WSJ: Banks Protest High-Yield Token, Cryptocurrency Regulation Battle Rages in Washington

BlockBeats News, January 16th, according to The Wall Street Journal, the crypto industry and the banking sector are engaged in an intense lobbying battle over a digital token that offers annualized returns, a fight that could disrupt legislation aimed at bringing cryptocurrency into the mainstream financial system. The focus of the debate is around what crypto companies refer to as "yield"—regularly distributed annualized returns based on investors' holdings. This mechanism is particularly common in stablecoins.

From the banking perspective, the practice of companies like Coinbase offering around 3.5% yield on stablecoins is essentially akin to high-yield deposits but without having to comply with the strict regulatory requirements banks face when taking public deposits. As a result, banking industry organizations have sent numerous letters to lawmakers warning that such "yield-bearing stablecoins" could have a devastating impact on small and midsize banks in the U.S. In contrast, the current national average interest rate for a standard interest-bearing checking account in the U.S. is still below 0.1%. This debate is one of the reasons that led to the Senate Banking Committee delaying a vote on the cryptocurrency market structure bill scheduled for Thursday.

JPMorgan Chase, Citigroup, and other major banks are both resisting stablecoin yields and developing their own cryptocurrency products and partnership plans. Some banks, including Bank of America, are considering issuing their own stablecoins.

Analysts say that Coinbase withdrawing its support for the bill could seriously jeopardize the bill's prospects, even though other crypto companies continue to express support. This dispute highlights a tense relationship: on one side, there is the rapidly growing new force of the crypto industry in Washington, actively leveraging its growing lobbying influence; on the other side, there is the traditional banking sector that has maintained a close relationship with Congress for decades.

The U.S. Treasury Department estimated last year that stablecoins could draw as much as $6.6 trillion from the U.S. banking system, partly due to the "yield" mechanism offered by stablecoins. In comparison, according to the latest data from the Federal Reserve, as of early January, the total deposits in U.S. commercial banks were around $18.7 trillion. The U.S. government provides insurance for deposits up to $250,000 in a single account, but at the same time, it also imposes strict regulatory oversight on banks' operations and financial soundness.