Author: Neil Humphrey

By Jean-Philippe Beaudet

On July 29, The Digital Chamber’s AI and Quantum Working Group submitted comments to the Federal Trade Commission on its proposed policy statement addressing artificial intelligence accuracy. 

The Proposed Statement treats bias mitigation as potentially deceptive. This premise does not match how AI systems are built, tested, or deployed. Model outputs, instead, reflect the models’ training data and choices of their human designers.  

Our members already run model validation, bias testing, and remediation to meet federal and state law, contractual terms, and enterprise risk standards. Ensuring facial recognition systems supplied to government agencies can recognize all phenotypical indicators equally (they work on both black and white faces) requires fine-tuning models based on expected population demographics, for instance. A policy that casts that work as suspect would put them in conflict with obligations other agencies already impose. 

We advised the Commission that: 

• There is no universal neutral baseline. Every model output reflects the data and the choices that produced it. Across platforms, countries, and over time, we can see that untreated models, trained on historically biased data, reproduce those biases. The empirical record on lending, hiring, healthcare, and pricing models supports this. 

• Treating mitigation as deception reverses the logic of Section 5. Consumers expecting neutral, objective outputs would not be served by FTC actions that mandate inaccurate model outputs. Section 5 protects consumers from deceptive practices, unfair competition, and operations that could violate their civil rights protections – like reducing the quality of their response based on their gender. There is a greater risk in presenting an unmitigated system as an objective score than in treating these outputs. 
  • For example, researchers in the world-renowned Nature journal recently found that, “when generating and evaluating resumes, [a leading LLM] assumes that women are younger and less experienced, rating older male applicants as of higher quality.”  
  • As AI is used both to prepare job documents and to review them, this tendency offers a prime example of the risks of unmitigated bias in AI workforce applications.  

• The Proposed Statement cannot be read apart from the rollback of disparate-impact liability. Disparate impact is a legal concept that refers to a policy or practice that looks fair and nominally treats everyone equally but harms a protected group more than others in practice. In a disparate impact claim, you do not need to prove intention; you only need to show that the final result is unfair. Because AI has neither personhood nor intention, disparate impact treatment is often the only viable route for challenging algorithmic discrimination. 

• Section 5 should reach material misrepresentations, not mitigation itself. The Commission can pursue firms that misrepresent what their systems do without treating responsible testing as presumptively deceptive. 

• A reasonable federal floor beats broad preemption. TDC supports harmonization between a coherent national regulatory floor that balances innovation with consumer protections and coordinated state regulation. Industry concerns about regulatory fragmentation can and should be addressed through tiered, multi-state alignment on specific legislative remedies. 

Read the full comment letter here. 

If you have any questions, please reach out to policy@digitalchamber.org. 

As Congress and federal regulators continue to seek consensus on modernizing rules and developing the right guardrails for digital assets, AI, and blockchain, states across the U.S. are not waiting to adopt their own rules. Across the country, policymakers are developing legislation around these emerging technologies as they understand embracing the potential will attract businesses, create high-paying jobs, and create solutions to make government more efficient, transparent, and profitable.  

But there is a risk: 50 states can also create 50 vastly different rules from state to state. Disjointed legislating can lead to fragmentation and, unintentionally, more uncertainty for innovators in their state. 

The Digital Chamber State Network is sharing model state legislation to help expand best practices at the state regulatory level, designed as an iterative, adaptable tool that can serve as a starting point for policymakers to build informed legislation rather than start from scratch.  

These models provide a constructive foundation that states can adapt to their own needs while promoting greater consistency across the country on the emerging technology issues defining this generation. 

The Digital Chamber’s model legislation page houses our initial library of bills and addresses several of the most important state-level legislative issues, including: 

• Blockchain & Digital Asset Task Forces to create a structured, informed pathway for states beginning to explore these issues. 

• Stablecoins & GENIUS Act Comparability to help states think through regulation alongside the emerging federal framework. 

• Digital Asset Strategic Reserve Funds with clear standards around structure, custody, and eligible assets. 

• Digital Identity focused on secure identity infrastructure and potential government applications. 

• Virtual Currency & Money Transmission to promote greater consistency across state licensing regimes. 

• AI and Deepfake Transparency to adapt a fully transparent and independent way to prove which images and videos are real and which are AI-generated, increasing trust. 

As we continue working with groups at the state level to educate policymakers on the potential of emerging technology, we remain committed to building bipartisan consensus on key issues and bolstering states’ roles in using blockchain’s potential to grow wealth, jobs, and add security and transparency to government to build a brighter economic future for all Americans.  

For the full suite of model bills, visit our website: state.digitalchamber.org/model-legislation. 

There are renewed efforts from certain banking lobbies to reopen what was a closed issue reached through bipartisan compromise on stablecoin rewards in the Clarity Act. Opponents warn that rewards on stablecoins will prompt Americans to withdraw trillions of dollars from community banks, lending will collapse, and Main Street will pay the price. 

