Caught inside

The banking lobby is fighting against stablecoin yield. It is the smallest of the waves in the tokenization set.

Apr 26, 2026

Any surfer who has been caught inside will tell you what it feels like. You paddle hard for the first wave you see, which is the one breaking closest to you. You get over it, pleased with yourself. You look up and realize the horizon is gone, replaced by three larger waves you did not notice because the first one was in the way. You cannot paddle back out fast enough. The set breaks on top of you, and the only question is how many you take on the head before the ocean lets you breathe again.

The American banking lobby is currently paddling hard at the first wave. As the Senate Banking Committee markup approaches, the North Carolina Bankers Association has been circulating a script urging member banks to call Senator Thom Tillis’s office and demand that the CLARITY Act include an airtight prohibition on anything “economically or functionally equivalent” to interest on stablecoin balances. The argument is that if a crypto exchange can pay 4% on a stablecoin balance, depositors will leave checking accounts and the community deposit franchise will erode. Treasury Secretary Scott Bessent is urging the Senate to pass the bill. Senators are taking meetings and it’s not like the pitch is incoherent.

I doubt it’s the smallest wave in the set.

Depositors have been able to find 4% elsewhere for three years. Money market funds now hold more than $7.6 trillion, according to ICI weekly data. The share of US deposits that are non interest bearing has fallen sharply since their March 2022 peak, with call report analysis showing a cumulative drop of more than thirty percent at US banks, before a single stablecoin paid a cent of yield. The rate competition is already happening, and banning one channel for it will, at best, just slow the trend. What the lobbying ignores is the structure forming behind the first wave: a fully programmable investment stack, atomic by default, risk calibrated to each user’s preference, accessible from the same wallet that holds stablecoins, and sitting ready to soak up every dollar that used to be idle.

Francisco Porcella: Caught Inside at Maverick's, captured by Derek Dunfee — Francisco Porcella caught Inside at Maverick’s in 2017, captured by Derek Dunfee

The first wave: stablecoin yield

The wave the banking lobbying is designed to break is a real one, and we should name it precisely. A stablecoin pays no yield. A money market fund holding Treasuries pays 4%. If a user can hold a stablecoin balance at a venue where the venue (or an affiliated distributor, or a loyalty program) will share the underlying T-bill yield with them, the stablecoin starts to behave like a yield bearing checking account. That is the mechanism the banks are asking Congress to block.

The pitch seemingly assumes two things. It assumes this is the main channel through which depositors will access onchain yield. And it assumes blocking that channel closes the gap. I suspect neither of those is correct. Even inside the current perimeter, the yield bearing substitute is already emerging in a different form that GENIUS and CLARITY do not reach, because it is not a stablecoin.

JPMorgan’s deposit token, JPMD, which launched to institutional clients on Coinbase’s Base network in November 2025 and is heading to Canton in phases through 2026, can legally pay interest. It can pay interest because it is a bank deposit, not a stablecoin. Kinexys has processed more than $3 trillion in cumulative notional value since inception, with average daily transaction volume now above $5 billion. The same logic applies to Citi’s tokenized deposit infrastructure, to Partior’s USD, EUR, and SGD settlement rail, and to Fnality’s utility settlement coins. The banks building atomic settlement infrastructure for commercial bank money can offer yield inside the regulatory perimeter. The prohibition the community banks are asking for does not stop their largest competitors. It’ll actually stops smaller banks from competing with the megabanks on equal terms.

So even as a wave one defense, the script feels to me like it’s self harming. Community banks are asking Congress to fortify the beach in a way that keeps JPMorgan dry while the tide rises around them. But fine, grant them the prohibition. Assume the CLARITY Act passes exactly as written, airtight, no carve outs. What happens next is not that depositors stay put. What happens next is that the second wave arrives, and the second wave is bigger.

The second wave: tokenized money market funds

The tokenized Treasury and money market fund category has grown from roughly $5.5 billion at the start of 2025 to more than $13 billion by early April 2026, according to RWA.xyz data. Circle’s USYC is at $2.9 billion. BlackRock’s BUIDL is at $2.5 billion. Ondo’s USDY is at $1.9 billion. Franklin Templeton’s BENJI, which launched in 2021 and was the first SEC-registered mutual fund to use a public blockchain as its system of record, crossed $1 billion in March 2026. These are not pilots and they are not demos. They are live mutual funds holding Treasuries, Treasury bills, and repos, issuing ERC-20 style tokens that represent shares, and paying yield directly to holders through rebase mechanics or share issuance.

