The $6.6 trillion nightmare scenario that has Senate Democrats trying to kill stablecoin yield immediately
The US Congress is closer than ever to defining federal rules for digital assets, yet the question of whether stablecoins can provide yield has slowed the process more than agency turf battles or token classification.
Notably, the House has already advanced the Digital Asset Market Clarity Act, outlining a path for certain tokens to move from securities regulation to CFTC oversight.
At the same time, the US Senate is shaping a parallel package that divides responsibilities between the Agriculture and Banking Committees.
However, despite substantial areas of agreement, negotiators say the issue of stablecoin yield remains the sticking point.
This debate concerns whether payment stablecoins should be able to pass through some portion of short-term Treasury returns to users, either as explicit interest or as promotional rewards offered by affiliated firms.
Democratic lawmakers argue that yield-bearing structures could accelerate deposit outflows from community banks and raise funding costs. At the same time, Republicans contend that limiting yield would protect incumbent institutions at the expense of consumers.
So, what began as a technical rulemaking question has become a broader discussion about the composition of the US deposit base and the potential for digital dollars to compete with traditional bank accounts.
The $6.6 trillion outflow scenario
The conversation shifted in mid-August after the Bank Policy Institute (BPI) highlighted what it described as a gap in the GENIUS Act, the stablecoin law enacted earlier this year.
The statute prohibits issuers from paying interest but does not explicitly prevent exchanges or marketing affiliates from offering rewards linked to the issuer’s reserve assets.
According to BPI, this structure could allow stablecoin operators to deliver cash-equivalent returns without obtaining a banking charter.
To highlight the concern, the group cited government and central bank scenario analyses that estimate as much as $6.6 trillion in deposits could migrate into stablecoins under permissive yield designs.
Analysts familiar with the modeling stress that the figure reflects a stress case rather than a projection, and assumes high substitutability between traditional deposits and tokenized cash.
Even so, the number has shaped the debate. Senate aides say it has become a reference point in discussions over whether rewards programs constitute shadow deposit-taking and whether Congress must adopt anti-evasion language that covers affiliates, partners, and synthetic structures.
The concern is grounded in recent experience. Deposit betas have remained low at many US banks, with checking accounts often paying between 0.01% and 0.5% despite Treasury bill yields above 5% for much of the past year.
The gap reflects the economics of bank funding. Stablecoin operators that hold reserves in short-term government securities could, in theory, offer significantly higher returns while providing near-instant liquidity.
Considering this, policymakers worry that this combination could draw funds away from lenders that support local credit markets.
A narrow legal question
The yield question turns on how Congress defines “interest,” “issuer,” and “affiliate.”
Under the GENIUS Act, issuers must maintain reserves and meet custody and disclosure standards, but cannot pay interest on circulating tokens.
Legal analysts note that an exchange or related entity offering a rewards program could create a structure in which users receive value that is economically similar to interest while remaining outside the statutory definition.
However, banking trade groups have urged lawmakers to clarify that any return flowing from reserve assets, whether distributed directly or through a separate entity, should fall under the interest prohibition.
Meanwhile, crypto industry stakeholders argue that such restrictions would place stablecoins at a competitive disadvantage compared with fintechs, which already offer rewards programs that approximate yield.
They also note that other jurisdictions, including the United Kingdom and the European Union, are creating pathways for tokenized cash instruments with varying approaches to remuneration.
For them, the policy question is how to support digital-dollar innovation while preserving prudential boundaries, not how to eliminate yield from the ecosystem entirely.
However, Democrats counter that the pace of on-chain transfers creates a different dynamic from traditional bank competition.
Stablecoin balances can move quickly across platforms without settlement delays, and rewards structures tied to Treasury income could accelerate flows during market stress. They cite research indicating that deposit displacement from community banks would have the greatest impact on rural lending, small businesses, and agricultural borrowers.
According to a recent Data for Progress poll, 65% of voters believe widespread stablecoin use could hurt local economies, a view reflected across party lines.
Other issues stalling the crypto bill
Meanwhile, stablecoin yield is not the only unresolved issue.
Democrats have proposed adding ethics provisions that restrict officials and their families from issuing or profiting from digital assets while in office, as well as requirements to maintain full commissioner slates at the SEC and CFTC before delegating new oversight authority.
They are also seeking clearer tools to address illicit finance for platforms that facilitate access by US persons, and a definition of decentralization that prevents entities from avoiding compliance obligations by labeling themselves as protocols.
These additions have narrowed the legislative runway. Senate staff say a markup before the recess is now unlikely, raising the possibility that final negotiations will extend into 2026.
In that case, the GENIUS Act’s ambiguity regarding rewards would remain in place, and the SEC and CFTC would continue shaping the digital-asset market through enforcement actions and rulemaking.
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