This week, the US Senate finds itself at the precipice of a decision that could reshape the future of stablecoin economics and impact billions of dollars in annual crypto rewards. At the heart of the matter is the CLARITY Act, a piece of legislation scheduled for consideration by the Senate Banking Committee on January 15th. The debate has distilled into a single, high-stakes question: what precisely constitutes a stablecoin “reward,” and which entities are permitted to disburse them? The answer will determine who controls an estimated $6 billion in annual incentives, a figure projected to swell significantly in the coming years.
Industry giants like Coinbase have already signaled potential reconsideration of their support for CLARITY if the bill moves beyond mere disclosure requirements to outright restrictions on these rewards. This stance highlights a growing tension within the pro-crypto coalition as regulatory language becomes increasingly granular, threatening established business models.
The GENIUS Act and the Unfinished Framework
The legislative journey began with the GENIUS Act, now Public Law 119-27. This landmark law established a foundational framework for payment stablecoins and included a critical, issuer-level prohibition: stablecoin issuers are explicitly barred from paying holders interest or yield simply for holding, using, or retaining the stablecoin. The rationale behind this was straightforward: payment stablecoins are intended to function as digital money, not as deposit substitutes that directly compete with regulated banks. This principle aimed to maintain a clear distinction between transactional instruments and interest-bearing financial products.
However, the GENIUS Act left a significant open question: what about rewards offered by platforms, exchanges, or their affiliates? What if these incentives are funded from their own revenues or structured as loyalty programs, rather than direct yield pass-throughs from the issuer? This ambiguity created a potential 'loophole' that CLARITY now seeks to address. The upcoming markup will be crucial in defining the enforcement perimeter, revealing whether Congress intends the issuer ban to be a narrow firewall or a broader prohibition extending throughout the entire stablecoin distribution chain.
Defining “Reward”: A Definitional Battle with Billions at Stake
The market currently features three primary archetypes of stablecoin rewards, and lawmakers are implicitly deciding which ones will endure:
- Issuer-Paid Yield: This is where the stablecoin issuer directly shares income generated from its reserves with holders. GENIUS was specifically designed to prevent this, and there is broad consensus on this restriction.
- Platform-Funded Loyalty: In this model, an exchange or digital wallet pays rewards from its own operational margin or marketing budget. These are often designed to drive user adoption, encourage stablecoin usage, or retain customer balances on the platform.
- Pass-Through T-bill Economics: This more complex archetype involves product designs that effectively route reserve yield to users through intricate affiliate structures, partner arrangements, or layered incentive programs. These programs are often structured to claim independence from the primary stablecoin issuer, making their classification particularly contentious.
The legislative tightrope walk revolves around whether CLARITY will treat rewards purely as a disclosure issue or impose substantive restrictions. If the Senate's text opts for a disclosure-only approach, exchanges could reasonably continue to offer rewards as consumer incentives, with the requirement to simply make them transparent. However, if the language tightens, introducing limits, caps, or specific conditions, it could fundamentally alter the economics of stablecoin distribution and the attractiveness of holding stablecoin balances on platforms. This distinction is precisely why the upcoming markup transcends typical legislative posturing.
The Economic Stakes: A Growing Market
The potential for stablecoin growth is staggering. Forecasts suggest the total stablecoin supply could expand from its current $309 billion to $420 billion by 2026, and a bullish outlook projects it could reach an astounding $4 trillion by 2030. These figures are not mere speculation; they directly translate into the sheer magnitude of the rewards pool at stake.
To put this into perspective, with a current supply of approximately $309 billion and a moderate annual rewards rate of 1.5% to 2.5%, annual incentives already range from $4.6 billion to $7.7 billion. If the supply reaches Bernstein's 2026 forecast of $420 billion, this pool expands to between $6.3 billion and $10.5 billion. By 2030, under Citi's base case, the annual rewards could surge to an astonishing $28.5 billion to $47.5 billion. These calculations assume conservative reward rates, well below what some platforms currently offer, underscoring the intense economic competition between banks, exchanges, and issuers for customer balances and payment flows.
The Lobbying War: Banks vs. Crypto Industry
The debate over stablecoin rewards is not just theoretical; it's a fierce lobbying battle between entrenched financial institutions and the burgeoning crypto industry.
Banks' Perspective: Closing the Loophole
Traditional banks are determined to see the affiliate and partner loophole closed. The American Bankers Association, alongside 52 state bankers' associations, has explicitly urged Congress to ensure the GENIUS prohibition extends to partners and affiliates. Their primary concern is deposit disintermediation: the fear that yield-like incentives offered by platforms will bypass the issuer ban, effectively drawing deposits away from regulated banking institutions. Commenters aligned with banks went even further in their responses to Treasury's GENIUS implementation notice, arguing that any benefits, whether direct or indirect, should fall under the prohibition. Their structural concern is clear: if platforms can offer rewards that economically mirror yield, the issuer ban becomes a superficial measure, while the real competition for customer deposits unfolds one layer removed.
Crypto Industry's Perspective: Preserving Innovation and Competition
The crypto industry, led by groups like the Blockchain Association, contends that Congress intentionally differentiated between issuer-paid yield and platform-provided rewards. They argue that the law bans the former while preserving the ability of platforms and third parties to offer legitimate rewards and incentives. Expanding the ban, they warn, would stifle competition, introduce unnecessary uncertainty during the early stages of implementation, and unfairly penalize exchanges for using their own capital to drive adoption and user engagement.
