A legislative battle over the future of digital finance is intensifying this week as the Senate Banking Committee reviews the Digital Asset Market Clarity Act (DAMCA), a bill that could fundamentally alter the economics of stablecoins in the United States.
This bill builds upon the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (GENIUS Act), signed last year, and aims to close loopholes that allowed crypto platforms to offer rewards. With a markup session scheduled for January 15, the pressure is mounting on lawmakers to decide if digital dollars should behave like bank accounts or remain strictly payment tools.
Where Does the DAMCA Stand on Stablecoins?
The current draft of the DAMCA takes a restrictive approach to yield generation. Section 404 explicitly prohibits digital asset service providers from paying interest solely for holding a payment stablecoin. This provision targets platforms that offer annual percentage yields (APY) of 3% to 4% on assets like USDT, a practice regulators have long scrutinized.
DAMCA does, however, provide an exemption for “activity-based rewards,” permitting firms to distribute incentives that are linked to specific user behaviors like staking or executing transactions. The distinction has emerged as a primary flashpoint in negotiations. Lobbyists are currently debating the specific definitions of “activity,” with regulators seeking to ensure that these rewards do not function as disguised interest payments.
Why Are Banks Wary of Stablecoin Yields?
Traditional financial institutions view yield-bearing stablecoins as a systemic threat that mimics banking without the requisite oversight. Jeremy Barnum, Chief Financial Officer at JPMorgan Chase, argued that these platforms offer the economic benefits of deposits without the safety regulations that have long governed the sector. He said, “The creation of a parallel banking system… including something that looks a lot like a deposit that pays interest, without the associated prudential safeguards… is an obviously dangerous and undesirable thing.”
The American Bankers Association (ABA) has echoed these concerns, warning that unrestricted stablecoin yields could precipitate a massive capital migration. Highlighting the potential scale of the disruption, the group said, “Without this prohibition, Treasury has estimated that $6.6 trillion in bank deposits are at risk.” This potential flight of capital threatens the core liquidity banks rely on to fund loans for businesses and homeowners.
How the Crypto Industry Is Fighting Back
Crypto stakeholders argue that these restrictions protect incumbents at the expense of user benefits. A coalition of over 125 firms, including Coinbase and a16z, signed a letter in December 2025 pushing back against expanded bans. They assert that activity-based rewards were intentionally allowed to encourage growth and that broad prohibitions would limit competition in payments.
Influential voices in the sector believe that smart contracts will eventually enable easy shifts between payment and yield-bearing stablecoins, rendering bans ineffective in the long term. They maintain that the banking sector is trying to legislate away competition rather than improving its own services.
What Comes Next for the CLARITY Act?
The Senate Banking Committee faces a busy week with over 130 amendments proposed for the markup session. Lawmakers must reconcile the Senate draft with the House version before sending a final bill to President Trump. While banks may secure a victory on yield bans, the crypto industry continues to push for the activity-based exceptions.
While both sides acknowledge stablecoins have staying power, Washington lobbyists are currently battling over yield ownership and the ultimate division of profits between consumers and financial institutions.
