January 19, 2026

Four stablecoin developments bankers should know about

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The Stablecoin Banker is a periodic newsletter keeping bankers on top of the stablecoin industry. I highlight top stories that are relevant to banks, with my insights and commentary to draw out the most important conclusions.

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"Clarity beats chaos, and this bill's success is crypto's success." — Brad Garlinghouse, CEO of Ripple

"We'd rather have no bill than a bad bill." — Brian Armstrong, CEO of Coinbase (January 14, 2026)

In This Issue

• Where did my stablecoin rewards go?
• Visa moves billions with stablecoins, Rain raises at $2 billion valuation
• Federal regulators move to unbundle banking
• More banks join the tokenization movement

Plus, tidbits you may have missed in our Coupon Clippings section.

HTTP 404: Stablecoin Rewards Not Found

The CLARITY Act's January 15 Senate Banking Committee markup was postponed after Coinbase CEO Brian Armstrong withdrew support, citing provisions he called "materially worse than the current status quo." In Section 404, the draft closes the GENIUS Act affiliate yield loophole by prohibiting any form of yield payment by digital asset services companies based solely on users  holding a stablecoin. But, the exemption list is broad: the bill permits rewards tied to transactions, payments, transfers, loyalty programs, providing DeFi liquidity, and even "use of a wallet." The provision responds to bank lobby warnings that third-party reward programs threaten deposit stability, with the ABA citing Treasury estimates of $6.6 trillion in at-risk deposits. The crypto industry is split—Ripple, a16z, and Circle support the bill as imperfect but necessary progress, while Coinbase (which reported $355 million in stablecoin-related revenue in Q3 2025) and Galaxy Digital oppose it. Senator Tim Scott characterized the delay as a "brief pause," with the Agriculture Committee's parallel markup now scheduled for January 27. [Sources: DL News, CryptoSlate, Senate Banking Committee]

My Take:

I couldn’t help but laugh that the stablecoin rewards prohibition lives in Section 404. Kudos to whoever made that drafting choice!

I'll be focusing entirely on the rewards provision today—for analysis of the bill's other controversies (DeFi surveillance, tokenized equities, SEC authority), I encourage you to download the bill text and feed it to your favorite chatbot.

I want to address the $6.6 trillion figure from the US Treasury that is invoked to quantify the banking industry’s competitive fears. The actual risk is highly debatable. First, Treasury arrived at this number through multiple high-level and hand-wavy forecasts (as anyone else would), and then simply compared it to the value held in non-interest bearing deposit accounts. Calling this a scientific assessment would be a significant overstatement. Second, 2025 research from Charles River Associates, sponsored by Coinbase, found “no evidence of a material funding risk to community banks” from stablecoins. Third, the rise of money market funds in the US didn’t stop deposit growth. I’m not saying there is no risk to deposits, but rather recognizing that we really don’t know the magnitude of that risk and we should not fool ourselves into thinking otherwise (see my September 5th newsletter).

The hand-wringing and mental gymnastics in Section 404 remind me of Justice Potter Stewart's famous line about obscenity: "I know it when I see it." The bill bans yield based solely on a user’s balance of stablecoin, but permits rewards tied to a wide range of activities including transactions, payments, loyalty programs, and “use of a wallet”. The exemption list is so broad it reads like a roadmap for compliance workarounds.

The bill does not prevent platforms from transferring stablecoin reserve yield to users. It may make the construction of those programs look more obtuse, which is about as far as legislation can practically go. Platforms will quickly develop clever programs - and will change them frequently in a never-ending game of whack-a-mole, utilizing the many exemptions in the proposed text. For example, a points based loyalty program that unlocks points on login, with the bounty increasing every day and convertible for various things including cash. It make take users a bit longer to realize they're basically earning 3.5% APY on their holdings, but they’ll figure it out.

Whether it’s this text or something else that passes, bankers should not assume they are out of the woods. I still maintain that stablecoin-based rewards/yield is inevitable at this point. It's already happening. It will continue happening in forms sufficiently obvious that users understand what's going on. Legislators cannot practically prevent it.

