Banks and crypto clash over tokens that pay more than deposits

Subscribe to enjoy similar stories. WASHINGTON—The cryptocurrency and banking industries are locked in a lobbying battle over digital tokens that yield annual payouts, a fight that threatens to derail legislation intended to bring crypto into mainstream finance. The two sides are clashing about what crypto firms call rewards, or annual payments to investors based on a percentage of their total holdings.

They are commonly used for stablecoins, popular tokens typically pegged to the U.S. dollar and used for trading, overseas payments and money transfers. To banks, rewards on stablecoins from companies such as Coinbase Global that pay out 3.5% resemble high-yielding deposits—but without the regulations they face for holding customers’ cash.

Bank-industry groups have flooded lawmakers with letters and phone calls arguing the rewards would decimate Main Street lenders. The national average interest rate for a standard interest-bearing checking account is below 0.1%. “We are hearing every day from community bankers who are worried about the impact stablecoins offering yield will have on their deposit bases and their ability to lend and support their local communities," said Brooke Ybarra, senior vice president for innovation and strategy at the American Bankers Association, an industry group.

Thousands of bankers have sent senators letters through the organization in the past week. The fight is one of the forces that could delay or upend an expected vote Thursday by the Senate Banking Committee to advance crypto market-structure legislation. The bill would represent the industry’s first regulatory framework for all digital assets.