The US Senate could wipe out $6 billion in crypto rewards this week by closing one specific loophole
The GENIUS Act banned issuer-paid yield, however the Senate markup battle is whether or not exchanges can preserve routing rewards round that restriction, and the reply could resolve who controls $6 billion in annual incentives.
Senate Banking is scheduled to think about the CLARITY Act on Jan. 15, and the legislative battle has narrowed to a single query with billion-dollar penalties: what counts as a stablecoin “reward,” and who’s allowed to pay it?
Bloomberg reported that Coinbase might rethink its help for CLARITY if the invoice’s language strikes past disclosure necessities to outright limit rewards, a sign that the trade’s pro-crypto coalition is testing its personal limits as regulatory textual content will get extra specific.
The backdrop is simple. GENIUS, now Public Law 119-27, established a cost stablecoin framework and included an issuer-level prohibition: permitted stablecoin issuers can’t pay holders curiosity or yield solely for holding, utilizing, or retaining the stablecoin.
The logic was clear, as cost stablecoins ought to perform as cash, not deposit substitutes competing with regulated banks. But GENIUS left open the query of what occurs when platforms, exchanges, or associates supply rewards funded from their very own income or structured as loyalty incentives quite than direct yield pass-throughs.
CLARITY is the place that enforcement perimeter will get outlined, and the markup will reveal whether or not Congress treats the issuer ban as a slim firewall or the beginning of a broader prohibition that extends to any entity in the distribution chain.
Definition battle that really issues
Three archetypes of stablecoin rewards exist in the market, and lawmakers are implicitly selecting which of them survive.
- The first is issuer-paid yield, the place the stablecoin issuer shares reserve earnings immediately with holders. GENIUS was designed to dam this, and no one disputes that restriction.
- The second is platform-funded loyalty, the place an trade or pockets pays rewards from its personal margin or advertising funds to drive adoption or retain balances.
- The third is pass-through T-bill economics, the place product design successfully routes reserve yield to customers via affiliate constructions, companion preparations, or rigorously layered incentive packages that declare independence from the issuer.
The legislative knife-edge is whether or not CLARITY treats rewards as a disclosure-only problem or imposes substantive restrictions.
If the Senate textual content lands at disclosure-only, exchanges can plausibly preserve rewards alive as shopper incentives, disclosed however unrestricted.
If the language tightens into limits, caps, or circumstances, then the economics of USDC distribution and on-platform stablecoin balances change completely.
That distinction is precisely why the markup issues past the standard legislative theater.
Who’s lobbying for what
Banks need the affiliate and companion loophole closed. The American Bankers Association and 52 state bankers’ associations explicitly urged Congress to make clear that the GENIUS prohibition ought to lengthen to companions and associates, warning of deposit disintermediation and yield-like incentives that bypass the issuer ban.
Bank-aligned commenters responding to Treasury’s GENIUS implementation discover went additional, arguing that advantages offered immediately or not directly ought to fall inside the prohibition.
Their concern is structural: if platforms can supply rewards that perform economically like yield, the issuer ban turns into theater whereas the actual competitors for deposits occurs one layer eliminated.
The crypto trade argues that Congress intentionally distinguished between issuer-paid yield and platform rewards.
The Blockchain Association-led coalition argues that the legislation bans issuer-paid yield whereas preserving the flexibility of platforms and third events to supply lawful rewards and incentives.
They warn that increasing the ban would scale back competitors, inject uncertainty early in implementation, and penalize exchanges for utilizing their very own capital to drive adoption.
Coinbase’s financial publicity makes this greater than posturing. The firm reported $355 million in stablecoin income in the third quarter of 2025 and described rewards as a driver of USDC development, with common USDC balances in Coinbase merchandise round $15 billion throughout that quarter.
Rewards language hits a fabric income line.
Why does this battle get more durable in 2026
Stablecoins are scaling quick sufficient that rewards turn into system-relevant quite than a distinct segment product characteristic.
Stablecoins registered $33 trillion in transaction volume in 2025, up 72% year-over-year, with USDC and Tether accounting for almost all of flows.
Bernstein initiatives that the whole stablecoin provide will attain roughly $420 billion by the tip of 2026, representing roughly 56% development from present ranges. Citi’s longer-run forecast places stablecoin issuance at $1.9 trillion in a base case and $4 trillion in a bull case by 2030.
Those numbers matter as a result of they translate immediately into the dimensions of the rewards pool at stake.
A easy calculation reveals the magnitude. At the present provide of almost $309 billion, a 1.5% to 2.5% annual rewards fee implies annual incentives of $4.6 billion to $7.7 billion.
If provide reaches Bernstein’s 2026 forecast of $420 billion, that pool grows to $6.3 billion to $10.5 billion. By 2030, beneath Citi’s base case, it could attain $28.5 billion to $47.5 billion annually.
Those figures assume a reasonable reward fee, properly beneath what some platforms presently supply, and mirror the financial battlefield the place banks, exchanges, and issuers compete for buyer balances and cost flows.
Banks are treating this as a deposit warfare as a result of the numbers justify that framing.
Standard Chartered estimated stablecoin adoption could pull $1 trillion from emerging-market bank deposits over roughly three years, with financial savings utilization rising materially by 2028.
