Stablecoins stall on yield amid CLARITY Act 404 talks

• Lyla Velez
• February 16, 2026
• News
• 0 Comments

Key Points:

• White House mediates renewed talks between banks and crypto over stablecoin yields.
• GENIUS Act 2025 bans issuer interest, allows third-party rewards on balances.
• CLARITY Section 404 would ban issuer and third-party rewards for holding.

As of mid–February 2026, the White House is mediating another round of talks between banks and crypto firms after negotiations over stablecoin yield stalled; a joint formulation is due by the end of February, according to Crypto-Economy. The fight has become a proxy battle over who may pay Americans for holding digital dollars, banks or stablecoin platforms, per CryptoSlate.

Under the GENIUS Act 2025, stablecoin issuers are barred from paying interest directly, but third-party “rewards” tied to balances have remained possible. CLARITY Act Section 404 would tighten this by prohibiting issuers and third parties from paying interest or rewards solely for holding payment stablecoins, as reported by Cryptovalley Journal.

CLARITY Act Section 404: stablecoin yield ban scope explained

Section 404 targets interest or rewards paid to retail holders solely for maintaining a payment stablecoin balance, extending restrictions to exchanges, affiliates, and other intermediaries. That framework narrows the GENIUS Act 2025’s allowance for third-party rewards to persist alongside the issuer interest ban, per Cryptovalley Journal.

In regulatory terms, “interest” generally refers to an explicit return on funds, while “rewards” can include promotional credits, cash-equivalent perks, or bonus accruals. The “solely for holding” clause is pivotal: it aims to separate passive balance-based payouts from other programs linked to spending, staking unrelated assets, or bundled services.

The CLARITY Act is broader market-structure legislation that divides digital-asset oversight between the SEC and CFTC, according to DeFiRate. However, the yield provision has emerged as a discrete policy lever with potential knock-on effects for bank funding, crypto platform economics, and consumer product design.

Industry risk assessments warn that an absolute ban could redirect capital into offshore or synthetic dollar instruments that sit outside U.S. oversight. That capital-flight concern has been emphasized by market commentators covered by Cointelegraph, who argue demand for dollar-linked yield may simply migrate rather than disappear.

Stakeholder positions: ICBA and banks versus Coinbase and crypto

Banking trade groups, including the American Bankers Association, Bank Policy Institute, Independent Community Bankers of America, and the Financial Services Forum, have advocated a complete prohibition on stablecoin yield and rewards across all entities to protect deposits and local lending, as reported by Nasdaq. Their position seeks a level line: no interest, yield, or rewards paid by issuers or intermediaries merely for holding payment stablecoins.

Crypto firms have pushed back, warning that a total ban could entrench incumbents and disadvantage compliant U.S. platforms while pushing users to offshore venues. Coinbase’s leadership has been especially critical of an expansive prohibition that sweeps in third-party programs.

“We’d rather have no bill than a bad bill … it just felt deeply unfair … that banks could … ban their competition,” said Brian Armstrong, CEO of Coinbase, as reported by The Block. The standoff has become a central hurdle for advancing the bill, with some policy analysts describing the yield language as a potential deal‑breaker for passage, according to AMBCrypto.

At the time of this writing, Coinbase Global (COIN) was quoted at 166.00 after hours on a delayed basis, providing neutral context on market sentiment during the policy debate, based on data from Yahoo Finance.