In the year since the GENIUS Act, we have seen the opposite effect. Stablecoin adoption has surged while bank deposits have grown. Academic research finds that reasonable stablecoin rewards help banks compete by paying depositors more without reducing aggregate lending. As discussed below, academic research from Cornell, the White House, and Galaxy Research all found that the rise of U.S. dollar-denominated stablecoins also increases deposits in U.S. financial institutions of all sizes.  Stablecoins also do not mechanically remove dollars from banks: GENIUS requires permitted payment stablecoins to hold qualifying reserves, including bank deposits, while substantial stablecoin demand comes from foreign users whose dollars were never held at U.S. community banks. 

Meanwhile, the largest banks are building tokenized deposits that can compete directly for deposits now held by community banks. A dollar converted into a stablecoin may remain in or return to the banking system through reserves. A dollar moved from a community bank into a money-center bank’s tokenized deposit is more direct: the smaller bank loses the deposit, and the larger bank gains it. The debate should therefore focus on evidence and competition, not the most alarming hypothetical which has virtually zero empirical support. 

Background on CLARITY Act Stablecoin Rewards Text 

The current version of the Clarity Act, which the Senate will consider in mid-September, substantially restricts stablecoin yield. Specifically, Section 10404 provides a “Prohibiting Interest and Yield on Payment Stablecoins,” and bars a covered party from directly or indirectly paying interest or yield to a U.S. customer solely for holding payment stablecoins or on a stablecoin balance in a manner “economically or functionally equivalent” to interest on an interest-bearing bank deposit.¹ 

Clarity tightens regulation on digital asset service providers and affiliates, addressing the purported intermediary “loophole” identified by banking organizations while preserving transaction-based rewards that are not equivalent to deposit interest. This bipartisan compromise, led by Senators Alsobrooks and Tillis after months of negotiations, allowed all stakeholders to participate and provide input. Banks, credit cards, and payment platforms routinely use transaction-based rewards. Stablecoins should not uniquely be prevented from competing the same way. 

The Overwhelming Weight of Academic Authority Rebuts Deposit Flight Narrative  

In an attempt to further restrict how Americans can use their stablecoins, banking groups routinely assert that $6.6 trillion in deposits could be at risk if stablecoin holders receive yield or rewards “drain deposits” and constrict community lending. That is not an empirical forecast of actual deposit flight, but is instead the number of total U.S. domestic deposits.² The number of domestic deposits at U.S. banking institutions would need to go to zero for that number to be relevant.    

What is relevant is what empirically happens in our banking system when somebody replaces a fiat dollar with a stablecoin dollar. Galaxy Research analyzed likely stablecoin funding sources, and concluded only roughly 30% to 40% of incremental stablecoin funding is likely to come from U.S. bank deposits. $100 of new stablecoin issuance generates approximately $32 of additional U.S. credit, producing about $400 billion in additional credit through 2030.³ That is fundamentally different from assuming every dollar entering a stablecoin is a one-to-one dollar disappearing from a bank because the majority of stablecoin funding is likely to come from offshore demand, physical currency, money-market funds, and other sources.⁴ 

Professor Lin William Cong’s Cornell-affiliated research reaches a similar conclusion. Stablecoins do not mechanically drain deposits. A competitive outside option can instead cause banks to raise deposit rates to retain customers, attracting deposits and increasing lending.⁵ Bank Policy Institute’s public commentary characterized Professor Cong’s research as evidence that yield-bearing stablecoins could destroy deposits. Professor Cong rejected that interpretation, explaining that the model expressly contains a “competition-dominant” region in which greater stablecoin attractiveness raises deposit rates, deposits, lending, and consumer welfare.⁶ 

Recent history reinforces the difference between deposit reallocation and credit destruction. During the 2022-23 tightening cycle, deposits moved from rate-insensitive institutions toward rate-responsive digital banks. Those receiving banks expanded lending while aggregate credit supply remained broadly stable. 

Finally, the White House commissioned a study into the issue conducted by the White House Council of Economic Advisers, which tested the banking industry’s argument directly and released its findings in April 2026.⁷ Its baseline estimate found that eliminating stablecoin yield would increase total bank lending by only $2.1 billion, or 0.02%, while imposing approximately $800 million in welfare costs. Community banks would receive only about $500 million of additional lending, roughly 0.026%.  

Even after stacking highly adverse assumptions, there is little-to-no evidence for the claim that permitting stablecoins to earn yield like any other asset has a negative effect on community bank deposits. All available empirical studies instead found that adoption of U.S. dollar stablecoins actually increases deposits across the banking system.  

The Bigger Community-Bank Threat: Tokenized Deposits 

The banking industry’s position also contains an important inconsistency. The nation’s largest banks are currently building digital products to compete for deposits currently held at community banks. 