Whether stablecoins will ultimately drain deposits or not is anyone's guess. The banks and the digital assets industry will keep fighting. The direction of travel is clear, and at the same time that their lobbyists fight against stablecoin yield, forward looking bank execs will figure out what their product looks like when high yield is table stakes.

Card Networks Embrace Stablecoins

Major payment networks are integrating stablecoins as global settlement infrastructure connecting disparate local payment systems. Visa reported $4.5 billion in annualized stablecoin settlement volume and partnered with BVNK to enable stablecoin payouts through its $1.7 trillion Visa Direct network. Rain is a global Visa card issuer that backs its card balances and orchestrates settlements entirely with stablecoins. It has a license that permits single BIN issuance in multiple countries. The company raised a $250 million Series C at a $1.95 billion valuation, it’s third round of capital in 10 months. [Sources: PYMNTS, PYMNTS]

My Take:

Visa possesses something no one else has: a global trust network connecting 10,000+ financial institutions. But that network has historically been constrained by settlement mechanics. Cross-border wires through correspondent banks are slow, expensive, and complex. Those frictions get papered over through prefunding and collateral requirements—which, in turn, requires members to be heavily regulated financial institutions that can be trusted to bear those capital burdens.

Stablecoin settlement changes that equation. When settlement happens atomically on-chain, counterparty risk disappears. And when counterparty risk disappears, the capital requirements that kept non-banks out of the network become unnecessary. This is why Rain's 17x valuation jump matters: they've demonstrated that with compliant stablecoin infrastructure, you can build a bridge to 150 countries without establishing banking relationships in each one. The card programs operating locally handle the banking relationships and simply interact with Rain using stablecoins. As long as you can settle in stablecoins at transaction time—and meet BSA/AML requirements—you can theoretically access the network directly.

The Rain fundraise validates the non-bank participation model and signals a fundamental change underway with greater fintech access to payments networks. In the US, stablecoin cards experience less demand due to high banking penetration, but if the shift towards self-custody or non-bank fintech increases, banks will need to support stablecoin programs.

Federal Regulators Are Unbundling Banking

The OCC issued a proposed rule on January 8th formalizing that national trust banks can engage in non-fiduciary activities like crypto custody and stablecoin issuance. The proposed rule eliminates ambiguity that had allowed critics to challenge whether national trust banks could engage in non-fiduciary digital asset activities, effectively shutting the door on legal arguments that previously created uncertainty for companies like Paxos and Anchorage. Separately, the Federal Reserve released an RFI on its "skinny master account" concept—limited-purpose payment accounts offering access to Fedwire and FedNow without interest on reserves, discount window access, or daylight overdrafts. Balance limits would cap at the lesser of $500 million or 10% of assets, with Governor Waller targeting a final rule by late 2026. World Liberty Financial has joined the queue of trust charter applicants, filing for a national trust bank to issue and custody its $3.3 billion USD1 stablecoin. [Sources: OCC, Davis Polk, Business Wire]

My Take:

US banking is getting unbundled. Tokenized money makes it easier to offer bank-like services without a charter. Now, regulators are moving to create new tiers of financial institutions that give greater flexibility in building financial services outside the confines of true depository banking.

For decades, the US has forced companies that want to offer financial services into a binary choice: become a money services business with severely limited capabilities, or obtain a full bank charter with heavyweight capital and regulatory requirements. If you're not a bank and want to offer financial services, you've had to either push into gray areas as an MSB or become a fintech layered on top of a bank—a fraught operating model plagued by legacy technology, relationship management overhead, and the constant fear that your sponsor bank gets spooked and terminates you.

Other countries solved this problem years ago. Europe has EMI licenses. The UK has e-money institutions. These graduated license types grant payments access and central bank accounts without requiring deposit-taking capabilities. The US has been the outlier.

That's changing now. The OCC's proposed rule formalizes that national trust banks can engage in non-fiduciary activities, making this charter more powerful and less contested. Note that OCC chartered institutions have historically faced little resistance in getting master accounts with the Fed. Meanwhile, The Federal Reserve—which has historically fought lawsuits to prevent things like narrow banking—is now actively considering granting non-banks direct payments access.

