Are stablecoins digital cash, a narrow bank, a money market fund, or some new hybrid altogether?
That is the question that has ballooned into a regulatory fault line for domestic crypto markets regulation. At its center is the debate over whether stablecoins should be allowed to pay yield.
On Monday (Feb. 2), the White House held a closed-door meeting with representatives from banking and crypto trade groups to answer exactly that question, hoping to draw an analysis from industry groups that can productively inform lawmaker efforts to recognize the functional diversity of stablecoins, while at the same time drawing credible lines around risk to the existing financial system.
While stablecoins generating yield for their holders may sound like a simple issue, the debate has reached such a crescendo that Citi analysts have noted the growing chance that the CLARITY Act’s passage could be delayed beyond 2026, although there is also a chance it may still pass this year.
The battle lines are primarily being drawn around the fact that banks are pressing lawmakers to stop stablecoin “rewards” that look and feel like deposit interest, arguing they could accelerate deposit flight and pressure credit creation. Crypto firms, for their part, are countering that yield is the product feature customers already expect in a high-rate world, and that banning it may offshore innovation and entrench incumbents.
The rest of the world has been grappling with the same dilemma, and markets ranging from the EU to the Middle East, U.K. and Hong Kong have either enacted, or are in the process of enacting, their own answers. And while the U.S. faces a unique challenge due to the fact that the dollar’s global role amplifies the impact of domestic regulatory choices, what is increasingly clear is that stablecoins are becoming an innovation question in search of a regulatory answer.
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See also: Crypto Pushes Yield Boundaries With GENIUS Act Stalled
The Rest of the World
The PYMNTS Intelligence and Citi report “Chain Reaction: Regulatory Clarity as the Catalyst for Blockchain Adoption” found that blockchain’s next leap will be shaped by regulation; that evolving guidance is beginning to create the foundations for safe, scalable blockchain adoption; and that implementation challenges continue to complicate progress.
When it comes to stablecoins, different regions have taken their own approaches, with certain shared notable patterns.
The EU’s Markets in Crypto-Assets regulation, better known as MiCA, was finalized with an eye toward clarity over experimentation, for example, and distinguishes between asset-referenced tokens, e-money tokens, and other crypto assets. The EU’s answer to the stablecoin yield question is unusually explicit, clearly stating that payment-like stablecoins are not supposed to behave like savings products.
MiCA treats most mainstream “fiat stablecoins” as either asset-referenced tokens or e-money tokens, and it bans interest tied to holding the token. Yield is allowed elsewhere, but it must move into established regulatory categories such as funds, securities, or other investment products where disclosures, suitability rules, and prudential controls are clearer.
MiCA also embeds a supervisory escalation path: When stablecoins become large enough to be considered “significant,” the oversight burden intensifies. Europe’s bet is that payments innovation does not require paying holders interest, and that the “yield” function should live in investment vehicles that consumers already recognize as risk-bearing. For observers of past tech regulation coming out of Brussel’s, this should not come as much of a surprise.
Read also: Bitcoin-Backed Stablecoins Top List of GENIUS Act Loopholes
What Issuers Can and Can’t Do
Hong Kong had arrived at a relatively similar destination as the EU via a licensing model overseen by the Hong Kong Monetary Authority in which licensed issuers would be paying interest or returns to holders based on holding period or token value. The regulator was planning to issue its first licenses as early as March 2026.
However, Chinese authorities — including the People’s Bank of China (PBOC) and the Cyberspace Administration of China (CAC) — reportedly instructed companies to hold off on launching stablecoin projects.
In the Gulf, the clearest example is the United Arab Emirates, where a Payment Token Services Regulation framework prohibits interest or benefits related to the length of time a payment token is held, while also restricting higher-risk designs like algorithmic stablecoins. The structure is consistent with the broader global pattern of preserving stablecoins as settlement tools and not savings instruments.
The U.K. is embracing a wait-and-see approach, while at the same time adding macroprudential tools to manage the potential for stablecoin adoption at scale. Yield is not explicitly outlawed, but it is implicitly constrained. If a stablecoin begins to look like a collective investment scheme or a deposit-taking product, it then triggers additional licensing requirements.
The rest of the world has offered a menu of options. The U.S. must now decide which lessons to absorb and which path to chart on its own.