Coinbase's deep economic exposure underscores the seriousness of this position. The company reported a significant $355 million in stablecoin revenue during the third quarter of 2025, explicitly attributing rewards as a key driver of USDC growth. Average USDC balances within Coinbase products during that quarter hovered around $15 billion. For Coinbase, and indeed for many other exchanges, the language surrounding rewards directly impacts a material revenue line and their core business model. Restricting these incentives would necessitate a fundamental re-evaluation of their operational strategies.
Why This Fight Matters More in the Years Ahead
The urgency of this debate is compounded by the rapid scaling of stablecoins, which are quickly evolving from niche product features into system-relevant financial instruments. In 2025, stablecoins registered an astonishing $33 trillion in transaction volume, marking a 72% year-over-year increase, with USDC and Tether dominating these flows.
“Stablecoins just eclipsed Bitcoin in the one metric that matters, exposing a $23 trillion global fault line. Cross-border flows have finally overtaken Ethereum, proving these tokens are no longer just for crypto gambling.” – Oluwapelumi Adejumo, December 8, 2025
Bernstein projects the total stablecoin supply will reach approximately $420 billion by the end of 2026, representing roughly 56% growth from current levels. Citi's longer-term forecast is even more ambitious, predicting stablecoin issuance of $1.9 trillion in a base case and $4 trillion in a bull case by 2030. These projections confirm that banks are not overstating the situation; they are treating this as a deposit war because the sheer numbers justify such a framing.
Standard Chartered has estimated that widespread stablecoin adoption could siphon $1 trillion from emerging-market bank deposits over roughly three years, with savings usage potentially increasing materially by 2028. This projection fundamentally relies on stablecoins continuing to function as quasi-savings vehicles rather than purely transactional instruments, a dynamic heavily influenced by platforms' ability to offer rewards that make holding balances attractive. This macroeconomic backdrop explains the intense lobbying by banks for a clear affiliate and partner perimeter; they view rewards as the primary mechanism that transforms payment stablecoins into deposit substitutes, regardless of the issuer's direct actions.
Critical Questions for the Senate Markup
Four central questions will ultimately determine the outcome of this legislative battle:
- Disclosure vs. Substantive Restriction: Will CLARITY merely require transparent consumer disclosures for rewards (rate, source, conditions) without limiting their offering, or will it impose caps, conditions, or outright prohibitions? A disclosure-only approach leaves room for platforms, while substantive restrictions would be a significant blow.
- Issuer-Only vs. Affiliates/Partners: Will the language apply solely to stablecoin issuers, as per GENIUS, or will it extend restrictions to affiliated platforms, intermediaries, and partners, as banks advocate? This is the core 'switch' that dictates the breadth of the prohibition.
- Broad vs. Narrow Definition of “Reward”: Will the definition of “reward” be narrow (e.g., “interest paid by issuer”), potentially allowing exchanges to route around it via loyalty programs, rebates, or marketing spend? Or will it be broad enough to capture direct or indirect economic benefits tied to holding stablecoins, including sophisticated pass-through yield economics? The Treasury notice comment letters highlight this as the true definitional battleground.
- Enforcement Path: Even if CLARITY advances, its practical implementation will require detailed rulemakings, agency resourcing, and coordination among Treasury, the Federal Reserve, and prudential regulators. Will the statute hard-code prohibitions, or will it delegate significant interpretive power to agencies? Ambiguity here could lead to shifting regulatory perimeters as agencies interpret the statute and respond to industry structuring.
It's worth noting the international context as well. The Bank for International Settlements (BIS) has already cataloged global approaches to stablecoin yields and rewards, often distinguishing between payment instruments and investment products. Jurisdictions like the European Union and the United Kingdom are moving towards tighter perimeter controls, frequently framing stablecoin regulation from a financial stability perspective. This global trend sets a baseline for what constitutes a credible payment stablecoin framework and will influence whether US law aligns with or creates arbitrage opportunities relative to international standards.
The Real Stakes
The GENIUS Act established the fundamental principle that payment stablecoins should not pay yield at the issuer level. The CLARITY Act is poised to decide whether this principle will permeate the entire stablecoin distribution chain or remain confined to the entities holding reserves. If the Senate's text imposes substantive restrictions on platform rewards or expands the prohibition to affiliates, it will effectively strip exchanges of a crucial tool for driving user adoption and retaining stablecoin balances. Conversely, if the text stops at mere disclosure requirements, the issuer ban will largely become a compliance checkpoint, while the real economic competition for user funds continues to unfold at the platform layer.
Coinbase's reported willingness to re-evaluate its support for CLARITY serves as a powerful indicator that the industry views this as a vital line in the sand, not merely a negotiating tactic. The company's $355 million quarterly stablecoin revenue and its emphasis on rewards as a growth engine make it abundantly clear that restricting platform incentives would necessitate a fundamental shift in business models, far beyond simply increasing disclosure burdens. Simultaneously, the unwavering push by banks to close the affiliate loophole demonstrates their conviction that platform rewards are precisely the mechanism that transforms GENIUS's issuer ban into a workaround, rather than an effective safeguard against deposit disintermediation.
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