is escalating a high stakes Wall Street turf war over the future of money.
In a social post, Trump explicitly backed crypto firms over traditional banks in the fight to offer yield on stablecoins.
Now this clash is the major roadblock, stalling the Clarity Act in Congress, and JPMorgan and Bank of America are warning that yield bearing stablecoins could. $6.6 trillion in deposits away from the banking system will be clear the act has also hit a new roadblock as banks say they can accept a proposed compromise from the White House.
Meanwhile critics are pointing to potential conflicts of interest in the White House.
Well joining us to weigh in on this legislative gridlock is Adam Meinhardt, head of.
Public policy for Chain Link Labs.
Good morning, Adam, and thank you so much for joining us.
So there's a lot of back and forth between the crypto companies and the White House, and recent comments do suggest we are incredibly close to getting the Clarity Act moving again.
So what is the real vibe on Capitol Hill right now and tell us about the likelihood that the Clarity Act passes this year.
Yep, uh, first, thanks for having me on.
Extremely complex policy and politics at play right now.
I'm still very bullish on this getting done in the next month or so.
The vibe on the Hill, um, I would say, is very, very positive.
I think Democrats have moved a bit and want to see a deal done, so I think that's something that's very, very notable here.
There's a real shift there.
Um, I think what, what is real, the real issue here is what you flagged at the top.
Which is just this battle between banks and exchanges on the payment of yield, and I think the community bank lobby is extremely strong.
They have a very deep grassroots network in every state, every community, so they are able to really influence politics in a way maybe that few others in the financial services space can.
So we've got to get through the stable coin yield issue first before we really get to the hill.
So that's where we're at.
Tough sled in the head.
Yes, and Adam, I understand that you've called the Clarity Act a once in a decade opportunity to actually establish a legal framework for crypto, and as you also mentioned the big sticking points seem to be yield defy, as well as the role of ethics here.
But given how complicated the politics are right now, how do lawmakers actually thread that needle without pushing away the crypto community?
And how do we actually gauge the temperature in the room right now?
Yeah, um, I, I mean, I think first and foremost, the White House, Patrick Witt in particular, has been a real leader here on keeping these discussions going.
Um, I think the temperature is one of, is right now is one of frustration on the industry side.
They really want to deal, and I think there's a view here that banks aren't coming to the table.
Um, that said, the status quo without any legislation actually benefits the exchanges.
And that they can continue to operate as they are under current law, which allows them to pay yield.
So ironically, it's really the banks that need a, need a deal here.
Um, so I think that could help push us forward in terms of this being a once in a decade opportunity, you know, I'm going to double down on that.
I think politically we're looking at the House going Democratic in the fall.
Um, 2028 is going to be a toss-up.
So this window to get legislation done to benefit both consumers and industry really doesn't come along very often, so I, I really think it closes in a couple of months. and Adam, just building on what you just said, what kind of compromise do you think really needs to happen here between the trad traditional banks as well as the crypto industry to get us closer to the finish line?
Yeah, um, the compromise that was on the table initially was one to permit rewards paid based on transactions.
This is something similar to what banks do for debit card or credit card payments that was rejected.
So I think something along along the lines of transaction-based rewards could be part of it, but I think they're going to have to permit existing exchanges. to continue to pay their existing customers some form of rewards on static balances, I think that's going to be a line in the sand here, and we're hopeful that we can get some form of agreement that permits the payment of some form of return for holders of USDC and other stablecoins, be it held in on the exchange in other, in another financial institution, but I really think we have to figure out a way that allows customers.
To get more access to return on static balances, I think we're continuing to hear the drumbeat on this.
Banks are paying very, very low rates of interest on their, on consumers' checking accounts, so I think we've got to get some, some solution that allows the payment of yield in some way, in some manner that banks can get their arms, get their, their heads around.
And the uh the exchanges can support here, so, um, easier said than done.
Yes, and Adam, for a brief moment, I'm just going to play devil's advocate here.
So if the clergy Act falls apart and potentially we see the shift in power in DC, just how vulnerable is the crypto space to another wave of potentially heavy regulation?
Yeah, um, I think it is unlikely to be as heavy as it was under the Biden administration with Gary Gensler and what we saw in some of the bank regulators.
That said, you never really know what happens in a presidential.
And the deals that are made during primaries in Iowa or New Hampshire with other members who are running for president.
So I think there's always a chance that you see a more progressive form of regulation come back.
We're hopeful that we've made enough headroads with Democrats to move them to a more moderate position.
On crypto regulation overall, but you can't rule it out.
There's a lot of folks in the city that take a very progressive view of financial services policy and crypto policy specifically, so I think it's a big risk that the industry just, just can't close their eyes on with regard to what could happen under another administration error.
Yeah, and while I have you here, I do want to get your take on this likening of crypto investors to sports fans just to lighten the conversation here so looking down the road, do you see that strong decentralized culture eventually overtaking.
Um, I, I, I'm not sure about overtaking it.
I think what we're more likely to see is a convergence between crypto and Tradfi.
I think we're already seeing that with the rise of ETFs where a lot of folks are gaining access to crypto assets through exchange traded products sold by regulated financial institutions.
I think we're going to start to see this with DeFi eventually as well, um, but culturally, with regarding to the sports fan reference, I think.
Politicians need to understand that people who use crypto have a really strong cultural foundation and cultural tie to crypto.
They wear t-shirts, hats.
They're very active on crypto Twitter, so it's a lot different than, say, customers of a large bank.
You have this very strong, almost fan club mentality.
There's a real social aspect.
To it, so I think politicians have to be aware of that, that these crypto voters, it's not so much about crypto.
I think it's about a way of thinking and, to your point, a decentralized way that allows you to basically choose how you want to manage your financial services.
So, um, I think it's, I think it's something we're going to see more of, but my money is more on a convergence than crypto overtaking.
And finally, before I let you go, Adam, you spent nearly 17 years on Capitol Hill, so what is your long term view and vision of crypto?
The industry's made a ton of headway with Democrats.
I think it's becoming bipartisan.
There's work to be done there, but my long-term view is that enough Democrats embrace crypto, and it does become a bipartisan issue overall, and we do have stable regulation.
Um, it's going to be a battle to get there because there's always going to be people on the far left that really, really want to regulate this in a harsher way, but my long term view is right now is stability, but can't discount the risk of something coming out of the far left here, but stability, I think, is going to hold the day.
Well, Adam, thank you so much for joining us today and thank you so much for taking time out of your busy schedule to join us here on FinTech TV.
Awesome, thank you so much for having me.
