Why Banks Hate ‘Hold-to-Earn’: Stablecoin Rewards Are Stirring the Pot

What’s the fuss about stablecoin yields?

Lawmakers and tech platforms are squabbling over a deceptively short sentence: what counts as “digital cash” versus what counts as a security. The fight has slipped out of legal briefs and into the daylight, and at the center of it all is a tiny-but-mighty prize — the ability to pay people a return just for holding a dollar-equivalent on a crypto platform.

Platforms often call these returns “rewards” or “loyalty perks,” not interest. But to the average person, getting 3% on your balance whether you use it or not feels a lot like an interest rate. That matters because stablecoin yields turn a place to stash cash into a competitive financial product, one that can look, smell, and behave like a savings account — without being a bank account.

Numbers help explain why this makes bankers twitchy. In a recent FDIC rate table, national averages are vanishingly small: roughly 0.07% for interest checking, 0.39% for savings, and 0.58% for money market accounts. By contrast, short-term Treasury yields have been sitting near 3.9%. When a platform advertises a stablecoin reward near that short-term market rate, the question isn’t “Who pays the most?” anymore; it becomes “Why is my cash parked at a bank earning so little?”

Why banks are losing sleep — and what might happen next

Banks’ core business depends not just on holding your money, but on the web of services tied to it: payroll, bill pay, debit cards, loans, and so on. If transactional balances start drifting into custodial crypto wallets because those wallets pay attractive rewards, banks risk losing both cheap funding and the hooks they use to sell mortgages, cards, and investments.

There are only two main ways for banks to respond. They can lift deposit rates to compete — which raises their interest expense — or they can replace retail deposits with market funding like repos and wholesale borrowing. The latter tends to track policy rates more tightly, so it can be pricier and quicker to move than traditional deposits. Either route squeezes margins.

Platforms try to thread a fine needle by labeling returns as promotions, loyalty benefits, or usage incentives. Some big crypto platforms offer multi-percent rewards for holding certain stablecoins, sometimes gated behind membership tiers that cost a few dollars per month. Others run time-limited campaigns or describe how deposited assets may be used in lending-like activities — disclosures that make the economics look different from a regulated bank deposit, even if retail users experience them similarly.

Regulators and lawmakers are now attempting to draw clearer lines. One drafting approach would outlaw paying a yield simply for holding a stablecoin — a straight-up “no hold-to-earn” clause — while still allowing activity-based incentives that reward spending, sending, or other on-chain behavior. That distinction is technical but important: it shifts scrutiny from the token issuer to the distributor (the platform), and keeps the door open for clever marketing that mimics interest without using that word.

At the end of the day, this is a distribution fight dressed up as legal drafting. Banks are pressing to prevent a world where you can park cash on an app and get near-Treasury returns without the protections and rules that come with being a deposit. Platforms argue they’re simply offering new, consumer-friendly products. Meanwhile, consumers just want higher returns and fewer boring rate-compare spreadsheets.

So expect more noise: legislative tweaks, platform promotions that dodge the label “interest,” and regulators trying to blunt the easiest paths to “hold-to-earn” popularity. If you like financial innovation with a side of chaos, pull up a chair — this one’s getting spicy.