Banks vs. Crypto at the White House: The $280 Billion Stablecoin Yield Fight That Could Define U.S. Crypto's Future

Picture the scene. Goldman Sachs, JPMorgan, Bank of America, Wells Fargo, Citi, and the biggest banking lobby groups in America sitting across a conference table from Coinbase, Ripple, Circle, a16z, and Kraken — all of them inside the White House, under instructions from President Trump's crypto advisers to find common ground.

They left without a deal.

The February 10 meeting at the Diplomatic Reception Room ended just as the one before it had, two weeks earlier: no agreement, no shared framework, and a hardened standoff over a question that sounds deceptively simple — should you be allowed to earn interest on the stablecoins sitting in your crypto account?

The answer to that question is currently holding the most important piece of U.S. crypto legislation in years hostage. And depending on how it resolves — or doesn't — it could reshape not just stablecoins but the entire market you're invested in.

What Is the CLARITY Act and Why Does It Matter?

The Digital Asset Market Clarity Act (H.R. 3633) is the most comprehensive attempt the U.S. has ever made to create clear rules for digital assets. After years of regulatory gray zone, enforcement-by-lawsuit, and confusion over whether tokens are securities or commodities, CLARITY is supposed to draw the map.

The bill's architecture is actually sensible: Bitcoin and Ethereum would fall under CFTC regulation as commodities. Securities-like tokens stay with the SEC. DeFi activity gets explicit carve-outs. Self-custody is protected. Crypto exchanges get registration pathways. It passed the House in July 2025 with genuine bipartisan support — a rare achievement in Washington right now.

Then it hit the Senate. And hit a wall.

The Senate Banking Committee was supposed to hold a markup session on January 15, 2026 to advance the bill. It was postponed. More than 100 amendments had been filed. The room couldn't agree. The single biggest reason: three words inside Section 404.

The Three Words Freezing the Bill

Section 404 of the CLARITY Act says that digital asset service providers may not pay "any form of interest or yield… solely in connection with the holding of a payment stablecoin."

In plain English: if you park USDC in your Coinbase account and earn 4% APY just for leaving it there, that's now illegal under the proposed law.

Banks have been pushing hard for exactly this language. Their argument is straightforward: if a crypto platform can offer 4% on dollar-backed stablecoins while a traditional bank savings account pays 0.5%, customers will move money out of banks and into crypto — at scale. The Independent Community Bankers of America estimates that allowing intermediaries to pay stablecoin yield could drain $1.3 trillion in deposits from U.S. banks and reduce community lending by $850 billion.

Standard Chartered's Geoffrey Kendrick, one of the most respected institutional voices in crypto, has modeled the threat more conservatively but still significantly — around $500 billion in bank deposit outflows by 2028 if the stablecoin market reaches $2 trillion. Over 3,200 bankers signed a letter to the Senate in January demanding the loophole be closed entirely.

Treasury Secretary Scott Bessent himself has projected the stablecoin market could reach $3.7 trillion by the end of the decade. You can see why the banks are nervous.

Why Crypto Is Digging In — This Is Existential

Crypto firms aren't fighting this battle on principle alone. For Coinbase, stablecoin yield is a core business model.

Coinbase earns significant revenue from its partnership with Circle — specifically from the interest generated on USDC reserves, a portion of which flows back to users as rewards. If Section 404 passes as written, that revenue stream gets cut off or severely constrained. Coinbase CEO Brian Armstrong made the stakes explicit: he withdrew Coinbase's support for the CLARITY Act entirely in mid-January over this provision, calling the bill's approach to yield, DeFi, and tokenized equities a move that would "institutionalize excessive regulation."

For a company that's watched its stock drop 37% year-to-date and needs regulatory clarity to rebuild investor confidence, this isn't a negotiating posture. It's a line in the sand.

The broader crypto industry argument is also compelling: stablecoin reserves already generate income from U.S. Treasury bonds and money market instruments. That income exists. The question is only whether platforms can share it with users. Banning the sharing while banks pay depositors near-zero interest looks, from the crypto side, less like consumer protection and more like incumbents using regulation to block competition.

As the Blockchain Association pointed out in its letter to Congress, Congress deliberately preserved third-party stablecoin rewards in the GENIUS Act — the stablecoin framework signed into law in July 2025. Section 404 would reverse that legislative intent through the back door.

What Actually Happened in the Room

Two White House sessions have now failed to produce a deal. Here's what the February 10 meeting revealed.

The banks arrived not with compromise language, but with a "principles document" — a written set of positions that CoinDesk obtained a copy of. Its language was sweeping: a prohibition on "any form of financial or non-financial consideration to a payment stablecoin holder in connection with the payment stablecoin holder's purchase, use, ownership, possession, custody, holding or retention of a payment stablecoin."

That's not a negotiating position. It's a maximalist demand that would eliminate even transaction-based rewards, loyalty programs, and cashback mechanics tied to stablecoin use. The banking side, according to sources, showed "limited flexibility" — acknowledging only that transaction-based rewards might survive if clearly distinct from passive yield.

The crypto side — Coinbase, Ripple, Circle, a16z, Kraken, and their trade associations — described the meeting afterward as "more productive" and "encouraging." But both sides have said that after every meeting that ended without progress. Patrick Witt, Executive Director of the President's Crypto Council, who chaired the session, set a new deadline: a joint formulation on stablecoin yield by March 1, 2026.

