Negotiations in the U.S. Senate regarding stablecoin regulation are ongoing. Senator Thom Tillis has recently proposed adding a "circuit breaker" mechanism to the Senate version of the CLARITY Act, which would allow regulators to intervene if they determine that stablecoin-related activities are triggering broader outflows of bank deposits.
This proposal is seen as a response to ongoing pressure on the banking sector. Over the past several weeks, yield arrangements for stablecoins have been one of the key focus points in Senate negotiations. Banking groups are concerned that if stablecoin products offer deposit-like yields, they could draw funds away from the traditional banking system into digital assets, thereby undermining the funding base for bank lending and other operations.
Regulators can intervene when there is a deposit outflow.
Based on the current disclosed direction, this mechanism will grant agencies such as the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) the authority to intervene. However, the condition is not a preemptive total ban on stablecoin rewards, but rather action taken only after signs of systemic deposit outflows have been identified.
This means the Senate is attempting to strike a balance between two competing demands: on one hand, not completely blocking the incentive design of stablecoin products, and on the other, adding an extra layer of protection for the banking system.
The earlier compromise solution has not alleviated banks' concerns.
In earlier negotiations involving Tillis and Democratic Senator Angela Alsobrooks, both sides reached a compromise allowing crypto companies to offer rewards tied to usage, but prohibiting unrestricted stablecoin yields.
However, banking groups believe that the wording of such “permissible rewards” remains unclear, and there is still significant uncertainty regarding how regulators will interpret different stablecoin products in the future. Community banks are particularly sensitive to this, as they fear that if yield-bearing digital assets widely attract deposits, local banks’ funding sources could be adversely affected.
The Senate plans to release the bill text within a few days.
Beyond the stablecoin provisions, negotiations on the bill have been hindered by another point of contention. Some Democratic lawmakers have demanded the inclusion of ethics provisions related to President Trump’s cryptocurrency business interests as a condition for moving the legislation forward. Senator Elizabeth Warren also called on her colleagues this week to include such safeguards.
Meanwhile, Senator Cynthia Lummis said in an interview with FOX Business that the Senate is expected to release the text of the CLARITY Act in the coming days. She stated that the legislation aims to strengthen consumer protection, assist law enforcement in combating illicit financing, and keep the digital assets market growing within the United States.
Lummis also stated that Senate leadership is working to get the bill to a full vote before the August recess. Previously, reports indicated that, if negotiations proceed smoothly, the Senate aims to push for a vote by the end of July. However, the final scheduling still depends on Senate Majority Leader John Thune.
At this stage, whether the bill can gain bipartisan support still depends on whether the disagreements over stablecoin regulation, bank protection provisions, and ethical requirements can be resolved.