Stablecoin Yield Ban Proposed to Limit Interest on Held Coins

Regulators in the U.S. are considering a ban on passive yields for stablecoin holders as part of a broader legislative effort to reshape the crypto market. The proposed bill, drafted by the Senate Banking Committee, would prohibit crypto platforms from paying interest solely for holding stablecoin balances. Instead, rewards would be allowed only when tied to active usage such as transactions, staking, or liquidity provision. The restriction is part of a 278-page market structure bill aimed at balancing innovation and oversight in the digital asset space.

The move has sparked debate within the

crypto industry, with DeFi platforms and stablecoin issuers expressing concern over the potential impact on liquidity and user engagement. Companies like BenPay DeFi Earn, which recently expanded its yield opportunities by introducing four new investment targets, rely heavily on stablecoin liquidity to facilitate on-chain transactions. If passive yields are curtailed, it could affect the appeal of such platforms for retail investors.

In contrast, banks have lobbied for the restrictions, arguing that offering interest on stablecoin balances could undermine traditional banking models. They contend that such practices may draw deposits away from financial institutions and create regulatory arbitrage. The new bill seeks to address these concerns by ensuring that crypto firms do not compete directly with banks in offering yield-based services.

Why Did This Happen?

The proposed restrictions are rooted in a broader regulatory shift that began with the enactment of the Genius Act in 2025. This legislation, backed by pro-crypto policies under President Donald Trump, created a clearer legal framework for stablecoins. As a result, stablecoin transaction volumes surged to $33 trillion in 2025, with USDC and USDT leading the charge.

However, as the market matured, regulators became increasingly concerned about the implications of passive stablecoin yields. These yields, often offered through DeFi platforms, are seen as potentially destabilizing by some policymakers. The Senate bill aims to clarify the regulatory boundaries while still allowing for innovation in the space.

How Did Markets React?

The announcement of the bill sparked mixed reactions from market participants. On one hand, institutional investors welcomed the clarity it offers, as it aligns with traditional financial principles. On the other, DeFi platforms and crypto-native lenders expressed concern that the restrictions could stifle innovation and reduce liquidity in the ecosystem according to reports.

World Liberty Financial, a Trump-backed crypto project, recently launched a lending platform called World Liberty Markets to tap into the growing DeFi credit market. Its USD1 stablecoin now ranks among the largest dollar-backed tokens in circulation, with a market cap just shy of $3.5 billion as detailed in reports. The company's expansion into crypto lending highlights the potential impact of the proposed restrictions on emerging crypto-native credit models.

What Are Analysts Watching Next?

Analysts are closely monitoring how the bill will be received by both the market and regulators. The Senate Banking Committee plans to hold a markup meeting for the bill within the next 48 hours, where final amendments could be proposed.

Some experts believe the bill could reshape the competitive landscape in favor of traditional banks, while others argue it could limit the growth potential of DeFi platforms. The final form of the legislation will likely depend on the outcome of these negotiations and the broader political climate.

As the debate unfolds, investors are advised to remain cautious. While the restrictions may provide greater clarity, they could also reduce the earning potential for stablecoin holders. In the meantime, platforms like BenPay DeFi Earn are adapting by introducing new yield strategies to offset potential changes in the regulatory environment.