CLARITY Act would curb passive stablecoin yield, not all rewards

The proposed Digital Asset Market Clarity Act would generally prevent crypto companies from paying U.S. users interest merely for holding payment stablecoins, while preserving room for rewards tied to transactions, services or risk-taking. The distinction could affect how exchanges, wallets, payment firms, banks and tokenized investment products compete for dollar-denominated activity on blockchain networks.

The 616-page digital asset market structure proposal says payment stablecoins are not bank deposits, investment products or federally insured assets. Its restrictions apply to “covered parties,” a category that includes digital asset service providers and their affiliates, while excluding permitted stablecoin issuers and certain registered foreign issuers.

Under the proposal, a covered company could not pay interest, yield or other compensation in cash, tokens or another form solely because a U.S. customer holds a payment stablecoin. The bill also bars compensation on a stablecoin balance that is economically or functionally equivalent to interest paid on a bank deposit.

That language targets the account and reward structure around a stablecoin, rather than the existence of the stablecoin itself. Many dollar-backed stablecoins are supported by reserves that may include Treasury securities and other cash-equivalent assets. The legislation addresses whether platforms can pass value from those arrangements to customers in a way that resembles an interest-bearing savings account.

Activity-based incentives would remain possible

The proposal leaves a substantial opening for compensation linked to conduct other than passive holding. It says rewards based on legitimate activity or transactions may be allowed if they are not functionally equivalent to deposit interest.

The bill identifies incentives tied to payments, transfers, conversions, remittances and settlement. It also refers to rebates for accepting or using a payment stablecoin, leaving room for stablecoin reward models that resemble elements of card and payments economics.

Other permitted categories could include compensation for providing market-making liquidity, posting collateral for trading, or placing assets at credit or investment risk. The proposal also refers to governance, validation, staking and other products or services as potential bases for compensation.

The structure means a user could be paid for supplying liquidity, taking defined risks or using a stablecoin in a qualifying transaction. A user generally could not receive a return only because a stablecoin balance remains idle in an account.

The bill does not automatically prohibit formulas that refer to a balance or holding period. It says permissible compensation may be calculated by reference to a customer’s balance, duration of holding or tenure, provided the underlying reward is tied to an allowed activity or service.

Regulators would define the boundary

The proposal relies on the standard of whether a payment is “economically or functionally equivalent” to deposit interest. That test gives regulators discretion to assess programs that may be presented as loyalty rewards, payment incentives or promotional benefits.

The Securities and Exchange Commission, Commodity Futures Trading Commission and Treasury Department would have one year after enactment to issue joint rules clarifying the boundary. The agencies would also publish a nonexclusive list of permissible programs, according to the proposal.

The bill includes anti-circumvention language and authorizes rules against evasive arrangements. Companies that design programs in good-faith reliance on statutory exceptions would receive a limited opportunity to correct them if regulators later conclude the programs do not comply.

The outcome of that rulemaking could determine whether yield remains embedded in platform reward programs or shifts toward separate investment, lending or tokenized money-market products. In such a model, stablecoins would operate as payment and settlement instruments, while return-generating products would carry their own risk terms and disclosures.

Marketing limits would accompany the rules

The proposal also restricts how companies describe stablecoins and related rewards. Covered companies could not market payment stablecoins as deposits, investment products, government-guaranteed assets or federally insured funds. They also could not describe compensation as risk-free or comparable to deposit interest.

Future rules would require prominent plain-English disclosures stating who provides compensation, the conditions for receiving it and all material terms. The disclosures would also have to say that payment stablecoins are not deposits, investments or government-insured products.

Knowing and willful violations could carry Treasury Department civil penalties of as much as $5 million for each violation, according to the proposal.

The legislation would assign payment stablecoins a role in moving money, settling transactions and supporting dollar-based digital infrastructure. It would not eliminate all stablecoin-linked rewards, but it would require companies to connect compensation to identifiable activity, service provision or risk rather than passive balances.

This story draws on original reporting from PYMNTS.