Banks protest high-yield tokens as the crypto regulatory dispute continues to escalate in Washington

According to The Wall Street Journal, the cryptocurrency industry and the banking sector are engaged in an intense lobbying battle over digital tokens that can provide annual yields, a struggle that could undermine the legislative process aimed at integrating cryptocurrencies into the mainstream financial system.

The crux of the debate centers on what crypto companies refer to as "rewards"—annual yields distributed periodically based on the proportion of assets held by investors. This mechanism is particularly common in stablecoins. From the banks' perspective, companies like Coinbase offering around 3.5% yields on stablecoins are essentially akin to high-yield deposits, but without adhering to the stringent regulatory requirements that banks face when accepting public deposits. Consequently, banking organizations have sent numerous letters to lawmakers warning that these "yield-bearing stablecoins" could have a devastating impact on small and mid-sized banks in the U.S.

In contrast, the national average interest rate for regular interest-bearing checking accounts in the U.S. remains below 0.1%. This debate is one of the reasons why the Senate Banking Committee postponed its scheduled vote on the cryptocurrency market structure bill on Thursday. JPMorgan, Citigroup, and other large banks are resisting stablecoin rewards while simultaneously developing their own cryptocurrency products and partnership plans.

Some banks, including Bank of America, are considering whether to issue their own stablecoins. Analysts suggest that Coinbase's withdrawal of support for the bill could pose serious risks to its prospects, although other crypto companies continue to express support. This dispute highlights a tension: on one side is the rapidly growing new force of the cryptocurrency industry in Washington, actively leveraging its increasingly powerful lobbying influence; on the other side is the traditional banking sector, which has maintained close ties with Congress for decades.

Last year, the U.S. Treasury estimated that stablecoins could siphon up to $6.6 trillion in deposits from the U.S. banking system, partly due to the "yield" mechanisms offered by stablecoins. In comparison, according to the latest data from the Federal Reserve, total deposits in U.S. commercial banks were approximately $18.7 trillion as of early January. The U.S. government provides insurance for deposits up to $250,000 per account, but at the same time imposes strict regulations on banks' operations and financial soundness.