Senate Democrats convened behind closed doors on February 26, 2026, to discuss crypto market structure legislation as the White House's self-imposed March 1 deadline on stablecoin yield negotiations ticks down to its final 72 hours. The meeting, reported by Eleanor Terrett, comes after months of failed negotiations between banks and crypto firms over a single question: should platforms be allowed to pay rewards on stablecoin balances, or does that privilege belong exclusively to traditional banks?
The outcome will shape how more than $6 trillion in projected stablecoin supply flows through the financial system, and whether exchanges like Coinbase can continue offering the 4.1% USDC rewards that generate hundreds of millions in quarterly revenue.
The Yield Loophole That Split Washington
The GENIUS Act, signed into law in July 2025, explicitly prohibits stablecoin issuers from paying "interest or yield" to holders. The intent was clear: stablecoins should function as payment instruments, not savings products. But the law left a gap wide enough for an entire industry to walk through.
Exchanges, wallets, and payment apps are not issuers. When Coinbase offers 4.1% on USDC balances, the rewards flow from Coinbase's revenue-sharing agreement with Circle, not from Circle itself. PayPal runs a similar structure with PYUSD. The platforms argue, with some legal basis, that Congress deliberately drew the prohibition at the issuer level and left intermediary-funded rewards untouched.
Banks see it differently. The American Bankers Association, joined by 52 state banking associations, sent a letter to Congress in January requesting that the yield ban extend to "all affiliated entities and partners." Their argument: exchange-based reward programs exploit an issuer-versus-intermediary distinction that violates the spirit of the GENIUS Act.
The CLARITY Act (H.R. 3633), which passed the House 294 to 134 in July 2025 and assigns CFTC authority over digital commodities, is the legislative vehicle where this fight gets resolved. Senate Banking Committee Republicans released draft language, but the markup has been postponed repeatedly since January as the yield question remains unresolved.
$187 Billion in Swipe Fees vs. $6 Billion in Crypto Rewards
The banking lobby's urgency makes more sense when you follow the money. U.S. banks collect approximately $187 billion annually in card interchange fees across $11.9 trillion in purchase volume, roughly $1,400 per American household. On top of that, banks earn $176.8 billion annually on $2.9 trillion in Federal Reserve reserve balances, money that sits idle from the depositor's perspective.
Stablecoin rewards threaten both revenue streams. At current supply levels (around $309 billion as of February 2026), annual platform-funded rewards at 1.5% to 2.5% would total $4.6 to $7.7 billion. Projected supply of $420 billion by year-end pushes that range to $6.3 to $10.5 billion. By the time stablecoin supply reaches $1 trillion, a figure multiple analysts forecast within three years, annual user rewards could hit $15 to $25 billion.
Banks argue this deposit migration would raise funding costs and constrain lending. Crypto firms counter with data: research commissioned by Coinbase found no statistically significant relationship between USDC growth and community bank deposit losses. Stablecoin yields of 1% to 3% remain competitive with high-yield savings accounts but fall well short of the threshold needed to trigger mass deposit flight.
Three White House Meetings, No Deal
The White House has hosted at least three mediation sessions between banking and crypto representatives since early February. Participants on both sides described the most recent meeting as "productive", but no compromise was reached.
The sticking points are structural, not cosmetic. Three distinct reward types are at stake:
- Issuer-paid yield (already blocked by GENIUS Act)
- Platform-funded loyalty programs (exchanges using their own revenue)
- Pass-through reserve yield via affiliate structures
Banks want all three restricted. Crypto firms want only the first one restricted. The gap between those positions is enormous, and three meetings have not narrowed it meaningfully.
Banks did introduce written "prohibition principles" in the latest session and signaled limited flexibility by acknowledging potential exemptions for transaction-based stablecoin rewards, essentially allowing cashback-style incentives while blocking passive yield. Whether that concession is enough to satisfy the crypto industry remains unclear.
Senate Democratic negotiators have added their own demands: conflict-of-interest rules barring senior government officials and their families from deep crypto involvement, enhanced anti-money-laundering protections, and full CFTC commissioner staffing (including Democratic appointees) before the agency begins crypto oversight.
