DCW Research

Stablecoin Regulation: White House Mediation Between Traditional Banking and Digital Assets

An Update of the CLARITY Act Negotiations

INTRODUCTION

The United States is at a critical juncture in establishing comprehensive regulatory frameworks for digital assets. As of February 2026, the White House is actively mediating negotiations between traditional financial institutions and cryptocurrency firms to resolve fundamental disagreements over stablecoin regulation. These discussions centre on a single but consequential issue: whether digital asset platforms should be permitted to offer interest-bearing stablecoins.

The outcome of these negotiations will directly impact the legislative trajectory of the CLARITY Act of 2025, a bipartisan bill designed to establish clear regulatory standards for the digital asset industry. While the legislation successfully advanced through key House procedures, it remains stalled in the Senate Banking Committee due to unresolved concerns from traditional banking institutions.

This document provides an educational overview of the regulatory challenges, stakeholder positions, and potential implications of the ongoing stablecoin yield debate. Understanding these dynamics is essential for financial professionals, policymakers, and industry participants navigating the evolving intersection of traditional finance and digital assets.

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1. INTRODUCTION: THE STABLECOIN REGULATORY CHALLENGE

Stablecoins are digital assets designed to maintain a stable value relative to a reference asset, typically the U.S. dollar. Unlike volatile cryptocurrencies such as Bitcoin or Ethereum, stablecoins serve as a bridge between traditional fiat currencies and the digital asset ecosystem, facilitating transactions, settlements, and value storage within blockchain networks.

The regulatory treatment of stablecoins has become increasingly urgent as their market capitalisation and systemic importance have grown. The central policy question under debate is whether stablecoin issuers should be permitted to offer yield or interest on stablecoin holdings—a practice that could transform these instruments from simple payment mechanisms into investment vehicles that compete directly with traditional bank deposits.

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2. BACKGROUND: THE CLARITY ACT AND LEGISLATIVE CONTEXT

2.1 Legislative Overview

The CLARITY Act of 2025 represents a comprehensive legislative effort to establish federal regulatory standards for the digital asset industry. The bipartisan bill aims to provide legal certainty for cryptocurrency firms while addressing regulatory concerns related to consumer protection, market integrity, and financial stability.

Despite successfully advancing through key procedural stages in the House of Representatives, the legislation has encountered significant resistance in the Senate. The primary obstacle is the unresolved dispute over stablecoin yields, which has prevented the bill from advancing through the Senate Banking Committee.

2.2 The White House Role

The White House has assumed a mediating role in negotiations, convening stakeholders from both traditional banking and digital asset sectors. This intervention reflects the administration’s recognition that stablecoin regulation represents a critical test case for broader digital asset market oversight. Presidential advisors have identified resolution of the stablecoin yield issue as a top priority for advancing comprehensive cryptocurrency legislation.

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3. STAKEHOLDER POSITIONS AND CONCERNS

3.1 Traditional Banking Sector Concerns

Traditional financial institutions, represented by major banks including JPMorgan Chase, Bank of America, and Wells Fargo, have articulated several fundamental concerns regarding interest-bearing stablecoins:

Deposit Migration Risk: Banking institutions warn that yield-bearing stablecoins could trigger substantial outflows from traditional deposit accounts. If stablecoin issuers offer competitive interest rates without the same regulatory overhead as banks, depositors may shift funds from FDIC-insured accounts to digital alternatives.

Regulatory Arbitrage: Banks argue that allowing interest on stablecoins creates an uneven competitive landscape. Traditional banks face extensive capital requirements, reserve mandates, and regulatory supervision under federal banking laws. If stablecoin issuers can offer similar products without equivalent regulatory burdens, it represents regulatory arbitrage that undermines the integrity of the financial system.

Systemic Stability: The banking sector contends that large-scale migration from traditional deposits to stablecoins could reduce the stability of the conventional banking system, particularly affecting community banks that rely heavily on deposit funding for lending activities.

3.2 Digital Asset Sector Position

Cryptocurrency firms, including major players such as Coinbase, Ripple, and Circle, advocate for regulatory frameworks that would permit interest-bearing stablecoin products:

Market Innovation: Digital asset firms argue that prohibiting yields on stablecoins would artificially constrain market innovation and prevent the natural evolution of digital financial products. They contend that stablecoins represent a technological advancement that should not be unnecessarily restricted to protect incumbent business models.

Consumer Benefit: Cryptocurrency advocates emphasize that yield-bearing stablecoins could offer consumers better returns than traditional savings accounts, particularly in an era when many banks offer minimal interest rates on deposits.

Regulatory Clarity: The sector seeks clear, comprehensive rules that would allow legitimate business operations while establishing appropriate guardrails for consumer protection and systemic risk management.

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4. PROPOSED COMPROMISE FRAMEWORKS

Negotiations have explored several potential compromise approaches designed to address concerns from both traditional banking and digital asset sectors:

4.1 Community Banking Partnership Model

Recent proposals from cryptocurrency firms have suggested providing community banks with a more substantial role in the stablecoin ecosystem. This framework would potentially include:

Reserve Custody: Community banks would serve as custodians for stablecoin reserve assets, creating a direct operational and economic relationship between traditional banking institutions and digital asset issuers.

Joint Ventures: The establishment of collaborative arrangements where banks and cryptocurrency firms could jointly issue bank-backed digital currencies, effectively creating hybrid products that bridge traditional and digital finance.

