The Digital Chamber, a leading cryptocurrency association, has urged the U.S. Congress to preserve the ability to earn returns on payment stablecoins.
In its latest proposal, the group stated that the current legislation in the CLARITY Act risks banning the fundamental functions of DeFi.
Digital Chamber urges Congress to preserve returns on stablecoins
The group urged lawmakers to maintain the exceptions in section 404 of the proposed CLARITY Act.
These parts differentiate between traditional 'interest,' which banks pay on insured deposits, and other forms of interest. They clearly separate this income from 'rewards' that come from liquidity activities (LP) on decentralized exchanges.
Chamber warned that if these exceptions were removed, it would not only hinder domestic innovation but also 'weaken the dominance of the USD.'
The group argues that if US-regulated stablecoins are legally prohibited from participating in DeFi markets, global assets will go to foreign digital assets or unregulated offshore actors.
They therefore say that this would decrease the demand for the US dollar in the digital economy.
Furthermore, the association pointed out that a total ban on yields would force users to hold assets only passively.
According to the group, this could increase the economic risk of 'impermanent loss.' This is a risk that arises due to value changes in liquidity pools.
Digital Chamber offers regulatory relief
The bank lobby says that allowing stablecoins to offer yields without adhering to banks' capital requirements creates dangerous opportunities for arbitrage.
They argue that this regulatory gap could destabilize the entire financial system. They also say that high-yield stablecoins would draw liquidity away from local banks.
Chamber instead proposed clear consumer disclosures. These should show that stablecoin yields cannot be compared to bank interest and are not FDIC-insured.
They also proposed that authorities should conduct a national 'deposit impact' study two years after the law comes into effect.
The group says that this data will show that stablecoins complement rather than disrupt the banking system.
The recommendations come as negotiations on a comprehensive market structure bill (CLARITY Act) reach a critical stage.
An important meeting at the White House this week between bank representatives and cryptocurrency companies apparently ended without results.
Wall Street's lobbyists continue to oppose all proposals that would allow anyone other than banks to issue stablecoins with yields to customers. They see these products as a direct threat to current depositor models.