Battle Over Interest-Bearing Stablecoins: Crypto Industry and Banks Clash Over Clarity Act

Coinbase Withdraws Support for Bill

The passage of the Clarity Act, the long-awaited crypto regulation in the United States, hangs in the balance. Coinbase has withdrawn its support for the current bill – the reason being controversial passages that would prohibit crypto providers from distributing so-called "holding interest" on stablecoins ^[2]. The move had immediate political consequences: a planned hearing in the Senate Banking Committee has been postponed for now ^[2].

Despite the tensions, Coinbase CEO Brian Armstrong intends to continue advocating for clear crypto regulation. At the World Economic Forum in Davos, he plans to continue discussions about the Clarity Act and advance the political process ^[2]. The company emphasizes that it continues to work with legislators on adjustments to finally create clear rules for digital assets ^[2].

Banking Lobby Alarmed Over Interest-Bearing Stablecoins

At its core, this is about a fundamental question: Should stablecoins be allowed to pay interest to their holders without requiring them to take active steps? For Armstrong, this provision is of central importance, as it would open up access to the entire banking industry for crypto companies ^[1].

Banks are responding with corresponding alarm. They see interest-bearing stablecoins as a direct attack on their deposit business ^[1]. If stablecoin infrastructure continues to grow, consumers could increasingly withdraw their capital from traditional checking accounts and transfer it to stablecoin wallets ^[1]. Banks fear scenarios such as a drying up of lending as a result of declining demand deposits ^[1].

Apparently, banks have even convinced US President Donald Trump to pressure Armstrong to back away from this demand ^[1]. The Senate wants to use the ban to prevent crypto providers from distributing pure "holding interest" on stablecoins – a step that banks view as protection against the migration of traditional savings deposits ^[2].

Structural Advantages of Stablecoins

Yet stablecoins structurally – not regulatorily – have higher security than traditional bank deposits ^[1]. Checking account balances are ultimately unsecured claims against a bank, while stablecoins like Tether or Circle are backed by assets of the highest credit quality, primarily US Treasury bonds ^[1]. The fact that bank deposits are still considered safer is mainly due to deposit insurance systems and the implicit expectation of government bailouts, which crypto companies have so far lacked ^[1].

For domestic payments, stablecoins currently offer little added value and accordingly struggle with payment adoption ^[1]. However, lucrative interest payments would create a completely different situation ^[1].

Davos Talks as Last Chance?

In a video, Armstrong explained that Coinbase would also speak with leading bank executives during the World Economic Forum ^[2]. The goal is to bridge remaining differences between the crypto industry and the financial sector to find a solution that benefits both sides ^[2]. A central point of the discussions is stablecoins, which according to Armstrong can open opportunities for both banks and crypto companies ^[2]. Coinbase is advocating for creating a level playing field ^[2].

Armstrong plans to pass the results of the discussions on to the US Senate and the government ^[2]. Trump will also be attending the World Economic Forum, but given the Greenland conflict dominating the headlines, it remains unclear whether the crypto sector is on his personal agenda ^[2].

Banks in Stronger Position

That the crypto industry will prevail against the banking lobby in the short term seems unlikely ^[1]. The balance of power favors traditional finance ^[1]. More likely is a stablecoin interest ban in the Clarity Act – not least to give banks time to build their own stablecoin offerings and infrastructure ^[1].

However, postponed does not mean canceled: stablecoins with interest distributions will come, the question is only when ^[1]. Then one will rightly be able to speak of a new phase of crypto mainstream adoption ^[1].