U.S. Senate Draws Red Line on Stablecoin Yields Ahead of Thursday Markup

U.S. senators are tightening the rules around stablecoin rewards, unveiling draft legislation that would ban yields for simply holding stablecoins while permitting incentives linked to active use — a key policy signal ahead of the Senate Banking Committee’s scheduled markup on Thursday.

Banking Committee Chair Tim Scott released a revised bipartisan draft he described as a negotiated market structure bill, aiming to break weeks of deadlock between crypto firms and traditional banks. At the center of the dispute is whether stablecoins should generate returns that resemble bank interest.

Under the new language, digital asset service providers would be barred from paying interest or yield on idle payment stablecoin balances. However, the bill allows rewards tied to specific user actions, including transactions, staking, liquidity provision, or posting collateral.

The compromise mirrors a framework proposed last week by Senator Angela Alsobrooks, a Democratic negotiator on the bill. Her approach permits rewards only when users actively engage with their stablecoins, while prohibiting incentives for balances that simply sit in an account.

Banks have argued that the GENIUS Act, enacted in July 2025, left room for liquidity risks by failing to stop third-party platforms from offering interest-like returns, even though issuers themselves are barred from paying interest. Crypto companies counter that the issue was already resolved during those negotiations and say banks are now attempting to limit competition.

Coinbase has publicly warned that it could pull support for the broader market structure effort if lawmakers impose stricter limits on stablecoin rewards beyond transparency and disclosure requirements.

The draft bill also incorporates separate bipartisan language from Senators Cynthia Lummis and Ron Wyden that protects software developers and infrastructure providers from being regulated as financial intermediaries solely for writing or maintaining code — a long-standing concern for open-source contributors.

Notably absent from the latest text is any ethics provision related to President Donald Trump’s family involvement in crypto ventures, an issue some Democrats had pushed to include. Senator Ruben Gallego previously cautioned that adding such language could derail the legislation entirely.

The updated draft moves the bill closer to formal consideration, clarifying how the SEC, CFTC, and other regulators would oversee digital asset markets. Meanwhile, the Senate Agriculture Committee has delayed its own crypto hearing until later this month, meaning both committee versions will still need to be reconciled.

If advanced, the Senate bill would eventually have to be aligned with the House-passed Digital Asset Market Clarity Act before a final version could be sent to President Trump for signature.