Galaxy Digital's Alex Thorn was blunter: he doubted the banks would compromise at all.

The market is pricing the uncertainty in. Polymarket odds for CLARITY Act passage in 2026 slipped from 65% to 60% after the February 10 talks.

The Political Landmines Nobody's Talking About

Stablecoin yield is only the loudest issue. There are three more live grenades underneath the CLARITY Act that received almost no coverage this week.

The Trump problem. Senate Democrats are demanding the bill include an explicit ban on senior government officials holding deep financial interests in crypto projects — a provision directed squarely at President Trump's personal involvement in the WLFI token and other crypto ventures. Patrick Witt told CoinDesk directly that the White House will not support language that targets the president. That's not a small gap to bridge.

CFTC staffing. Democrats are also requiring the Commodity Futures Trading Commission to be fully staffed — including Democratic appointees — before it can begin regulating crypto markets. Under the current administration, that's been deliberately slow. If crypto regulation requires a fully bipartisan CFTC, it may be waiting a long time.

AML requirements. Democrats want stronger anti-money laundering protections built into the bill. Crypto industry groups resist provisions they see as creating compliance burdens that would effectively make DeFi protocols and non-custodial wallets illegal by accident.

Each of these issues could kill the bill independently. Together, they represent a legislative obstacle course that would challenge any Congress — let alone one navigating an election year.

The Doomsday Scenario: What Happens If It Fails

The White House has set March 1 as the informal deadline for a deal. If talks collapse again, the CLARITY Act's next realistic window may not open until after the November 2026 midterms — when a new Congress takes over and any progress on the current bill resets.

That's not a minor delay. It means at minimum two more years of:

• No clear framework for which tokens are securities vs. commodities
• No registration pathways for crypto exchanges and brokers
• No explicit DeFi protections
• No resolution on stablecoin yield — leaving the current ambiguity intact but without legislative cover
• Continued exposure to SEC enforcement actions shaped by whoever holds the chairmanship

For institutional investors who need legal certainty before deploying capital, this is precisely the environment that keeps them on the sidelines. The same institutional hesitation that contributed to the ETF outflows and sentiment collapse driving Bitcoin's slide to $60,000 last week is partly a CLARITY problem — and it doesn't resolve without the bill.

It's worth noting the irony: the bitcoin mining difficulty drop of 11% we saw last week — the largest since China's 2021 ban — was partly a consequence of this same environment. When institutional capital retreats and regulatory uncertainty persists, the whole ecosystem feels it. Miners, traders, and long-term holders alike.

What USDC Users and DeFi Participants Should Watch

If you hold stablecoins on a centralised exchange and earn yield on them, this bill directly affects you. Here's the practical breakdown of what survives versus what's at risk under different outcomes:

What's likely safe regardless: Transaction-based cashback. Rewards for actively using stablecoins for payments. Loyalty points tied to platform activity. These are explicitly allowed under Section 404's activity-based carve-outs.

What's at risk: Simple APY for holding USDC or USDT in an exchange account. "Earn" products where the only requirement is maintaining a balance. Anything that looks, structurally, like a savings account paying interest.

What's uncertain: DeFi yield — lending protocols, liquidity provision, and staking rewards. The bill contains a DeFi exemption (Section 309), but how broadly it applies when a centralised platform facilitates the activity is unresolved. This is the grey zone where most of Ethereum's on-chain yield lives, and the same ecosystem where Vitalik Buterin has been arguing for Ethereum's L1 scaling to become the primary value layer.

The Bigger Picture: Regulation as a Market Force

This isn't just a Washington policy story. It's a market story.

The CLARITY Act, if passed well, could be the most bullish regulatory development in crypto's history — giving institutional investors the legal framework they need to allocate seriously. CME Group's recent expansion into Cardano, Chainlink, and Stellar futures is exactly the kind of institutional infrastructure buildup that becomes transformative once the underlying legal clarity exists. Right now, those products are building ahead of the law. Once the law catches up, the growth potential is significant.

But every week the bill stays frozen is a week that uncertainty weighs on crypto prices, on venture investment, and on the companies building in the space. The banks understand this leverage. Crypto understands what's at stake. And the White House is caught between two of the most powerful lobbying forces in American finance.

A deal is still possible. Both sides called the February 10 meeting "more productive" than its predecessor, and the White House has strong political incentive to deliver on Trump's crypto promises before the midterms. A partial compromise — where transaction-based rewards survive while pure passive yield is restricted — is the most likely landing zone if one exists.

But the March 1 deadline is fast approaching, and so far, nobody has blinked.

References:

• CoinDesk (Jesse Hamilton — primary reporting, copy of banks' principles document)
• crypto.news
• CCN
• Crypto Valley Journal
• Stocktwits (Anushka Basu)
• CryptoSlate (Section 404 analysis)
• Mondaq (legal analysis)
• Crypto Economy
• Yahoo Finance
• Standard Chartered (Geoffrey Kendrick)
• ICBA (deposit outflow estimates)
• Blockchain Association (Congressional letter)
• Patrick Witt (President's Crypto Council)
• Lark Davis (X/Twitter)
• Eleanor Terrett (reporter, meeting coverage)