Read those two developments together and the picture becomes clear: regulators are deliberately constructing a middle tier between MSBs and full banks. The implications for the structure of banking and credit are profound. Non-bank services can already offer stablecoin-based balances with yield-like incentives. Add a payments master account, and they can offer direct access to all payment rails without putting customer funds on deposit with a traditional bank. The entire payments and treasury layer of banking becomes contestable by entities that were locked out a year ago.

As with stablecoin yield, the banks will fight these developments tooth and nail because they strike at the core regulatory moat that banking has enjoyed for 100 years. The coordinated effort across the federal regulatory landscape raises major questions about what the depository bank of the future will look like. Some banks will find their niche, others will sell, and still others may transition themselves into a new configuration. There’s no one right answer, but I think change is coming fast (at least, fast in the scope of banking timelines).

Morgan Stanley and BNY Expand Tokenization Initiatives

Morgan Stanley announced plans to launch a proprietary digital wallet in the second half of 2026. The wallet will hold not just cryptocurrency but also tokenized real-world assets including stocks, bonds, and real estate. This builds on the firm's existing digital assets push—it already offers crypto trading through E-Trade and has filed S1s for digital asset ETFs. Meanwhile, BNY Mellon launched a tokenized deposit service allowing clients to transfer funds using blockchain rails, becoming the latest major global bank to push deeper into digital assets. [Sources: Bloomberg, CoinMarketCap]

My Take:

The biggest banks continue to increase their commitment tokenized assets for settlements and trading. The technology enables 24/7 operations, instantaneous settlement, and programmable transactions—all genuine improvements over legacy infrastructure.

On the tokenization size, the deployments are still walled gardens, requiring users of the bank-issued product to already be customers of the bank. It’s not yet clear when, or if, the banks will open access to non-bank customers. Without that move, the technology amounts to little more than an accounting upgrade enabling 24x7 transactions on the bank’s balance sheet, which is cool, but not very exciting.

Opening access to the tokenized products would enable the banks to compete with each other’s customers much more efficiently. Provided they can find a way to grant access to non-customers while maintaining their compliance obligations, the switching cost for customers will fall. (Solving this problem will also make their own customer onboarding more efficient.)

This is where stablecoins become essential. Stablecoins will serve as the universal settlement leg that allows tokenized products to become genuinely interoperable. They're the common language that lets a Schwab customer buy a tokenized fund from Morgan Stanley, or a regional bank's client access BNY Mellon's settlement infrastructure. Tokenized deposits will try to fill this void, but will necessarily inject more complexity than necessary by requiring token swaps as part of the trade settlement.

The big banks may not be thinking about it this way yet. But as their tokenization initiatives mature and they start competing for the same tokenized asset flows, the need for a neutral settlement instrument will become obvious.

Coupon Clippings

JPMorgan Freezes Stablecoin Startup Accounts

JPMorgan froze accounts for Y Combinator-backed stablecoin startups Blindpay and Kontigo after a surge in chargebacks and concerns about business activity tied to Venezuela. Both companies accessed JPMorgan through digital payments firm Checkbook—a layered BaaS arrangement where the sponsor bank lacks direct transaction visibility. This compliance gap is endemic to BaaS, but stablecoins make it worse: when customer funds move on-chain, those flows don't even touch the bank's systems. JPMorgan says the decision wasn't anti-stablecoin, but the story illustrates why banks building stablecoin programs need direct infrastructure rather than relying on intermediaries they can't monitor. [Full Story]

Wyoming Launches First State-Issued Stablecoin

Wyoming launched FRNT, the first fiat-backed stablecoin issued by a U.S. state, now trading on Kraken with cross-chain support. Interest from reserves flows to Wyoming's School Foundation Fund—not token holders—but the structure preserves optionality if yield restrictions evolve. The more interesting detail: state governments are exempt from the GENIUS Act's definition of a Payment Stablecoin Issuer, though it’s unclear whether their token can be called a Payment Stablecoin or not. The Bank of North Dakota has announced plans for its own "Roughrider" stablecoin. It’s a long shot, but could states may become a regulatory workaround for yield-bearing public-purpose stablecoins? [Full Story]