Crypto Rewards and the CLARITY Act: The New Battle for Digital Cash

Introduction

Stablecoin yields are highlighting how far traditional bank deposit rates lag behind real short-term government benchmarks, turning “holding dollars” into a competitive product category outside the deposit system. Using FDIC national rates (Dec. 15, 2025) versus a Treasury reference yield of about 3.89%, the gap is stark: savings around 0.39%, interest checking around 0.07%, and money market deposit accounts around 0.58%, implying a spread of roughly 3.3%–3.8%. This dynamic reframes the consumer question from “which bank pays more?” to why cash returns at banks can sit well below Treasury yields.

Crypto rewards programs—especially stablecoin rewards—compress that spread by offering returns closer to cash-market rates, putting pressure on bank funding costs and deposit pricing. If deposits migrate to stablecoins, banks may have to raise deposit rates or replace funding in wholesale markets where costs track policy rates more directly (for example, via repo-style benchmarks). Beyond interest expense, banks also see risk to the primary customer relationship—payroll, bill pay, debit/ACH activity, and cross-sell—if transactional balances shift to custodial wallets and crypto rails that move value 24/7.

Policy and lobbying pressure is converging on how U.S. legislation defines yield-like features in stablecoins, with the CLARITY Act debate focusing on drawing a line between “interest” and “loyalty rewards.” The approach discussed would aim to restrict “hold-to-earn” behavior while allowing “use-to-earn” incentives and requiring clearer disclosures, shifting enforcement and compliance burdens toward distributors rather than issuers. Coinbase’s USDC rewards framing (as a loyalty program with a listed rewards rate for Coinbase One members) and Binance’s earn-product disclosures (including lending and redemption constraints) illustrate why “stablecoin yields,” “crypto rewards,” and “digital cash” definitions are becoming central to whether Congress effectively curbs retail stablecoin yield in the US.

Background

Stablecoins have moved from a niche crypto primitive into a mainstream financial product category: dollar-denominated value that can be transferred quickly, integrated into fintech apps, and increasingly paired with yield-like incentives. As adoption grows, the policy debate is shifting from “Are stablecoins legitimate?” to a more consequential question for market structure: How far should stablecoins be allowed to behave like cash and compete with bank deposits? That tension sits at the center of today’s stablecoin regulation landscape.

In parallel, the macro environment has made the conversation unavoidable. When short-term “risk-free” benchmarks sit in the mid–single digits, consumers notice when traditional deposit rates lag. In the U.S., the Secured Overnight Financing Rate (SOFR)—a widely used benchmark for the cost of borrowing cash overnight collateralized by U.S. Treasuries—is published by the New York Fed and has recently been around the mid‑3% range (New York Fed SOFR). The U.S. Treasury yield curve provides related reference points across maturities, shaping how markets price cash and cash-like instruments (U.S. Treasury yield curve data). Against that backdrop, stablecoin “rewards” programs can look less like a niche crypto perk and more like a direct competitor to how banks price consumer cash balances.

This is where the policy line-drawing starts. In practice, there’s a difference between stablecoin issuers (the entities minting and redeeming the tokens and managing reserves) and stablecoin distributors (exchanges, wallets, fintech apps, and platforms that present the stablecoin to end users and add features like rewards, subscriptions, and UX). Modern stablecoin regulation increasingly tries to define responsibilities—and restrictions—across both layers. One of the most important recent developments is the GENIUS Act, a U.S. law focused on “payment stablecoins,” generally emphasizing 1:1 backing, issuer oversight, and operational/financial requirements. The FDIC has also begun shaping implementation and procedures in response to the new regime. The broad direction is clear: policymakers want stablecoins to function as credible “digital dollars” without importing the full risk profile of unregulated money-like products.

At the same time, stablecoin regulation is colliding with the reality that distribution drives consumer behavior. Consider the rapid normalization of stablecoin rewards. Coinbase, for example, describes USDC rewards in a programmatic, consumer-friendly way—how rewards accrue, how eligibility works, and how terms vary by region and product tier (Coinbase USDC rewards FAQ). Coinbase has also discussed yield opportunities involving USDC in product communications (Coinbase blog on lending USDC). Binance, similarly, offers “Simple Earn” style products that present yield on idle assets, with product mechanics and disclosures describing how the program works (Binance USDC Earn page, Binance Simple Earn FAQ). The common thread is that rewards and earn features can make holding stablecoins feel like holding a “better checking balance”—even though the underlying risk, legal classification, and protections differ materially from insured deposits.

