Wells Fargo’s chief executive is warning about the risks tied to the Digital Asset Market Clarity Act, but the dispute described in the article is not only about stablecoin rewards. At its core, it is about who gets to absorb the public’s cash balances and who keeps the spread generated by that money.
In the traditional banking model, people leave wages in checking accounts, banks fund themselves at close to zero cost, and that money is then used for lending, securities holdings, or liquidity assets. If a user can instead hold a stablecoin balance in a phone-based account, spend it at any time, redeem it at $1, and receive part of the yield generated by U.S. Treasury reserves, the incentive shift is easy to see.
That is why the article says the fight is not just about financial safety. It is also about banks defending retail deposits, one of their cheapest and most stable sources of funding.
The Clarity Act and the GENIUS Act address different things
The article says the popular line that the Clarity Act allows stablecoins to pay interest is not precise.
The House version of the Digital Asset Market Clarity Act, H.R. 3633, is mainly a market-structure bill. Its job is to divide oversight of digital assets between the Securities and Exchange Commission and the Commodity Futures Trading Commission, and to set a regulatory framework for issuance, trading, and intermediaries involved in digital commodities. It is not, by itself, a stand-alone stablecoin law.
The main issuance rules for stablecoins come from the GENIUS Act, passed in 2025. That law requires payment stablecoins to be fully backed by highly liquid assets such as cash and short-term U.S. Treasuries, and it sets rules on redemption, disclosure, and supervision. It also bars compliant issuers from directly paying interest or yield solely because a user holds, uses, or redeems a stablecoin.
The conflict lies at the boundary. If issuers cannot pay interest, can trading platforms, wallets, or affiliated firms offer “rewards” instead? If those rewards are calculated by balance and time held, how different are they from interest in economic effect? The article says follow-up negotiations around market-structure legislation are trying to resolve that line. Banks want the restriction extended to exchanges and other service providers. The crypto industry argues that cashback, membership rewards, trading incentives, and interest should not all be treated as one category.
From that perspective, Wells Fargo’s concern is not that Bitcoin might suddenly fall outside SEC oversight. It is that some platforms could gain a deposit-like funding base without taking on bank-level capital rules, liquidity requirements, deposit insurance, and ongoing prudential supervision.
The article says that concern has merit. It also says the broader claim that any stablecoin reward would damage the financial system goes too far.
The real risk comes from maturity mismatch and promise mismatch
According to the article, stablecoins do not create systemic risk simply because they offer a higher yield. The danger appears when three conditions are present at the same time: the public treats the instrument like cash, the operator promises redemption at par on demand, and the assets backing that promise cannot be liquidated without loss under stress.
That is the structure of a run. When few users redeem, the platform can look solid. If many users ask for dollars at once, the duration of reserve assets, custody arrangements, settlement speed, and legal ownership of those assets all come under pressure. Even a modest redemption delay, or a market price slipping below $1, can feed panic and accelerate outflows.
The article points to the Financial Stability Board, which has said global stablecoin arrangements need effective stabilization mechanisms, clear redemption rights, sound risk management, and cross-border supervisory arrangements. It also cites the Federal Reserve, which has warned that stablecoins lacking adequate backing and transparency could face disruptive runs and transmit stress to payment systems and asset markets.
The piece says this is not a story banks invented to frighten policymakers. It also says it is not a flaw unique to stablecoins. Money market funds, shadow banks, and banks themselves can all be run-prone. The difference is that banks usually sit behind deposit insurance, central bank liquidity tools, and formal resolution regimes. Whether stablecoin arrangements should have comparable firewalls is a question of legal design, not branding.
Deposit outflows can hurt banks, but the money does not vanish
Banks often argue that if stablecoins begin offering yield to users, households will move deposits away, banks will lose stable funding, and lending will shrink or become more expensive. The article says the first half of that logic is sound.