Franklin Templeton recently made two of its institutional money market funds, LUIXX and DIGXX, blockchain compatible. The LUIXX modifications let it hold short term Treasuries and meet stablecoin reserve standards. DIGXX offers an onchain share class with 24/7 settlement. The firm manages $1.7 trillion in AUM and now deploys Benji across ten blockchains, including Canton. Sandy Kaul, head of innovation at Franklin Templeton, said it recently

institutions will migrate to these rails because they will be able to post less operational capital, since immediate settlement eliminates the need to fund 24 hour plus settlement cycles.

It’s worth reading that sentence again, because it is the entire argument. A tokenized money market fund is not a novelty. It is a better checking account. It holds T-bills, so it pays something close to the T-bill rate. It settles atomically against stablecoins or deposit tokens, so moving in and out is a matter of seconds rather than days. It is accessible from the same wallet that holds the user’s stablecoin balance. It is available 24/7. There is no float to lose, no settlement window to bridge, no reason not to sweep idle cash into it at every opportunity.

The CLARITY Act does not reach this. BUIDL is a security. BENJI is a mutual fund. These instruments are regulated under the 1940 Act, and they already pay yield, and they already settle onchain, and they already compose with stablecoin balances. When a CFO’s treasury platform can automatically sweep excess cash into a tokenized MMF at the end of each payment cycle and redeem it at the start of the next one, then how long before the non interest bearing corporate operating account stops existing as a category?

That sweeping is not hypothetical. Ripple’s GTreasury acquisition in October 2025, at a $1 billion valuation, was explicitly positioned around this capability. The platform handled $13 trillion in payments volume for Fortune 500 clients and SMEs in 2025, and in April 2026 Ripple added Digital Asset Accounts that let corporate treasurers hold and manage stablecoins and digital assets alongside cash, with tokenized MMF and repo integrations on the roadmap.

This is the wave the banks should actually be worried about, and the current lobbying script does nothing about it.

The third wave: tokenized equities

Behind the tokenized MMF wave is a larger one still. On March 18, 2026, the SEC approved Nasdaq’s framework to trade tokenized securities alongside traditional shares, with settlement through DTC. Earlier in March, Intercontinental Exchange announced a strategic investment in OKX at a $25 billion valuation, securing a board seat and granting OKX’s 120 million users access to NYSE tokenized equities. Robinhood’s CEO described tokenized stocks as “a freight train.” Kraken’s xStocks platform has processed more than $25 billion in cumulative trading volume since launching in June 2025 and plans to expand from 100 to over 500 tokenized equities by the end of this year.

The SEC approval is the inflection. Until March, every major tokenized equity product available to retail investors operated under Regulation S, which excluded US investors entirely. The instruments were designed for emerging-market retail and for non-US institutional access. Nasdaq’s approved framework brings tokenized equities inside the US regulatory perimeter for the first time, covering certain listed equities and ETPs that are eligible for the DTC tokenization pilot. The race between Nasdaq and ICE for the tokenized portion of the $152 trillion global equity market, per WFE end-2025 data, is the most consequential piece of financial infrastructure competition since electronic trading replaced open outcry.

For the deposit franchise, the mechanism is the same as with tokenized MMFs, just one risk step along the curve. A user with a stablecoin balance can, in the same wallet, hold tokenized MMF shares (low risk, Treasury bill yield), tokenized investment grade credit (slightly higher), tokenized equities (higher still), and tokenized alternatives if they want. The risk calibration is continuous. The settlement is atomic. The movement between them is free. The reason to leave cash sitting in a non interest bearing checking account disappears not because interest becomes available on the cash itself, but because the cost of not deploying the cash drops to nearly zero. There is no longer any settlement friction to justify the idle balance.

The fourth wave: everything else

The fourth wave is RWAs writ large. Tokenized private credit, tokenized real estate, tokenized commodities, tokenized alternative funds. This is the wave that is still forming, far enough out that its shape is uncertain, but the institutional investment behind it is not. BlackRock, Franklin Templeton, and Apollo have all launched tokenized funds. DTCC has selected Canton as its tokenization network for traditional instruments. BNY, State Street, Goldman, and HSBC are each building variants of the same product stack. Nasdaq’s framework is explicit about extending beyond equities over time.

The point is not that every asset gets tokenized on a five year horizon. The point is that the direction of travel is toward a single wallet holding a continuously rebalanced portfolio of tokenized instruments, with the user’s cash position dynamically allocated to whatever risk return profile they want, with atomic settlement making the allocation friction free. At that point the concept of a “bank deposit” as a distinct thing becomes a specialized product, chosen for the FDIC insurance and the bank’s credit, not because it is the default place where working capital sits.