4.2 Enhanced Regulatory Standards

Discussions have focused on establishing regulatory requirements that would address banking sector concerns while permitting yield-bearing products:

Liquidity Requirements: Mandating that stablecoin issuers maintain high-quality liquid assets in reserve to support redemptions and prevent runs on digital assets.

Reserve Standards: Establishing clear requirements for the composition and management of reserve assets backing stablecoins, potentially modelled on money market fund regulations or bank reserve requirements.

Jurisdictional Authority: Clarifying which federal regulator would oversee stablecoin issuers and defining the scope of regulatory authority over these entities.

Consumer Protection Mechanisms: Implementing disclosure requirements, operational standards, and safeguards to protect stablecoin holders.

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5. TIMELINE: KEY EVENTS AND MILESTONES

Date/Period

Event/Development

2024 -Market volatility in Bitcoin and Ethereum heightens regulatory urgency for stablecoin frameworks

Early 2025 - Introduction and drafting of the CLARITY Act of 2025, bipartisan cryptocurrency legislation

Mid-2025 - CLARITY Act advances through House procedural stages with bipartisan support

Late 2025 - Banking sector opposition intensifies over stablecoin yield provisions; Senate progress stalls

January 2026 - White House convenes first closed-door mediation session between banking and crypto representatives; no agreement reached

Late January 2026 - Cryptocurrency firms propose a community banking partnership model, including reserve custody and joint venture frameworks

February 2026 - White House schedules second mediation session with a narrower participant group focused on technical compromise elements

Late February 2026 - Target deadline for compromise proposal to enable Senate Banking Committee advancement

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6. REGULATORY AND MARKET IMPLICATIONS

6.1 Systemic Risk Considerations

The stablecoin yield debate extends beyond competitive concerns to fundamental questions of systemic risk management. Regulators must balance innovation with stability, particularly given recent volatility in cryptocurrency markets. Large-scale deposit migration from traditional banks to stablecoin platforms could affect the banking system's liquidity and lending capacity.

Additionally, the regulatory framework must address how it addresses market stress. If stablecoin holders seek to redeem en masse, particularly during broader financial turbulence, inadequate reserve standards or liquidity requirements could create cascading failures.

6.2 International Competitive Dynamics

The United States is not alone in grappling with stablecoin regulation. Multiple jurisdictions are developing frameworks, and the U.S. approach will have significant implications for international competitiveness. An overly restrictive regime could drive innovation and market activity to more permissive jurisdictions, while an insufficiently robust framework could expose the U.S. financial system to risks originating abroad.

6.3 Precedent for Digital Asset Regulation

The resolution of the stablecoin yield issue will establish important precedents for broader digital asset regulation. The negotiation process itself demonstrates emerging patterns for how traditional finance and digital asset sectors might interact within regulatory frameworks. The specific compromise reached will signal regulatory philosophy toward financial innovation more broadly.

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7. CONCLUSION

The ongoing negotiations over stablecoin regulation represent a defining moment in the evolution of digital asset oversight in the United States. The White House mediation efforts reflect recognition that regulatory certainty is essential for both market development and systemic stability.

The fundamental tension between traditional banking institutions and cryptocurrency firms is not simply a dispute over competitive advantage. Rather, it reflects different perspectives on how financial innovation should be integrated into existing regulatory structures. Traditional banks emphasise the importance of maintaining stability and preventing regulatory arbitrage, while digital asset firms advocate for frameworks that accommodate technological evolution and market-driven innovation.

Several key observations emerge from the current regulatory landscape:

First, the stablecoin yield issue serves as a microcosm of broader challenges in digital asset regulation. The technical question of whether platforms can offer interest masks deeper questions about the appropriate role of decentralised financial systems, the protection of consumers in digital markets, and the evolution of monetary instruments in an increasingly digital economy.

Second, effective regulation will likely require creative compromise rather than rigid adherence to existing categorical frameworks. The community banking partnership proposals demonstrate how hybrid models might bridge traditional and digital finance without forcing digital assets into categories designed for different instruments.

Third, time pressures and deadline structures can serve as drivers of difficult negotiations. The late February target deadline creates urgency for substantive progress, though it remains unclear whether this timeline will prove sufficient for resolving complex technical and philosophical differences.

Looking forward, the resolution of stablecoin yield regulations will have implications extending far beyond this specific issue. The precedents established through these negotiations will shape regulatory approaches to cryptocurrency lending, decentralised finance protocols, tokenised securities, and other emerging digital financial instruments.

For financial services professionals, understanding these developments is essential for strategic planning and risk management. Traditional institutions must consider how digital asset integration might affect their business models, competitive positioning, and regulatory obligations. Digital asset firms need clarity on permissible activities and applicable regulatory standards to build sustainable businesses.

The coming weeks will test whether stakeholders can find common ground on stablecoin yields and, by extension, establish a functional framework for coexistence between traditional and digital finance. Success would provide a blueprint for managing financial innovation while maintaining systemic stability. Failure would likely prolong regulatory uncertainty, potentially driving activity to less transparent venues or offshore jurisdictions.

Ultimately, stablecoin regulation represents an opportunity to demonstrate that regulatory systems can adapt to technological change without abandoning core principles of financial stability, consumer protection, and market integrity. The path forward requires balancing legitimate innovation with prudent risk management—a challenging task but essential for maintaining the United States’ leadership in global financial markets.

⚠️ Disclaimer

This briefing is provided for informational purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. The Digital Commonwealth Limited does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial adviser before making any investment decisions. Past performance is not indicative of future results.

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EAJW © 2026 The Digital Commonwealth Limited. All rights reserved.

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