Clarity Act Caps Stablecoin Yields as Banks Warn of Deposit Exodus

The U.S. House passed the Clarity Act last week, inserting language that prohibits stablecoins—digital tokens pegged to a fiat currency—from offering interest to holders. The change targets the “Genius Act” provision that previously let exchanges reward users with yield.

Banks immediately framed the restriction as a safeguard against a mass migration of deposits. Executives argue that stablecoins, by mimicking traditional bank accounts, could lure savers away, especially as many projects promise yields far above the Federal Reserve’s 5.25% benchmark rate.

Stablecoin markets continue to expand despite the regulatory shift. Tether (USDT) trades at a market cap of roughly $110 billion, while Circle’s USD Coin (USDC) holds about $45 billion. Both tokens have seen price stability but their associated yield products have been trimmed; USDC‑linked yield funds fell 12% after the announcement. The broader stablecoin index, tracked by the Crypto Market Index (CMI), slipped 3.4% on the day of the vote.

Hundreds of new stablecoin projects are in development, signaling rapid growth. Developers are racing to launch tokens that comply with the new rules while still offering competitive rewards through alternative mechanisms such as fee rebates or loyalty tiers.

The banking lobby, already mobilizing against broader crypto regulation, sees the act as a partial victory. Their argument hinges on the premise that interest‑bearing stablecoins could erode the traditional deposit base, a scenario they label “deposit flight.”

Industry observers note that the act does not ban stablecoins outright; it merely curtails the interest component that has been a key adoption driver. Rewards programs can still be structured around holding periods or transaction volume, preserving some incentive for users.

Legislators warn that the rule is not final. The act includes language allowing future revisions, meaning the current caps could be adjusted as market practices evolve. Stakeholders are advised to monitor upcoming Treasury guidance and any amendments emerging from the Financial Services Committee.

What to watch next: the Treasury’s detailed implementation plan and the response of major stablecoin issuers to the interest ban, which will shape the next phase of crypto‑bank competition.