The post Should Stablecoins Be Allowed to Pay Interest? appeared on BitcoinEthereumNews.com. Regulations Stablecoins have moved from a niche crypto tool into theThe post Should Stablecoins Be Allowed to Pay Interest? appeared on BitcoinEthereumNews.com. Regulations Stablecoins have moved from a niche crypto tool into the

Should Stablecoins Be Allowed to Pay Interest?

Regulations

Stablecoins have moved from a niche crypto tool into the center of one of the most consequential policy debates in US finance.

As lawmakers race to finalize a sweeping digital asset bill, a single question is dividing regulators, banks, fintechs, and crypto firms alike: should stablecoins be allowed to pay yield?

Key Takeaways

  • Banks argue yield-paying stablecoins could drain deposits and tighten credit across the economy.
  • Crypto firms say yield does not equal lending risk and should be regulated through reserve standards, not bans.
  • Lawmakers are split as they finalize a major crypto bill that could redefine stablecoin economics.

At first glance, the issue sounds technical. In reality, it cuts straight to the future shape of money, banking, and competition in the financial system.

Why banks and regulators are pushing back

Traditional lenders argue that paying yield fundamentally changes what stablecoins represent. In their view, once a digital dollar starts earning interest, it stops being a payments instrument and starts to resemble a savings product. That shift, they warn, could trigger a large migration of deposits away from the banking system.

The concern is not theoretical. The CEO of Bank of America has publicly cautioned that trillions of dollars could leave commercial banks if interest-bearing stablecoins are widely permitted. Deposits are the backbone of bank funding. When they shrink, banks are forced to rely more heavily on wholesale markets, which are more expensive and more volatile.

Higher funding costs, banks argue, eventually flow through to households and businesses in the form of tighter credit conditions. Loans become harder to obtain, interest rates rise, and lending becomes more sensitive to market stress.

There is also a systemic risk argument. Unlike banks, stablecoin issuers do not have access to central bank liquidity facilities, nor do they operate under established resolution regimes. In a crisis, regulators worry that losses could spill into the broader financial system, leaving taxpayers exposed while private issuers capture the upside during good times.

The crypto industry’s counterargument

Crypto firms and fintech companies see the debate very differently. They reject the idea that yield alone transforms a stablecoin into a bank deposit. From their perspective, the key distinction lies in how the instrument is structured, not whether it earns a return.

Stablecoin issuers emphasize that reserves are fully backed and not used for lending or maturity transformation. Unlike bank deposits, these funds do not sit on a balance sheet supporting credit creation. Supporters argue this makes stablecoins fundamentally different from traditional savings products, even if they generate yield.

They also point to transparency. On-chain yield mechanisms, they say, can be audited in real time and designed without leverage. In contrast, bank risk often remains opaque to depositors despite heavy regulation.

Another flashpoint is competition. Banks are free to pay interest on deposits, while stablecoin issuers face the prospect of an outright ban. Critics argue this protects incumbent funding models rather than consumers and creates an uneven playing field between legacy finance and digital alternatives.

A political fault line in Washington

The dispute is now shaping the final stages of crypto legislation in Congress. Draft language under discussion would prohibit “interest for holding” stablecoins, while still allowing rewards tied to activity such as payments or loyalty programs. Industry participants say that distinction is artificial and could effectively eliminate most yield-bearing designs.

That tension recently spilled into public view when Coinbase withdrew its support for the bill, warning that the restrictions would undermine the economic viability of stablecoin rewards and innovation.

Lawmakers in the United States Senate now face a choice that goes beyond technical regulation. At stake is whether stablecoins remain a narrow payments rail or evolve into a genuine competitor to bank deposits.

The deeper question

Strip away the legal language, and the debate comes down to a structural issue. Are stablecoins simply digital wrappers around existing money, or are they the early form of a parallel monetary system?

How Congress answers that question will shape not only crypto markets, but also the future balance between banks, fintechs, and digital money in the US economy.


