Tether Sides with Banks on Stablecoin Yield
Is everyone in crypto on the same side?
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Maybe its not banks versus crypto after all.
If you read this newsletter you already know crypto market structure legislation has hit a few snags. Members of Congress are at odds, mostly on partisan grounds, on provisions about DeFi developer liability, ethics restrictions on government officials, anti-fraud restrictions on crypto ATMs, and a number of other issues.
But a provision in the most recent draft that would further restrict the yield and rewards programs issued by third parties on stablecoins has been the biggest frustration for many of the industry’s most politically active firms. Up until now, this was understood to be a public fight between bank lobbyists and their crypto counterparts, where the banks call for a prohibition on yield in the name of protecting their deposits, and crypto lobbyists call for allowing yield in the name of healthy competition.
This yield-banning provision really upset Coinbase’s chief executive Brian Armstrong, who took the nuclear option when he went on X two weeks ago to say he was pulling his support for the bill because of it, along with three other insurmountable flaws.
Coinbase, which gives some of its users 3.5% on Circle’s USDC, has long been the biggest advocate for permitting stablecoin yield.
But it seems that the world’s biggest stablecoin issuer reportedly disagrees, destabilizing what had appeared to be a united front from crypto on stablecoin yield. According to three sources familiar, Tether’s U.S. operation met with some members of the Senate Banking committee since Armstrong published his explosive X post to say that it supports the current draft of the bill, including the new prohibition on yield. Tether also specifically distanced itself from Coinbase, telling Senators it met with that it did not agree with Armstrong’s decision to take the dispute public.
Tether is pursuing bank partnerships with its American stablecoin, USAT, according to two of the sources, though it has not said so publicly. That, combined with the fact that its international USDT stablecoin holds a dominant position with about 60% market share according to CoinMarketCap, reportedly holding one of the world’s largest non-sovereign controlled gold reserve, puts the company in a position of not needing yield or rewards programs to encourage adoption. The company’s position is very different than Circle, whose USDC token has 23% market share, and Coinbase, which earns all of the interest income from USDC held on the exchange and 50% of the income Circle earns from USDC not held on the platform, and thus has a vested interest in broader USDC adoption.
Yield and rewards programs also dip into profits. Stablecoin issuers make the bulk of their money off interest on their reserves, which they’re providing end users a piece of when they administer yield and rewards programs. If there isn’t a significant value add, these partnerships simply aren’t worth the money. Users can earn a yield on USDT through firms including Kraken, Ledn, and MEXC, but these payments are not produced as a cut of interest on reserves, but rather through differently-structured lending and liquidity agreements according to a Tether blog post. (Notably, Tether’s bank partner for USAT, Anchorage Digital, offers a stablecoin rewards program the yield provision would probably ruin, but there’s been no indication that USAT was going to be part of it).
Yield was previously debated in the process of passing GENIUS. The bill’s final text narrowly prohibits yield payments from issuers specifically, theoretically leaving third party firms paying “rewards” on stablecoins untouched. It is now widely assumed that third party rewards programs are therefore GENIUS Act-compliant, though rules from the OCC interpreting the GENIUS Act, including this yield piece, have not been finalized.
Bo Hines, then Executive Director of the White House’s Crypto Council, coordinated parties to expedite the GENIUS Act’s passage at the behest of the Trump Administration, though he notably did not weigh in on the yield issue. Hines is now the CEO of Tether’s U.S. arm.
The USAT token launched on Tuesday without any such rewards programs. The token was also listed on what seemed like nearly every exchange operating in the U.S. besides Coinbase, judging by the firm’s X posts. Most lobbyists and staffers are of the understanding that Coinbase lobbied against Tether during the GENIUS Act drafting, putting the firms in conflict long before this dust-up over yield (I was not able to verify this for certain, but the belief is widely-held).
It is unclear whether it was Hines himself clarifying Tether’s position on yield — and feelings about Coinbase — to Senators. Two sources directly familiar told me in the course of reporting this story that the White House has been frustrated with Coinbase’s stubbornness, including dating back to Hines’ tenure working for the Trump administration. Several more sources have told me in the course of reporting other stories that the White House, represented by Hines at the time, was frustrated with Coinbase and over the summer. (Hines did not respond to my request for comment).
Regardless, it seems the White House has become even more frustrated since Hines departure, threatening to pull support for the bill altogether if Coinbase didn’t seek a compromise — something Crypto in America first reported, and which I was also able to substantiate, but which Armstrong himself denied. Hines’ replacement, Patrick Witt, also subtweeted Armstrong in an X post urging crypto firms to stay engaged, despite expressing his own frustrations with bank lobbying on the yield issue a few days before.
One source familiar said that Coinbase’s tactics with the White House are perceived as “arrogant.” “Nobody is going to tee up this bill for you and be like, ‘Oh, Coinbase, are you happy?’” they said — something which they contend Coinbase did not understand.
Until this month, Tether hadn’t been very active in market structure discussions, according to three sources familiar with key Senators’ schedules. Even now, the firm has not met with all of the key players — Tether did not meet with Senator Cynthia Lummis, the Chair of the Banking Committee’s Subcommittee on Digital Assets, for example, which probably has something to do with the Senator’s longstanding concerns about Tether on national security grounds. But by hiring Hines, Tether strengthened its connections within the Trump administration, a relationship that was already solid. Trump’s Commerce Secretary Howard Lutnick, is the former CEO of Tether’s primary custodian Cantor Fitzgerald.
That positions Tether to be a persuasive voice just as it hits crunch time for market structure. The Senate Agriculture Committee has plans to mark up the bill on January 29th, while the Senate Banking Committee is eyeing late February or early March. Discussions are bipartisan in both committees, though it seems likely that votes, at least in the Agriculture Committee, will break on party lines.
Legislation requires at least seven Democrats for passage in the Senate — and even more, if any Republicans choose not to vote in support. Many less-engaged Senators will take a queue from their counterparts in the committees, so the purely partisan passage through the committees after the coming markups does not look good for the bill. Moreover, partisan politics will be amplified as the November midterms approach, putting market structure legislation at risk of becoming either a political lightning rod or being deprioritized all together.
Any more mistakes and the crypto industry could lose its chance at a market structure bill altogether, the previously quoted source explained. “You get a window, and to get another window is not that easy.”
Coinbase declined to comment. A representative for Tether did not respond to requests for comment.
Goodbye to Veronica
A parting word: This will be my last column in Brogan Law for a little while. I’m starting a new job on Monday, and will be focusing my energies there. Big thanks to Aaron for allowing me to write here the past several months — it’s truly been a highlight of the past year. Writing for you all has kept me motivated and engaged in the face of a crypto media environment that is, let’s face it, in pretty bad shape these days.
I hope to have the opportunity to write here occasionally down the road. In the meantime, you can keep up with my reporting on X.
Editor’s Note: Thank you so much for working with us here Veronica. We are devestated to see you go and excited to see what’s next. Come back and write for us any time!!
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maybe tether doesn't want to be allowed to pay yield because it can't afford to pay the yield. remember they've never undergone an audit and never explained to anyone where all the money they claim to hold is sitting. lutnick walked back his old assertion that they probably have all the money to say that cantor does not monitor tether's reserves.