFTC, the stablecoin yield debate has overshadowed much of the discussion.
Banking groups are lobbying lawmakers to strengthen restrictions by preventing exchanges and affiliated companies from offering yield or reward programs tied to stablecoins.
Meanwhile, major crypto firms argue that extending the restrictions would permanently block innovation and reduce competition in digital finance.
The disagreement has delayed progress in the Senate, where lawmakers continue searching for a compromise.
Banks are preparing for both outcomes
Interestingly, while banks publicly oppose yield-bearing stablecoins, many are also preparing for a future in which they become legal.
Several large financial institutions have already begun investing in blockchain payment infrastructure and digital dollar settlement networks.
Rather than ignoring the technology, banks appear to be positioning themselves to participate if regulations eventually allow interest-bearing stablecoins.
This suggests the financial industry recognizes that digital dollars could become a permanent part of the global payments system, regardless of how the current political debate ends.
A familiar story from financial history
The current debate resembles earlier battles over financial innovation.
During the 1970s and 1980s, traditional banks opposed the rise of money market mutual funds, arguing they would pull deposits away from banks and damage lending.
Instead of disappearing, banks eventually adapted by offering more competitive savings products while money market funds became a permanent part of the financial system.
Supporters of stablecoin yield believe digital dollars represent the next step in that same evolution.
Critics argue that today’s financial system is far more interconnected, making rapid digital capital flows a much greater systemic risk than previous innovations.
What happens next?
Several possible outcomes remain on the table.
Congress could approve legislation that permanently prohibits stablecoins from paying interest, preserving the current banking model.
Lawmakers could eventually permit yield-bearing stablecoins, forcing banks to compete more aggressively for customer deposits.
Or political disagreements could delay the issue entirely, leaving regulators and courts to shape policy over the coming years.
Whatever path lawmakers choose, the decision is likely to influence not only the cryptocurrency industry but also the future structure of the U.S. financial system.
Outlook
The fight over stablecoin yield has evolved far beyond a technical regulatory issue. It has become a debate over who should benefit from the billions of dollars generated by digital dollar reserves and how the future of money should be structured.
Banks argue that protecting deposits is essential for maintaining lending and financial stability. The crypto industry believes users deserve the returns generated by their own money and that innovation should not be limited to preserve traditional banking profits.
As Congress continues debating the CLARITY Act, the outcome of this dispute could reshape both the banking industry and the rapidly growing stablecoin market for years to come.