The information provided in this article is for educational purposes only and does not constitute financial, investment, or trading advice. Coindoo.com does not endorse or recommend any specific investment strategy or cryptocurrency. Always conduct your own research and consult with a licensed financial advisor before making any investment decisions.

Author

Alex is an experienced financial journalist and cryptocurrency enthusiast. With over 8 years of experience covering the crypto, blockchain, and fintech industries, he is well-versed in the complex and ever-evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His approach allows him to break down complex ideas into accessible and in-depth content. Follow his publications to stay up to date with the most important trends and topics.

Next article

Source: https://coindoo.com/a-trillion-dollar-question-should-stablecoins-be-allowed-to-pay-interest/

Market Opportunity
Notcoin Logo
Notcoin Price(NOT)
$0.0004041
$0.0004041$0.0004041
+0.44%
USD
Notcoin (NOT) Live Price Chart
Disclaimer: The articles reposted on this site are sourced from public platforms and are provided for informational purposes only. They do not necessarily reflect the views of MEXC. All rights remain with the original authors. If you believe any content infringes on third-party rights, please contact service@support.mexc.com for removal. MEXC makes no guarantees regarding the accuracy, completeness, or timeliness of the content and is not responsible for any actions taken based on the information provided. The content does not constitute financial, legal, or other professional advice, nor should it be considered a recommendation or endorsement by MEXC.

You May Also Like

Why is YZi Labs trying to change the board of CEA Industries?

Why is YZi Labs trying to change the board of CEA Industries?

YZi Labs is attempting to expand the board of directors at CEA Industries Inc. in order to have more influence over the company’s operations. Shareholders are currently
Share
Cryptopolitan2026/02/17 00:40
Adam Wainwright Takes The Mound Again Honor Darryl Kile

Adam Wainwright Takes The Mound Again Honor Darryl Kile

The post Adam Wainwright Takes The Mound Again Honor Darryl Kile appeared on BitcoinEthereumNews.com. Adam Wainwright of the St. Louis Cardinals in the dugout during the second inning against the Miami Marlins at Busch Stadium on July 18, 2023 in St. Louis, Missouri. (Photo by Brandon Sloter/Image Of Sport/Getty Images) Getty Images St. Louis Cardinals lifer Adam Wainwright is a pretty easygoing guy, and not unlikely to talk with you about baseball traditions and barbecue, or even share a joke. That personality came out last week during our Zoom call when I mentioned for the first time that I’m a Chicago Cubs fan. He responded to the mention of my fandom, “So far, I don’t think this interview is going very well.” Yet, Wainwright will return to Busch Stadium on September 19 on a more serious note, this time to honor another former Cardinal and friend, the late Darryl Kile. Wainwright will take the mound not as a starting pitcher, but to throw out the game’s ceremonial first pitch. Joining him on the mound will be Kile’s daughter, Sierra, as the two help launch a new program called Playing with Heart. “Darryl’s passing was a reminder that heart disease doesn’t discriminate, even against elite athletes in peak physical shape,” Wainwright said. “This program is about helping people recognize the risks, take action, and hopefully save lives.” Wainwright, who played for the St. Louis Cardinals as a starting pitcher from 2005 to 2023, aims to merge the essence of baseball tradition with a crucial message about heart health. Kile, a beloved pitcher for the Cardinals, tragically passed away in 2002 at the age of 33 as a result of early-onset heart disease. His sudden death shook the baseball world and left a lasting impact on teammates, fans, and especially his family. Now, more than two decades later, Sierra Kile is stepping forward with Wainwright to…
Share
BitcoinEthereumNews2025/09/18 02:08
TRX holds near $0.28 as Tron Inc. ramps up accumulation strategy

TRX holds near $0.28 as Tron Inc. ramps up accumulation strategy

Tron Inc. acquired 177,925 TRX tokens, raising total treasury holdings above 681.9 million tokens.
Share
Cryptopolitan2026/02/17 01:30