Cheap retail deposits are a major funding source for banks. If one bank’s customer moves $10,000 into stablecoins, that bank may indeed lose $10,000 in deposits. It may need to sell assets, borrow in wholesale markets, or raise deposit rates to bring money back. Higher marginal funding costs can then show up in loan pricing.
The article says this pressure can matter more for smaller banks. Large banks have broader wholesale funding options, stronger brands, and more powerful payment networks. Regional banks rely more heavily on local deposits. If money moves quickly to a small number of national platforms, the institutions under the most strain may not be the largest Wall Street firms, but banks that provide relationship-based lending to local small businesses.
Still, the article says banks often skip the second half of the story. When a customer buys stablecoins, dollars usually do not disappear. The issuer typically uses those dollars to buy short-term Treasuries, overnight repo assets, or to place cash with a custodian bank. In other words, the funding mix changes: what was once a retail liability at one bank becomes a reserve asset of a stablecoin issuer and then turns into another bank’s deposit, repo financing, or a liability of the U.S. government.
That is not a case of the financial system losing money altogether. It is a shift in the structure of liabilities.
The shift can still matter. Banks lose sticky retail funding, while the stablecoin system may channel assets into the short-term Treasury market and a small group of custodians. In calm periods, that can increase demand for Treasuries. In stressed periods, it can create highly synchronized redemptions and asset sales.
The article says the important issues are the speed of migration, reserve allocation, and the cost of substitute funding for banks. It argues that a headline estimate of “potential deposit outflows” should not be treated as if it were already a realized credit contraction. A static assumption that every extra dollar of stablecoin growth permanently destroys one dollar of bank funding turns balance-sheet analysis into advocacy.
Stablecoins also expose the deposit spread banks prefer not to discuss
The article asks why banks are so focused on the word “reward.” Its answer is simple: the stablecoin model makes the economics visible. A firm receives $1, holds about $1 in highly liquid reserves, and short-term Treasuries in that reserve pool generate income. If the issuer or platform passes some of that income back to users, users can see the opportunity cost of holding cash balances much more clearly.
Traditional banks do not simply warehouse deposits in a sealed bag of Treasuries. They perform credit creation, maturity transformation, payment services, and compliance functions, and they operate under capital constraints. For that reason, the article says demand deposit rates cannot be reduced to Treasury yields one for one.
But it also says that does not make every part of the bank deposit spread a sacred buffer for financial stability. Some of it is economic rent tied to the deposit franchise. Customers keep money in low-yield accounts because of payment convenience, habit, insurance protection, and switching costs. The weaker the competition, the less pressure banks face to pass market rates through to depositors.
In that view, stablecoin rewards hit a specific profit pool.
The article says this also explains why a blanket ban on third-party rewards is not a neutral safety rule. It may reduce some run incentives, but it also blocks a competing product from fighting banks for cash balances. If regulators accept the full banking position, the result could be the preservation of low-yield deposits under the banner of financial stability.
The article does not frame that as consumer protection. It frames it as protection of incumbent funding costs.
It notes that the Bank for International Settlements has offered weighty criticism of stablecoins, arguing that they rely on sovereign money as a unit of account while potentially falling short on singleness, elasticity, and governance. But the article says those arguments support strict regulation and a public monetary anchor; they do not automatically prove that platforms must be barred from sharing reserve income with users. There is still a causal step to be demonstrated between reserve risk and a blanket yield prohibition.
The bigger mistake is to treat three different products as one
The article says regulators should focus on preventing confusion.
The first category is the payment stablecoin. It promises par stability, should hold safe short-duration reserves in segregated custody, and should give users a clear redemption right. Its purpose is payments. It should not rely on risky investments to manufacture yield.
The second category is the investment product. Users in that case accept money-market, credit, or duration risk in exchange for return. The article says such products can exist, but they should disclose asset composition, risk exposure, and the order in which losses would be borne. They should not be presented as risk-free cash.