That gap in protections is not a footnote; it’s foundational to understanding why banks and regulators focus on rewards language. FDIC insurance applies to eligible deposits at insured banks, not to stablecoins held in a custodial wallet or exchange account (FDIC; consumer-oriented explainer: Bankrate on FDIC insurance). For fintech and DeFi-adjacent audiences, the key concept is that stablecoins can be economically deposit-like (dollar-denominated, liquid, used for payments), while remaining legally and structurally different (reserve model, custody model, redemption rights, platform exposure). Stablecoin regulation is essentially an attempt to reduce the mismatch between how these products are perceived and how they actually behave under stress.

So why does yield matter so much? Because it changes user behavior and the economics of banking. Banks rely on deposits not only as a funding source, but as a relationship anchor that supports payments flows, card economics, and cross-sell into lending, wealth, and other products. If a meaningful portion of transactional balances migrates to stablecoins—especially when rewards make that migration feel rational—banks face a double impact: potentially higher funding costs and a weaker grip on the customer interface. When deposits leave, banks may need to replace them with market funding that tends to reprice closer to benchmarks like SOFR, which can move faster than traditional retail deposit rates (New York Fed SOFR). That sensitivity is one reason stablecoin yield is not just a “rate” story; it’s a balance sheet and distribution story.

This is also why the stablecoin regulation debate often focuses on a deceptively technical distinction: “interest” vs. “rewards.” In many frameworks, policymakers are more comfortable with stablecoins as “digital cash” when they do not explicitly pay interest simply for being held. But distributors can still create a yield-like user experience via “rewards,” loyalty programs, subscription tiers, or activity-based incentives. From a market-structure standpoint, that shifts competitive pressure away from issuers—who may be constrained by stablecoin statutes—and toward platforms that control the interface and can choose how aggressively to subsidize rewards.

Regulatory frameworks outside of stablecoin-specific laws are also relevant. The CLARITY Act is a separate but related piece of legislation designed to address U.S. crypto market structure, including the jurisdictional boundaries between regulators and how digital assets are classified and supervised in trading venues and spot markets (CLARITY Act text on Congress.gov). While stablecoins can have their own statutory lane, market-structure rules still matter because the largest stablecoin distribution channels often overlap with exchanges, brokers, and custody providers. In other words, stablecoin regulation is increasingly inseparable from broader crypto market structure policy: who can list what, under which oversight model, with what disclosure and conduct obligations.

Treasury yield curve (why it’s a reference point)

The U.S. Treasury yield curve shows market yields across different maturities for U.S. government debt, often treated as a baseline for “risk-free” rates in dollars (with important caveats). When stablecoin rewards are marketed near short-dated Treasury yields, it naturally invites comparison: “If the government rate is X, why is my deposit rate Y?” That comparison is a major accelerant for consumer adoption and political scrutiny (U.S. Treasury yield curve data).

SOFR (why it matters to bank funding and “real” cash rates)

SOFR is a transaction-based benchmark reflecting the cost of overnight borrowing collateralized by Treasury securities. It’s widely used in financial markets and is relevant to how short-term funding costs behave. If deposit outflows push banks to rely more on wholesale funding, the marginal cost of funds can become more directly linked to benchmarks like SOFR—making the competitive pressure from stablecoin rewards more acute (New York Fed SOFR; see also SOFR averages and index).

Deposit flight (why rewards change behavior)

“Deposit flight” refers to deposits leaving the banking system (or moving from one bank to another). Historically, deposit competition was constrained by switching friction and product bundling. Stablecoins reduce friction: balances can move quickly, and distribution is increasingly embedded in apps people already use. Add rewards and the default cash parking place can change.

Issuer risk vs. platform risk (why stablecoins are not “just dollars”)

Even if a stablecoin issuer is highly regulated and reserves are conservative, users may still carry platform risk if the stablecoin is held through an intermediary (exchange, wallet provider, broker) that controls access, imposes terms, or faces operational stress. Conversely, self-custody can reduce platform exposure but introduces key management and operational security risks. Stablecoin regulation can mitigate some risks, but it cannot eliminate all of them—especially at the distribution layer.

