Invest1 publisher3 min readPublished
Two words in CLARITY's section 10404 will decide what counts as a permissible stablecoin reward
The stablecoin rewards clause turns on whether a payment must be economically equivalent to deposit interest or only substantially similar to it, and an American Banker op-ed argues the swap would sink the bill.
The Investor · Invest desk
What happened
- Section 10404 of the CLARITY Act separates passive, deposit-like yield, which is strictly prohibited, from activity-based incentives tied to transactions, product use or merchant discounts, which are permitted.
- GENIUS barred stablecoin issuers from paying interest or yield to holders, and CLARITY extends that prohibition to virtually all digital asset businesses rather than issuers alone.
- Late proposals would strike the word "solely" and replace "economically or functionally equivalent" with "substantially similar", according to an American Banker opinion piece opposing the change.
- As drafted, the ban covers every digital asset service provider and its affiliates, reaches direct and indirect payments, and authorises strict anti-evasion rules.
- The op-ed's contention is that the rewards section is a hard-won bipartisan compromise and that rewording it would endanger the bill's passage, not merely adjust its wording.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- decision Anyone weighing a rewards build now chooses between funding it against a clause its lawyers can read and holding the budget until someone else litigates the meaning of "substantially similar".
- exposure A resemblance standard moves the compliance question off the drafting page and onto an examination record, so the firm that ships first carries a liability it cannot size in advance.
- precedent If the bright line holds, card-style cash back becomes the reference design for dollar-token incentives, with balance-linked measurement surviving only as a metric inside an activity test.
An equivalence test asks whether a payment does the economic work of deposit interest; a resemblance test asks whether it looks like it, and the gap between those two verbs is the whole fight. The op-ed's author insists that a flat monthly payment rising with an idle balance already fails section 10404 whatever it is called, because the clause does not turn on labels [7], and that the permission to measure a reward by reference to a balance or a duration bites only on rewards that have already cleared the equivalence hurdle [8]. Under "substantially similar", resemblance gets decided later, by an examiner or a court, on a record assembled by whoever objects first [4].
That difference has a number attached: penalties run to $5 million per violation [5]. Under a bright line, a compliance officer approves a merchant discount by reading the clause. Under a resemblance standard the same program carries a tail nobody can size, and the rational response is to ship the unambiguous part and drop any measurement that references a balance at all, which is precisely the feature the compromise was drafted to protect [8].
The migration case is where the evidence thins in both directions. The FDIC's 2026 Risk Report, as cited in the piece, has bank deposits up about 3.9% in 2025 with community banks nearer 5% [6], so the smaller institutions grew roughly 1.1 points faster, about 1.28 times the aggregate rate [11], in a year when activity-based rewards were already permitted [9]. Aggregate deposit growth is a poor instrument for substitution: it cannot say what deposits would have done without rewards, and the piece supplies no stablecoin balance to scale against the deposit base, nor a name for whoever is pushing the rewording [12]. (It also reaches for a national-interest argument, since GENIUS has issuers backing coins with short-dated Treasuries [10], which is a claim about demand for government paper rather than about rewards.)
Branches worth pricing separately. The compromise survives, the activity test does the work its drafters claim, and merchant discounts get budgeted as marketing spend. The rewording lands, in which case the bite falls not on issuers, already barred from paying yield under GENIUS, but on the wallets, exchanges and affiliates that CLARITY newly sweeps into the same prohibition [2]. Or the bill stalls, the GENIUS baseline stands, and the extension to non-issuers simply never happens, which is a quieter failure than the op-ed's framing implies [1].
The asymmetry is the part I would defend on one advocate's evidence: an elastic standard costs issuers little, since they are prohibited outright either way [2], and costs everyone downstream of them a product line. What would break that read is data the op-ed does not have. Show community bank deposits decelerating while rewards programs scale, and the deposit-flight rationale acquires the evidence it currently lacks.
What to watch
- Whether the enacted text keeps "economically or functionally equivalent" or ships the elastic wording.
- Whether any named member of Congress or trade group claims authorship of the eleventh-hour amendment.
- Whether the next FDIC deposit series breaks out community bank flows finely enough to test the migration claim at all.