Concerns Over Deposit Exodus Block Clarity Act Amid Rural Republican Pushback

[Mexico City = Shim Young-jae, Special Correspondent] The Clarity Act, which is expected to change the regulatory landscape of the U.S. digital asset (cryptocurrency) market, has encountered an unexpected obstacle. The issue of stablecoin rewards has emerged as a new point of contention, overshadowing the jurisdiction of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Rural Republican senators, concerned about the potential exodus of deposits from local banks, are lending support to calls for stricter regulations on stablecoin rewards.

CoinGape reported on the 13th (local time) that the outlook for the Clarity Act's processing in the Senate in September has become uncertain as some Republican senators based in rural areas have aligned with the banking sector's claims that regulations on stablecoin rewards need to be tightened.

At the center of the issue is the concern over 'deposit exodus' from local banks. The argument is that if individuals can hold or use digital assets like the USDC stablecoin, which is pegged to the dollar, to receive more competitive rewards than bank deposits, funds may shift from banks to digital asset platforms.

In rural areas of the U.S., where there is a high reliance on local banks for agricultural loans and small business financing, this issue transcends simple digital asset regulation and has become a local financial concern.

Why Stablecoin Rewards Have Become a Local Banking Issue

According to CoinGape, the banking sector argues that stablecoin rewards can effectively serve the same role as deposit interest. The logic is that if deposits flow out to digital asset platforms, local banks will have fewer resources to lend to farmers and small businesses.

The issue of stablecoin interest was also addressed in the GENIUS Act, enacted last year. According to the original text, the GENIUS Act prohibits issuers from paying interest simply for holding payment stablecoins.

However, the banking sector believes that the regulations are insufficient. They argue that rewards offered by third parties, such as exchanges, under the guise of staking, loyalty programs, or payment processing, can function similarly to deposit interest.

Senators Tom Tillis and Angela Alsobrooks previously proposed a compromise that would ban passive interest payments while allowing rewards based on actual activities. The intention is to distinguish rewards from staking and loyalty programs, as well as payment processing, from deposit interest.

The banking sector views this as inadequate.

The American Bankers Association (ABA), the Independent Community Bankers of America (ICBA), and 76 state banking associations sent a joint letter to Senate Minority Leader John Thune and Senate Majority Leader Chuck Schumer on the 13th of last month, demanding stronger restrictions, according to CoinGape.

Such demands are exerting direct political pressure on rural Republican lawmakers.

Senators James Lankford of Oklahoma and Mike Rounds of South Dakota expressed concerns about the stablecoin reward provisions.

Senator Lankford stated that banking officials warned that the provision could weaken the deposit base of local banks. Senator Rounds also indicated that he would find it difficult to ultimately support the bill if the provision is not amended.

CoinGape reported that the number of Republican lawmakers who may defect, including these two, could rise to as many as five. Since 60 votes are needed to end a filibuster and move to a formal vote in the Senate, fractures within the Republican Party could become a direct variable in the bill's processing.

In response, Senator Cynthia Lummis has been countering the banking sector's logic. Senator Lummis stated on X (formerly Twitter) that rewards based on specific activities and interest paid on simple deposits are fundamentally different and should not be treated the same.

Brian Armstrong, CEO of Coinbase, also maintains that despite the conflict surrounding stablecoin rewards, U.S. digital asset legislation continues to make progress.

Ultimately, the crux of the debate lies not in the stablecoins themselves but in the 'nature of the rewards.' The banking sector argues that if the economic effects are similar to deposit interest, then the same level of regulation is necessary. In contrast, the digital asset camp contends that defining rewards from actual activities like payments or staking as deposit interest could limit competition for new digital financial services.

Clarity Act Vote in September... SEC and CFTC Regulatory Landscape at Stake

As the debate intensifies, the fate of the entire Clarity Act has become tied to the stablecoin reward provisions.

According to CoinGape, Leader Thune submitted a motion to end debate on the Clarity Act on the 8th. This is a procedural step to address the bill as a major item on the agenda when the Senate reconvenes in September.

Leader Thune has also indicated that when the Senate returns next month, he will prioritize the Clarity Act and push for a vote regardless of the outcome, according to CoinGape.

The strategy is to bring the bill to a public vote before the midterm elections. Consequently, lawmakers will have to leave a record of their positions on the Clarity Act.

The Clarity Act is not merely a stablecoin bill. According to CoinGape, this legislation, referred to as H.R.3633, aims to comprehensively reorganize the structure of the U.S. digital asset market.

The core issue is to clarify the long-standing jurisdictional authority over digital assets between the SEC and CFTC. It includes provisions for a registration system for digital commodity intermediaries and aims to fill the regulatory gaps that remain after the GENIUS Act.

Therefore, if a compromise on stablecoin rewards cannot be reached, leading to delays or the failure of the entire bill, the repercussions will not be limited to platforms providing reward services.

Conversely, if the banking sector and rural Republican lawmakers' demands for stricter reward regulations are accepted, digital asset platforms that utilize stablecoin reward programs as revenue models could be directly affected.

There is also a scenario where the bill itself does not pass.

CoinGape reported that experts believe that if the Clarity Act fails, the SEC under the Trump administration may quickly push for rule-making at the executive level instead of congressional legislation. In this case, the legal stability provided to digital asset companies may be lower than if laws were created through stakeholder negotiations in Congress.

On the other hand, there is a view that even if the bill's processing is delayed, the immediate market shock may be limited.

According to CoinGape, Grayscale has already seen institutional adoption of digital assets and tokenization underway, and existing regulatory pathways are functioning, so the delay of the Clarity Act is not expected to have a significant impact on the market in the short term.

However, if uncertainties surrounding market structure persist in the long term, regulatory enforcement risks faced by exchanges, decentralized finance (DeFi) developers, and token issuers may continue.

This debate also illustrates that the interests surrounding U.S. digital asset regulation have become increasingly complex. While the initial debate surrounding the Clarity Act focused on the jurisdiction of the SEC and CFTC and the legal status of digital assets, it has now shifted to how stablecoins impact the deposit and lending structures of traditional finance, becoming a political issue.

In particular, in rural areas where local banks are major suppliers of agricultural and small business financing, stablecoin reward policies are directly linked to local economic issues. Even Republican lawmakers who are generally favorable to digital asset regulation may have reasons to choose differently when faced with claims that the deposit base of local banks could be shaken.

As a result, the focus of negotiations ahead of the September vote has become clearer. The key question is how far to allow rewards based on actual transactions, payments, and staking while prohibiting interest from simple holdings.

The fate of the Clarity Act ultimately hinges on how the U.S. Congress answers the question: 'Are stablecoin rewards a new financial service or effectively deposit interest?'.

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