With those concepts in place, the stablecoin regulation question becomes more concrete: What should be permitted, restricted, disclosed, or supervised when stablecoins are marketed as “cash-like” and bundled with yield-like rewards? Policymakers tend to converge on a few principles:

1. Reserve quality and transparency should be high, with clear redemption rights and credible oversight for payment stablecoins (the thrust of laws like GENIUS).

2. Consumer understanding should be improved, particularly around what is and isn’t insured and what risks exist at the issuer and distributor levels (FDIC).

3. Distribution practices (marketing, rewards framing, eligibility, subscription gating, and disclosures) may need guardrails if rewards create bank-like expectations without bank-like protections.

This is where many fintech teams are likely to feel the policy impact first: not necessarily in the stablecoin’s on-chain mechanics, but in the product design of rewards. Coinbase’s approach, for instance, frames USDC rewards in program terms—accrual mechanics, eligibility, and region-by-region differences—rather than presenting it as a bank deposit rate (Coinbase USDC rewards FAQ). Binance’s “Simple Earn” positioning highlights flexible/locked structures and provides product explanations relevant to how returns may be generated and what conditions may apply (Binance Simple Earn FAQ). These details matter because regulators often scrutinize whether something is being sold as “risk-free interest” versus a programmatic incentive with conditions and risks.

From a strategic perspective, banks and incumbents aren’t worried about a single promotional rate. They’re worried about a world where stablecoin rewards normalize an expectation that cash balances should earn something close to policy rates—and that the “default cash account” might be a fintech wallet rather than a bank deposit. If that happens, banks must respond either by raising deposit rates (compressing margins) or by accepting outflows and funding themselves more in wholesale markets (increasing sensitivity to benchmarks like SOFR). Neither path is attractive at scale. This is why the political energy around stablecoin regulation is increasingly directed at the distribution channel and the language used to describe rewards.

Meanwhile, market structure policy like the CLARITY Act matters because it shapes the compliance perimeter for platforms that list stablecoins, custody them, or integrate them into trading and payment rails. Even if stablecoins are addressed under a stablecoin-specific regime, the venues and intermediaries that handle stablecoins still operate within broader rules about registration, conduct, and oversight (CLARITY Act text). For fintech builders, the takeaway is that “stablecoin regulation” is not only about reserves—it’s also about how stablecoins are offered, packaged, and distributed.

What stablecoin regulation may mean for product teams

If you operate a wallet, exchange, neo-bank, payment processor, or fintech platform that touches stablecoins, expect regulatory pressure in three areas:

• Rewards design: You may need clearer separation between interest-like “hold-to-earn” mechanics and incentives tied to usage, payments volume, or specific activities.

• Disclosures and user expectations: Plain-language explanation of insurance status, custody model, and redemption rights will matter more, not less.

• Operational resilience and compliance: As stablecoins become embedded in payments and savings behaviors, regulators will likely treat outages, redemption friction, and custody controls as systemic consumer protection issues rather than “crypto UX problems.”

What stablecoin regulation may mean for DeFi-adjacent builders

Even without overtly targeting DeFi, stablecoin rules can shape DeFi’s accessible liquidity and on/off-ramps. If distributors face tighter rules around rewards, flows could shift from centralized “rewards” programs toward on-chain money markets—or the opposite—depending on how definitions are drafted. The more stablecoins look like regulated digital cash at the issuer level, the more scrutiny tends to land on what happens after issuance, especially when stablecoins are wrapped in yield narratives.

Closing perspective

Stablecoin regulation is entering a pragmatic phase: lawmakers and agencies are no longer debating whether stablecoins exist, but what stablecoins are allowed to become—cash-like payment instruments, deposit competitors, or something in between. Benchmarks like the U.S. Treasury yield curve and SOFR make it easier for consumers to compare “real” cash rates to what banks offer, and stablecoin rewards bring that comparison into everyday product experiences. Legislation like the GENIUS Act focuses attention on issuer safety and standards, while market-structure proposals like the CLARITY Act underscore that distribution, venues, and intermediaries are inseparable from the stablecoin story.

For fintech and DeFi-adjacent audiences, the practical message is simple: stablecoins are becoming a regulated financial substrate, and the competitive frontier is shifting to how stablecoin features are packaged—especially rewards. The teams that win will be the ones that treat compliance, disclosures, and product mechanics as core design constraints rather than afterthoughts.