‘You Could Drive A Truck Through It’: Analyst Warns CLARITY Act Leaves Big Stablecoin Yield Loophole / THE feature / CUToday.info

By Ray Birch

DOVER, Del.— As the Senate moves closer to approving the CLARITY Act, one provision has emerged as perhaps the most contentious for community financial institutions: whether cryptocurrency platforms will ultimately be allowed to offer stablecoin “rewards” that critics say amount to interest by another name.

While the latest version of the legislation prohibits paying yield simply for holding payment stablecoins, InvestiFi CEO Kian Sarreshteh said the bill’s exception for loyalty and activity-based rewards leaves what he believes is a significant loophole that could allow crypto exchanges to continue attracting deposits away from community banks and credit unions.

“While there is a lot to unpack on recent CLARITY Act language, the most glaring concern for the Community Credit Unions and Banks I work with everyday, is still centered around the yield loophole,” Sarreshteh said. “While on the surface, yield cannot be paid on ‘stablecoin deposits’, you could drive a truck through the loyalty program loophole.”

Sarreshteh argued that the legislation successfully bans passive interest on stablecoin balances but fails to clearly define what qualifies as a permissible loyalty reward. As a result, he said, exchanges could simply require consumers to subscribe to a premium service, maintain an account for a specified period or satisfy another minimal condition before paying what is effectively interest on stablecoin holdings.

“If we’re being honest with ourselves, the user is earning interest on idle stablecoins—that otherwise would be cash sitting at a credit union or bank—in any of these scenarios, which is exactly what the bill claims to prohibit, but it’s wearing a loyalty-program costume,” he said.

Sarreshteh added that community financial institution advocates unsuccessfully sought additional protections during committee consideration, including language that would have closed the loyalty-program exception and a “circuit breaker” that would halt stablecoin interest payments if deposits began rapidly flowing out of traditional financial institutions. Neither proposal made it into the latest draft, he noted. According to Sarreshteh, the issue extends well beyond competition between banks and crypto exchanges because community financial institutions rely on deposits to fund mortgages, auto loans and small-business lending in their local communities.

“If a disguised-yield product quietly pulls those deposits out of a $500-million credit union and onto a crypto platform, that will crush a community,” Sarreshteh contended. “The whole point of the GENIUS Act framework was to keep stablecoins as payment instruments, not deposit substitutes. A loosely worded loyalty carve-out reopens the exact door GENIUS tried to close.”

St. Cloud Financial’s Perspective

Not everyone in the credit union industry views the provision through the same lens. Chase Larson, executive vice president and chief lending officer at the $440-million St. Cloud Financial Credit Union in Sartell, Minn., said the more significant opportunity lies in how digital asset infrastructure could ultimately benefit members if credit unions are permitted to compete.

“The more interesting conversation isn’t whether credit unions should touch these new money networks — it’s what happens to member value when we do,” Larson said. “Lightning and networks like it strip out layers of cost that have sat in the money-movement chain for decades. That shows up as higher yields and lower operating margins passed straight to members. We should be talking about that efficiency gain, not relitigating whether the underlying asset is legitimate or language changed from yield to rewards.”

Larson emphasized that SCFCU doesn’t need to “pivot” when CLARITY passes.

“DaLand CUSO built Coin2Core for this exact moment,” Larson said.

He added that with digital asset firms increasingly pursuing bank charters, “this yield fight becomes a moot point.”

Larson also said the broader CLARITY Act gives credit unions an opportunity to compete in digital assets without abandoning their cooperative model.

“From my point of view this isn’t about whether members want digital assets… it’s about whether they have access via institutions that know them or through a platform that doesn’t,” he said, arguing that the legislation provides “rules of the road” allowing credit unions to serve members using the same principles of safety, transparency and member ownership that have long defined the movement.”