That projection assumes stablecoins proceed to perform as quasi-savings autos quite than pure transactional devices, which is precisely what occurs when platforms supply rewards that make holding balances engaging.
The macro backdrop explains why banks pushed for the affiliate and companion perimeter in their congressional feedback, they see rewards because the mechanism that turns cost stablecoins into deposit substitutes no matter what the issuer does.
What to look at at markup
Four questions will decide whether or not the coalition holds or fractures.
- Does CLARITY deal with rewards as disclosure-only or impose substantive restrictions? Disclosure necessities depart room for platforms to proceed rewards packages with transparency. Substantive restrictions would cap, situation, or outright prohibit these packages.
- Does the language apply solely to issuers or lengthen to affiliated platforms, companions, and intermediaries? That’s the express ask from banks and the express objection from exchanges.
- Does the definition of “reward” seize pass-through reserve yield economics, or is it slim sufficient that exchanges can route round it via loyalty packages and advertising spend? The Treasury discover remark letters make this the actual definitional battleground: whether or not “solely” turns into a loophole or a transparent line.
- What does enforcement appear to be in follow? Even if markup advances CLARITY, implementation requires rulemakings, company resourcing, and coordination between Treasury, the Federal Reserve, and prudential regulators.
The January markup is a gap transfer, not a end line, and the regulatory perimeter could shift as businesses interpret the statute and reply to trade structuring.
The Bank for International Settlements has already catalogued how regulators globally method stablecoin yields and rewards, together with prohibitions on no-interest or yield preparations and the coverage logic that distinguishes cost devices from funding merchandise.
The European Union and the United Kingdom are transferring towards tighter perimeter controls, with monetary stability framing, treating stablecoin regulation as systemic quite than experimental.
That worldwide context issues as a result of it units the baseline for what counts as a reputable cost stablecoin framework, and whether or not the US legislation creates arbitrage alternatives or aligns with international requirements.
| Issue | Disclosure-only? | Substantive restriction? | Applies to associates/companions? | Routes-around doable? |
|---|---|---|---|---|
| 1) Disclosure vs restriction | Requires clear shopper disclosures for rewards (fee, supply of funds, circumstances, revocability) however doesn’t restrict providing rewards | Caps/circumstances/prohibits rewards (or creates “de facto ban” by way of eligibility, funding, or product-structure limits) | If sure, it may possibly turn into a backdoor restriction even when framed as disclosure | High beneath disclosure-only (exchanges can rebrand as loyalty/advertising); low–medium if restrictions outline rewards broadly |
| 2) Issuer-only vs associates/companions | Keeps GENIUS’ issuer-level “no yield” as the principle line; platform rewards stay allowed | Extends restrictions to platforms, intermediaries, associates, companions (banks’ most well-liked perimeter) | This is the core change: express extension = broad perimeter | High if issuer-only (platform-funded rewards proceed); low if associates/companions included (routing collapses into compliance danger) |
| 3) Broad vs slim “reward” definition (captures pass-through yield?) | Narrow definition (e.g., “curiosity paid by issuer”) + disclosures → probably leaves room for “loyalty” framing | Broad definition that captures direct or oblique financial advantages tied to holding/utilizing/retaining stablecoins (together with coordinated funding / pass-through economics) | If associates/companions are included, a broad definition is what prevents “one-layer-removed” incentives | High if slim (loyalty, rebates, factors, charge credit); medium if broad however enforcement mild; low if broad + clear anti-evasion language |
| 4) Enforcement path (rulemaking / businesses) | Heavy reliance on company guidelines/steering to specify disclosures, scope, and anti-evasion | Statute hard-codes prohibitions/circumstances; businesses primarily implement | If enforcement delegates to businesses, companions/associates scope might develop by way of interpretation even when statute is ambiguous | Higher when guidelines lag or definitions are obscure; decrease when statute defines “reward” + anti-evasion clearly and businesses coordinate |
Real stakes
GENIUS established the precept that cost stablecoins should not pay yield on the issuer degree. CLARITY decides whether or not that precept extends to all the distribution chain or is proscribed to the entities holding reserves.
If the Senate textual content restricts platform rewards substantively or expands the prohibition to associates, exchanges lose a main software for driving adoption and retaining balances. If the textual content stops at disclosure, the issuer ban turns into a compliance checkpoint whereas the actual financial competitors continues on the platform layer.
Coinbase’s reported willingness to rethink help alerts that the trade sees this as a line price defending, not only a negotiating place. The firm’s $355 million quarterly stablecoin income and emphasis on rewards as a development driver clarify that proscribing platform incentives modifications the enterprise mannequin, not simply the disclosure burden.
Banks’ equally agency push to shut the affiliate loophole reveals they view platform rewards because the mechanism that turns GENIUS’ issuer ban right into a workaround quite than an answer.
The markup will reveal which concept of stablecoin regulation prevails: slim issuer restrictions that protect platform competitors, or broad prohibitions that deal with any yield-adjacent incentive as a risk to deposit stability.
That alternative determines who controls the $6 billion to $10 billion in annual rewards projected for 2026, and whether or not GENIUS’ “cost stablecoin” framing holds in follow or turns into a label that obscures financial actuality.
The coalition supporting crypto regulation was constructed on the premise that clear guidelines allow innovation. CLARITY’s rewards language will check whether or not that coalition can survive the specifics of what these guidelines really say.
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