In June 2026, The Clearing House announced a bank-led on-chain money initiative backed by major financial institutions to enable 24/7 clearing and settlement of tokenized commercial-bank deposits across blockchain networks.⁸ The Digital Chamber strongly supports banks using blockchain technology, including tokenized deposits, and The Clearing House says its network is intended to be accessible to banks of all sizes. But community banks still need the technology, compliance resources, integrations, and customer reach to compete. Large banks already operate tokenized-deposit platforms and possess obvious advantages in deploying them at scale. 

The distinction matters. When a consumer purchases a stablecoin, the deposit liability may shift to the issuer’s banking relationships, and aggregate deposits depend on how reserves are allocated. Restricting stablecoin rewards while permitting large banks to compete through interest-bearing tokenized deposits therefore does not protect community banks from digital competition. It simply determines who wins it. 

notes:
[1] Digital Asset Market Clarity Act, H.R. 3633, 119th Cong. § 10404(b)-(c) (Lummis Substitute, EHF26654, July 22, 2026) (prohibiting covered parties from paying interest or yield solely in connection with holding payment stablecoins or in a manner economically or functionally equivalent to interest or yield on an interest-bearing bank deposit, while permitting rewards and incentives based on bona fide activities or transactions that are not economically or functionally equivalent to such deposit interest).

[2] American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum & Independent Community Bankers of America, Closing the Payment of Interest Loophole for Stablecoins  (Aug. 12, 2025) (arguing that stablecoins could produce as much as $6.6 trillion in deposit outflows if interest or yield is available).

[3] Thaddeus Pinakiewicz, Stablecoins, the GENIUS Act, and the Evolving Structure of Dollar Finance, Galaxy Research (May 7, 2026).

[4] See also Lin William Cong, Stablecoins and Banking: Deposit Dynamics, Financial Stability, and Regulatory Design (Dec. 7, 2025, appendix added Jan. 30, 2026). The paper concludes that existing evidence does not show meaningful aggregate deposit outflows attributable to stablecoin adoption and that, under realistic yield conditions, stablecoin competition can encourage more competitive deposit pricing and more efficient liquidity allocation.

[5] Cong, supra note 4. Cong’s model treats stablecoins as a competitive outside option. As their attractiveness increases, banks can respond by increasing deposit rates, thereby attracting deposits and expanding lending and intermediation. Under Cong’s updated calibration, moderate stablecoin yields of approximately 4% to 6% can increase deposit-market competition and expand credit intermediation. Contraction emerges only above roughly 6%, materially above returns available from the short-duration assets backing regulated stablecoins and therefore difficult to sustain economically.
[6] Cong, supra note 4, app. at 32-36. Responding to commentary criticizing the paper, Cong expressly rejects the characterization that meaningful stablecoin adoption necessarily reduces deposits and lending. He explains that the model contains a competition-dominant region in which increased stablecoin attractiveness increases deposit rates, deposits, lending, and consumer welfare.

[7] Council of Economic Advisers, Effects of Stablecoin Yield Prohibition on Bank Lending (Apr. 8, 2026).

[8] The Clearing House, Major Financial Institutions Unveil Bank-Led On-Chain Money Initiative (June 5, 2026) (announcing a bank-led initiative for on-chain clearing and settlement of tokenized commercial bank deposits, including 24/7 settlement and connectivity between blockchain networks and traditional payment rails). See also J.P. Morgan, Deposit Tokens: A Foundation for Stable Digital Money (2026); Citigroup, Citi Achieves Industry First: Integrating Citi Token Services with 24/7 USD Clearing for Real-Time Cross-Border Payments and Liquidity Management (Sept. 29, 2025).

The CFTC’s Emergency Order is an important step toward preventing a single state from disrupting nationwide markets and echoes the disjointed regulation-by-enforcement approach the digital assets industry endured just a few short years ago.

Americans should be able to confidently access financial products and services, including prediction markets. We strongly support the CFTC’s work to oversee event-contract markets, protect consumers, and ensure the industry can compete and operate onshore.

For any inquires, please contact TDC at press@digitalchamber.org.

On behalf of the Crypto Council for Innovation, Blockchain Association, and The Digital Chamber, we write to express our strong support for Senate floor consideration of the Digital Asset Market Clarity Act to establish a comprehensive framework for the regulation of digital assets in the United States. Read our full letter here.

• The Digital Chamber CEO Cody Carbone
• Crypto Council for Innovation CEO Ji Hun Kim
• Blockchain Association CEO Summer Mersinger

For any inquires, please contact TDC at press@digitalchamber.org.

Today’s draft is a meaningful step toward the Senate vote on the Clarity Act we’ve been calling for. We look forward to reviewing the latest, and we will provide our members’ feedback on how the bill may still be improved as it moves forward.

Our optimism has never wavered. Through every round of negotiation, we’ve believed that Congress would deliver the market structure framework this industry and everyday consumers need. Now is our best chance for durable market structure law to allow America to be the global leader in digital assets. We’re encouraged, and we’re ready to keep working until the bill reaches the President’s desk.

For any inquires, please contact TDC at press@digitalchamber.org.