Stablecoin policy discussions in early 2026 are increasingly centred on the permissibility of yield, the competitive boundary between private and public money, and the implications for banking-sector funding. Disagreement in the United States Senate over whether stablecoins should be allowed to pay yield has stalled the broader market structure bill, with banks advocating a full prohibition and digital asset industry groups offering limited concessions. These negotiations unfold against the backdrop of central bank concerns over monetary sovereignty and the evolving role of stablecoins, as noted in Governor Signe Krogstrup’s recent remarks, which emphasised stablecoins’ similarity to money-market fund claims and their potential structural impact on financial stability. For institutions building tokenised cash and settlement-layer infrastructure, these unresolved questions directly influence product design, liquidity management, regulatory classifications, and risk controls.
Background and Trigger
The U.S. Senate’s crypto market structure bill has been delayed since February 2026 due to disagreements on yield for stablecoin holders. Banking groups distributed a document entitled “Yield and Interest Prohibition Principles”, demanding full prohibition of any reward, while the Digital Chamber stated it is willing to forgo interest-like rewards on static holdings. Two categories of reward—liquidity provision incentives and ecosystem-participation rewards—remain points of contention, as the industry argues they are functionally distinct from deposit-like yield.
The White House has requested a compromise by the end of February 2026, placing a time constraint on negotiations. The debate interacts with other national regulatory developments: Canada’s draft stablecoin law (released November 2025) requiring full reserve backing, Hong Kong’s August 2025 regime, the U.S. GENIUS Act passed in June 2025, and the Bank of England’s consultation on temporary holding caps of £20,000 for individuals and £10 million for businesses.
Krogstrup’s January 2026 remarks underscore that stablecoins resemble traditional financial instruments such as money-market fund shares and narrow-bank deposits. This framing strengthens the analytical link between stablecoin remuneration, reserve composition, and broader financial stability.
Market Effects
The unresolved U.S. yield question introduces uncertainty for institutional stablecoin issuers, tokenised cash providers, and banks entering digital asset settlement markets. If a strict prohibition on yield becomes statutory, stablecoins may effectively converge toward a payments-only model, limiting viability for cross-border liquidity, collateral transformation, and on-chain repo applications. Conversely, allowing narrowly defined rewards tied to liquidity provision or ecosystem participation could preserve functional flexibility for institutional DeFi liquidity pools.
Differences across jurisdictions raise fragmentation risk. Canada’s full-reserve model and Hong Kong’s licensing framework both emphasise prudential balance sheet transparency but do not explicitly restrict yield. UK proposals for holding caps could constrain institutional treasury adoption, although caps are currently framed as temporary.
Key Data Points
| Item | Date | Value |
|---|---|---|
| US bill status | Feb 2026 | Stalled due to yield dispute |
| Banking sector position | Feb 2026 | Total prohibition on yield |
| Industry concessions | Feb 2026 | No interest-like rewards on static balances |
| White House timeline | Feb 2026 | Compromise requested by end-February |
| Canada draft law | Nov 2025 | 1:1 reserves, qualified custody |
| Hong Kong regime | Aug 2025 | Effective date for licensing framework |
| UK proposed holding caps | 2025 | £20k individuals / £10m businesses |
| Eurosystem inflation projection, 2026 | Dec 2025 | 1.9% |
Regulatory and Compliance Lens
Regulators globally remain focused on three issues: financial stability, payment system integrity, and AML/CTF safeguards. Krogstrup highlighted concerns related to monetary sovereignty and the balance between public and private money; these concerns become more acute when stablecoins offer yield, potentially amplifying migration from bank deposits to off‑bank alternatives.
Compliance expectations for issuers and intermediaries include:
- robust governance and board‑level oversight over reserve operations;
- daily reporting of reserve composition and liquidity metrics;
- segregation of client assets via bankruptcy‑remote structures, consistent with GENIUS Act principles;
- full AML/KYC onboarding and ongoing transaction monitoring, including on-chain analytics for sanctions and counter‑party exposure;
- adherence to jurisdiction‑specific caps or licensing requirements (e.g., Hong Kong, UK).
A two‑year study requested by U.S. banking groups on deposit impacts may create interim uncertainty but could also provide a data-driven basis for calibration. Industry groups have signaled willingness to accept the study provided it does not automatically trigger further restrictions.
Product Structuring Implications
Stablecoin yield rules directly influence product architecture in institutional DeFi. If regulators restrict remuneration, issuers may need to redesign their tokens as pure settlement assets, limiting integration with liquidity pools or automated market makers unless structured within ring‑fenced frameworks. Liquidity‑provision rewards considered permissible by industry advocates would require transparent and auditable mechanisms to distinguish them from interest-like returns.
For structured products using tokenised cash as collateral, stablecoin remuneration affects haircut methodologies, liquidity add-ons, and investor suitability assessments. Jurisdictions imposing caps may require segmentation of investor types and bespoke treasury workflows.
Collateral managers and custodians will need enhanced reconciliation systems to track reserve assets, validate on-chain balances, and ensure alignment with prudential requirements such as Canada’s qualified custody mandate.
Risk Landscape
Market and liquidity risk: Prohibition on yield could shift demand to unregulated alternatives, reducing liquidity in regulated stablecoins and weakening their role in institutional settlement. The lack of clarity over future rules also introduces term-structure uncertainty for tokenised cash products.
Counterparty and credit risk: Stablecoins backed by short-term government securities carry low credit risk, but operational models involving third-party liquidity providers introduce additional counterparty dependencies.
Operational and cyber risk: Increasing integration with DLT-based wholesale settlement infrastructure, including ECB’s Project Pontes (expected Q3 2026), requires hardened key‑management practices, SOC2‑aligned controls, and secure bridging mechanisms between on-chain and RTGS systems.
Legal and regulatory risk: Heterogeneous global standards create jurisdictional arbitrage potential and increase the complexity of cross-border compliance, particularly for groups operating under Canadian 1:1 reserve rules and UK temporary caps.
Implementation and Operating Model Notes
Institutions preparing for stablecoin use in settlement and collateral workflows should prioritise:
- dual‑ledger reconciliation between tokenisation platforms and custody providers;
- scenario modelling for yield‑prohibition regimes and their impact on liquidity incentives;
- interoperability testing with emerging wholesale DLT infrastructure, including messaging, settlement finality, and intraday liquidity windows;
- controls ensuring that any ecosystem participation rewards comply with statutory definitions and avoid classification as prohibited interest.
What to Watch Next
Krogstrup’s emphasis on stablecoins as extensions of existing financial instruments suggests regulatory convergence toward traditional money-market principles. The outcome of U.S. negotiations in February 2026 will likely set a precedent for how regulators delineate permissible forms of remuneration for tokenised cash. Parallel advances in wholesale settlement infrastructure—particularly in the EU—will push stablecoins toward more formalised roles within payment and collateral systems. Over 2026–2027, institutional participation is expected to hinge on regulatory clarity, cross‑jurisdictional interoperability, and the maturation of prudential oversight frameworks.
