Inside the meeting: White House favors some stablecoin rewards, tells banks it's time to move

• The White House negotiators at the latest meeting urged bankers to allow for limited stablecoin rewards that won't threaten their deposits business, according to sources familiar with the talks.
• The banking representatives at Thursday meeting were said to actively work on language to that end, though a final draft will still have to be circulated and weighed by the banks.

Limited stablecoin rewards are favored by the White House, and if bankers sign off, they'll be in the next draft of the crypto market structure bill, according to two people familiar with the negotiation.

At a Thursday working session meant to secure common ground on stablecoin rewards between banks and the crypto industry, the White House made it clear that certain rewards programs were going to stay in the next draft of the crypto market structure bill, the people said. Representatives of Wall Street banks that attended the meeting actively worked on that language, and the White House will put together an updated draft to circulate among them, they said.

This section of the U.S. Senate's Digital Asset Market Clarity Act — the crypto industry's top policy aim in Washington — is one of the major fault lines for the legislation that would govern the operations of U.S. crypto markets. As it happens, the stablecoin section (404 of the draft bill) has nothing directly to do with market structure, and the revisions being discussed would actually overhaul an earlier crypto effort that became law last year, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act.

This was the third White House sitdown between bankers and crypto insiders, and after the bankers dug in their heels on allowing stablecoin rewards last time, White House negotiators arrived at the table with a position that some rewards must be allowed for certain activities and transactions, but not for holdings of stablecoins that more closely resemble deposit accounts. The White House team — led by President Donald Trump's crypto adviser, Patrick Witt — urged a quick resolution on this point that allows the legislation to move forward, the people said.

That reflects the fear expressed by bankers: that stablecoin rewards would undermine their bread-and-butter business model that depends on customers making interest-bearing deposits.

Participants at the meeting privately expressed hopes that the compromise they've waited for is potentially very close. Spokespeople for the White House didn't immediately respond to a request for comment.

"Today's meeting at the White House was a constructive step forward in resolving outstanding issues related to rewards and keeping market structure legislation on track," Blockchain Association CEO Summer Mersinger, who has been among those at the table, said in a statement after the gathering.

If the banks decline to shake hands on limited rewards, the status quo is the GENIUS Act, which gives crypto platforms a much freer hand with rewards programs than this proposal would. If they instead give this approach a nod, their agreement would be likely to sway reluctant senators back into support.

However, this is just one of several holes in the Clarity Act that need to be filled with negotiated language. The crypto industry also remains very involved in the requests from Democratic lawmakers that the bill ramp up the protections against bad actors in crypto, especially in the decentralized finance (DeFi) space.

Also, Democratic negotiators have insisted on a couple of other points that may put them at odds with the White House. They've demanded a ban on senior government officials getting directly involved in the crypto industry — a position targeted most directly at President Donald Trump. They've also called for the White House to name a full slate of commissions at the Commodity Futures Trading Commission and the Securities and Exchange Commission, including their Democratic vacancies.

None of the Democrats' major issues have yet been resolved. If the Senate Banking Committee moves forward with a hearing to advance the bill, as the Senate Agriculture Committee did, the outcome may again be partisan if the parties don't find answers to those points. That won't prevent the legislation's advancement through the next step, but it can't win approval from the overall Senate without significant Democratic support.

Read More: Latest White House talks on stablecoin yield make 'progress' with banks, no deal yet

• The addition of a few lines in a frequently-asked-questions page on the U.S. Securities and Exchange Commission website may open up the use of stablecoins in capital calculations for U.S. broker-dealers.
• The agency is instructing brokers that they need only give their stablecoins a 2% haircut when calculating how much they can be used as regulatory capital.

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