This is what the bank lobbying misses I think. The prohibition on stablecoin yield is written as if the game ends at wave one. The game does not end there. Waves two, three, and four are already forming, they are being built by the largest asset managers on the planet, they have SEC approval where they need it, and they do not rely on stablecoins paying interest. They rely on tokenized access to every rung of the risk-return curve, composable with each other, atomically settled, available from the same interface.

The deposit franchise was never about rate

There is a version of this argument the banks can still win, but it requires abandoning the one they are currently having. The deposit franchise, the thing the bank lobbyists are trying to protect, was never primarily about rate competition. Banks have always been able to out pay money market funds when they needed to, via brokered CDs, high yield savings accounts, or promotional rates for specific deposit tiers. The franchise was about friction. It was about the fact that the operating account of a small business, the corporate treasury balance of a mid market firm, the municipal deposit of a school district, the payroll account of a hospital, all of these sat with a specific bank because moving them was expensive, slow, and risky. Idle balances stayed idle because deploying them was not worth the settlement cost.

Atomic settlement removes the friction that kept the idle balances in place. Tokenized MMFs and tokenized securities create the destinations those balances will flow into. The stablecoin yield question is a sideshow. Even if you concede the community banks’ lobbying fight in its entirety, the underlying plumbing has already changed. The corporate treasurer does not need an interest bearing stablecoin. The corporate treasurer needs an overnight tokenized MMF sweep that settles atomically from their operating wallet. That product exists. It is live. Fortune 500 clients are using it.

Non interest bearing deposits at US banks fell by more than 30% from their March 2022 peak without any of this being available yet. The next leg of decline is not going to come from depositors chasing 4% yield on stablecoins. It is going to come from the disappearance of the idle balance as a concept. The treasurer who used to hold $50 million in a USD nostro account to pre-fund tomorrow’s FX leg now settles atomically, holding the $50 million in local currency until the moment of execution. The broker dealer who used to park cash collateral overnight now accepts continuously rebalanced tokenized Treasuries. The corporate AP system that used to hold three days of working capital in anticipation of payment cycles now sweeps every cent into a tokenized MMF until the moment it is needed.

Each of these changes takes a pool of non interest bearing balances off the bank’s balance sheet, not because the depositor got a better rate, but because the depositor no longer needs the balance to sit. The funding does not just get more expensive. It disappears. The replacement funding is term debt, wholesale funding, or rate-paying deposits, all of which compress net interest margin in ways the idle-money subsidy did not.

What the script likely gets backwards

The worst thing about the bank lobbying is not that it picks the wrong fight, though it probably does. It is that the fight they are picking is likely accelerating the substitution. If stablecoin yield is prohibited, the product that replaces idle deposits will not be an interest bearing stablecoin. It will be a tokenized MMF sweep that settles atomically against a non yielding stablecoin. The MMF pays the yield, the stablecoin provides the rails, and the user cannot tell the difference. The prohibition forces the substitute into exactly the form that the banks cannot touch, because it is a security, not a payment instrument, and the CLARITY Act is not a securities statute.

This is the same structural pattern that took apart SMS revenue for the telecoms. Global operator messaging revenue peaked around 2012 at roughly $120 billion, per Strategy Analytics and Informa forecasts at the time. Telcos lobbied, threatened to throttle OTT traffic, argued that WhatsApp was freeloading on their infrastructure. A Mobilesquared analysis found that some operators raised international SMS rates by more than 500% as they tried to defend the revenue line, which accelerated the migration. The carriers that survived were the ones that let the messaging layer go and priced the data that ran underneath. The carriers that kept trying to regulate the price of a substitute riding on structurally better economics lost both the substitute and the larger fight. I wonder if the bank lobby is writing an SMS carrier script in 2026. The result feels like it will rhyme.

I don’t think every wave in this set breaks at once. The tokenized MMF wave is already breaking. The tokenized equity wave is cresting now, post SEC approval. The tokenized alternatives wave is still forming. The banks that are building atomic settlement infrastructure for their own clients, JPMorgan, Citi, Goldman, HSBC, the DTCC consortium on Canton, are paddling hard, but they are paddling in the right direction. They are building the products that will be on the other side of this set. The banks lobbying for the CLARITY prohibition are paddling into the first wave with their backs to everything behind it.

The deposit franchise was built on the assumption that money sits still between use cases. Atomic settlement removes the reason for it to sit, and tokenized investment rails provide the destination for it when it moves. The cost of funding for US banks is going to rise, and it is going to rise regardless of what the statute says about stablecoin yield. The lobbying is choosing which wave to get hit by first.

The set is already in the water. The ones that see it are going to paddle the channel around. The ones that don’t are about to get held under.

References

Legislation and regulatory sources

Deposit and money-market fund data

Tokenized asset market data

Infrastructure and industry data

Historical analogy sources

Atomic Settlement

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