Sen. Tillis Reveals CLARITY Act Stablecoin Yield Text, Senate Markup Soon?

Senator Thom Tillis has finally released the stablecoin yield text. It could indicate that a long-awaited Senate Banking Committee markup of the Digital Asset Market Clarity Act may be nearing.

What Does The Stablecoin Yield Text Say?

The plan, which is negotiated with Sen. Angela Alsobrooks, creates a distinct boundary between passive yield incentives and activity-based incentives. According to the draft text, stablecoin issuers would not be allowed to provide returns just by merely holding tokens.

The language explains that no covered entity shall “pay any form of interest or yield (whether in cash, tokens, or other consideration)” tied to the balance of a user or in a manner that reflects returns on traditional bank deposits. Lawmakers believe that this restriction will help in protection of the banking system, per Punchbowl News report.

The CLARITY Act stablecoin yield draft claims that depository institutions are at the heart of the U.S. economy. It cautions that such yield-generating products of crypto companies can suppress their role.

However, the suggestion does not go all the way towards a blanket prohibition on rewards. It explicitly allows incentives based on actual user usage. Nonetheless, despite the recent feat, the CLARITY Act is yet to garner full support from Senate Republicans.

One of the clauses elucidates that restrictions “shall not apply with respect to rewards or incentives based on bona fide activities or bona fide transactions” that are not economically equal to deposit interest. This carveout maintains an open door to models that seem like credit card-like rewards or network entry incentives.

The language of the legislation also instructs regulators to streamline the framework post-passage. Market regulators, as well as treasury officials, would have to issue regulations within a year that would explain when incentives will be in the prohibited yield.

The rulemaking process is likely to describe structures that are allowed and may take into account aspects of user behavior, holdings time and nature of underlying activity.

Industry Experts’ Take On CLARITY Act

Coinbase CEO Brian Armstrong responded to the news with a short message of action: “Mark it up.” The company has been intimately engaged in the policy discussions and is set to be greatly impacted by the definition of yield.

The distinction is significant, according to Paul Grewal, the Chief Legal Officer of Coinbase. He said that the language “preserves activity-based rewards tied to real participation on crypto platforms and networks.”

He said that the company is also concerned with getting the CLARITY Act passed. Hence, it doesn’t view the provision as an obstacle to progress.

Players in the industry claim that the change would cause firms to re-engineer products not on a passive earning platform but rather on a more interactive platform. In the meantime, it also cites anti-evasion provisions. It may imply that the legislators are expecting efforts to recreate the yield in an indirect manner.

Senator Tillis has vowed to push the Senate markup for CLARITY Act when the Congress resumes after the May recess.

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