Coinbase's $355 Million Problem
No company has more riding on this vote than Coinbase. The exchange reported $355 million in stablecoin revenue in Q3 2025, driven by approximately $15 billion in average USDC balances on its platform. Bloomberg Intelligence estimated in a February 23 report that Coinbase's stablecoin revenue could surge sevenfold under a favorable CLARITY Act outcome.
The inverse scenario is equally dramatic. If the Senate extends the yield ban to intermediaries, Coinbase loses its primary growth engine in stablecoin distribution. Bloomberg reported that the company "may reconsider its support" for the CLARITY Act entirely if the bill imposes substantive restrictions rather than disclosure-only requirements.
That threat carries weight. Coinbase custodies 80% of U.S. crypto ETF assets and operates the infrastructure that much of institutional crypto runs on. An adversarial Coinbase could slow the CLARITY Act's path through the Senate considerably.
What the Next 72 Hours Decide
The March 1 deadline is not a legal cliff. No provision expires, and no automatic trigger fires. But the White House set it as the cutoff for delivering compromise language to keep the Senate Banking Committee markup on track. If negotiators miss it, the CLARITY Act loses momentum at a critical window, and market structure legislation risks sliding into the same limbo that consumed prior Congressional crypto efforts.
Prediction market odds for the CLARITY Act's passage have swung wildly, spiking to 72% after the second White House meeting before falling to 48% after the third ended without a deal.
For stablecoin users, the practical stakes are straightforward. A broad yield ban would eliminate the 1% to 4% passive returns currently available on platforms like Coinbase, PayPal, and several crypto card providers that fund top-ups from stablecoin balances. Users would still be able to hold stablecoins, but the financial incentive to do so on centralized platforms would evaporate.
Crypto lawyer John Deaton framed the geopolitical dimension: a U.S. reward ban would be "a national security trap" given China's interest-paying digital yuan strategy. Whether that argument moves Senate Democrats remains to be seen. The clock runs out on Saturday.
FAQ
What is the March 1 stablecoin deadline? The White House set March 1, 2026, as the target date for banks and crypto firms to reach a compromise on stablecoin yield provisions in the CLARITY Act. Missing it could delay the Senate Banking Committee markup indefinitely.
Does the GENIUS Act already ban stablecoin yield? The GENIUS Act bans stablecoin issuers (like Circle or Tether) from paying yield directly to holders. It does not explicitly ban exchanges or wallets from offering rewards funded by their own revenue or affiliate agreements, which is the loophole at the center of the current debate.
How much do stablecoin rewards cost the banking system? Banks argue that stablecoin rewards drain deposits used for lending. At projected $420 billion stablecoin supply, annual platform rewards could total $6.3 to $10.5 billion. Crypto firms counter that no statistically significant deposit migration has been observed.
What happens to Coinbase if the yield ban expands? Coinbase reported $355 million in stablecoin revenue in Q3 2025. A broad yield ban would eliminate this revenue stream and potentially reduce Coinbase's incentive to support the CLARITY Act, which could slow the bill's Senate passage.
Overview
Senate Democrats met on February 26 to discuss crypto market structure three days before the White House's March 1 deadline on stablecoin yield negotiations. The CLARITY Act (H.R. 3633), which passed the House 294 to 134, is stalled in the Senate over whether exchanges and wallets should be allowed to pay rewards on stablecoin balances. Banks want the GENIUS Act's issuer-level yield ban extended to all intermediaries, citing $187 billion in annual interchange fees at risk. Crypto firms argue platform-funded rewards are legal and generate $4.6 to $7.7 billion in annual user incentives at current supply levels. Three White House mediation sessions have failed to produce a deal. Coinbase, which reported $355 million in Q3 stablecoin revenue, has signaled it may withdraw support for the bill if substantive yield restrictions are imposed. The next 72 hours will determine whether the CLARITY Act stays on track or loses its legislative window.
Recommended Reading
- Coinbase Stablecoin Revenue Could Surge Sevenfold Under the GENIUS Act, but the Yield Ban May Kill the Growth Engine
- The OCC Just Fired the Starting Gun on GENIUS Act Rulemaking, and National Banks Now Have a Path to Issue Stablecoins
- Circle Posts $770 Million in Q4 Revenue and 77 Percent Growth, but the $448 Million It Pays Coinbase to Distribute USDC Is the Number Wall Street Cannot Ignore