The third category is the platform subsidy. A platform may use its own marketing budget to offer cashback or rewards tied to trading or spending behavior. Those incentives may have nothing to do with account balances and may not create a deposit-like funding relationship at all.
If the law looks only at the word “reward,” the article says, all three can end up jammed into a single regulatory bucket.
That creates two bad outcomes. Real interest-like products can be relabeled as points, cashback, or loyalty perks and slip around the rules, which means the rules bind the most straightforward firms. At the same time, ordinary consumer cashback and trading discounts can be swept up by mistake, reducing competition without reducing reserve risk.
The article argues that the right legal line should follow economic substance: whether rewards accrue according to balance and time, whether customer funds are used for financing, whether principal stability is promised, whether income comes from safe reserves, risky investments, or subsidy budgets, whether assets are segregated from creditors if the platform fails, and whether users can redeem directly, promptly, and at par.
If a return is paid by balance and by time held, and depends on placing funds with the platform, the article says it should be treated as an interest-like product. The law should recognize that directly and then decide what licensing, disclosure, liquidity, and consumer-protection rules apply. Renaming should not be a route around oversight. Neither should broadening the definition of rewards until every incentive is effectively banned.
The article’s bottom line: the real danger is regulatory mismatch
Its central conclusion is that the worst policy outcome is not stablecoin competition itself. It is allowing products to feel like deposits to users while escaping the core constraints attached to deposit products.
If a platform markets stablecoins as a cash substitute, pays balance-based returns, and invests reserves in long-dated securities, corporate debt, or affiliated assets, then the banking warning is fully justified. The article says that structure can generate profits in normal periods and dump liquidity risk on users and markets in stressed periods.
The reverse case is also described. If stablecoins are required to hold cash and very short-dated U.S. Treasuries, keep reserves legally segregated, disclose holdings daily or at high frequency, undergo independent audits, maintain clear redemption deadlines, and avoid rehypothecation of reserve assets, then they are not the same as highly leveraged shadow banks. In that setting, the article says there is not enough evidence to conclude that sharing some yield with users automatically makes the system less safe.
It says regulation should stay focused on four questions: what the reserves are, who owns them, how redemption works under stress, and who bears losses if the structure fails.
Whether a yield exists comes after that.
The article closes with a clear argument. Wells Fargo identifies a real risk, but offers the interpretation most favorable to banks. Large-scale stablecoin funding that can be redeemed on demand would alter bank funding structures, could raise costs for some banks, and could concentrate liquidity risk in issuers, custodian banks, and short-term Treasury markets. Without redemption rules, asset segregation, and stress-resolution mechanisms, that migration should not be waved through in the name of innovation.
But a blanket ban on any return to stablecoin holders does not follow inevitably from those facts.
The article argues for matching obligations to economic function: products that promise redemption at par should hold truly redeemable assets; products that pay by balance and time should face the rules applied to interest-bearing financial products; marketing cashback should have to show that it is not generated by putting customer reserves at risk; and arrangements large enough to affect payments and Treasury markets should face stronger liquidity, operational, and resolution requirements.
It also says banks should face competition. They should not be able to earn market returns on near-zero-cost deposits, ask Congress to stop others from passing part of that income back to users, and then describe that position as public safety.
In the article’s phrasing, what the Clarity Act really needs to prevent is not money leaving banks, but risk leaving regulation.
References
U.S. Congress, 2025, H.R. 3633 — Digital Asset Market Clarity Act of 2025
U.S. Congress, 2025, S. 1582 — GENIUS Act
Financial Stability Board, 2023, High-level Recommendations for the Regulation, Supervision and Oversight of Global Stablecoin Arrangements
Board of Governors of the Federal Reserve System, 2022, Money and Payments: The U.S. Dollar in the Age of Digital Transformation
Bank for International Settlements, 2023, Annual Economic Report 2023, Chapter III: Blueprint for the Future Monetary System