CLARITY Act Becomes Battle Over Who Controls Onchain Dollar Yield as Banks and Crypto Clash

After missing its January 15 markup date, the bill now sits at the center of a debate that could determine whether onchain dollar lending stays in America or moves overseas.

The Senate Banking Committee postponed its scheduled vote after Coinbase, America’s largest cryptocurrency exchange, withdrew support for the legislation. The company’s CEO Brian Armstrong stated the exchange would rather have “no bill than a bad bill,” citing concerns about restrictions on stablecoin rewards and decentralized finance.

The Six Trillion Dollar Question

At the heart of the dispute lies a fundamental question: should crypto exchanges and platforms be allowed to offer rewards on stablecoin holdings, or does this threaten traditional banking?

The American Bankers Association, representing community banks across all 50 states, sent a letter to Congress warning that up to $6.6 trillion in bank deposits could flee to stablecoins if the current system continues. The banking industry argues that crypto platforms are exploiting a loophole in the recently passed GENIUS Act, which banned stablecoin issuers from paying interest directly but remained silent on rewards from exchanges and affiliated partners.

Community banks provided detailed state-by-state projections showing the potential impact. In Texas alone, banks could lose between $14.7 billion and $29.3 billion in deposits, reducing lending capacity by up to $21.4 billion. California faces potential outflows of $8.7 billion to $17.5 billion, with similar reductions in available credit for businesses and homebuyers.

Platform Rewards vs Bank Deposits

The controversy centers on how stablecoin rewards work in practice. While the GENIUS Act prohibited stablecoin issuers like Circle from paying interest to holders of their USDC tokens, it did not address what happens when crypto exchanges offer their own reward programs.

Source: @jchervinsky

Coinbase reported $355 million in stablecoin-related revenue during the third quarter of 2025. The exchange offers approximately 3.5% rewards to Coinbase One customers who hold USDC. Banking groups argue these rewards function exactly like bank interest, just with an extra step to technically comply with the law.

The crypto industry counters that Congress deliberately distinguished between issuer-paid yield and platform rewards. They view these programs as legitimate marketing incentives, similar to credit card rewards, rather than an attempt to circumvent regulation.

The Offshore Risk Warning

Industry leaders from the crypto sector warn that overly restrictive rules could push dollar-based lending offshore rather than making it safer within US borders.

Jakob Kronbichler, CEO of onchain credit marketplace Clearpool, told reporters that demand for dollar yield will not disappear because of legislation. “If compliant onchain liquidity structures are constrained, activity is likely to move offshore or concentrate in a small number of incumbent intermediaries,” he explained.

Ron Tarter, CEO of stablecoin issuer MNEE, echoed these concerns: “If stablecoin rewards are pushed offshore rather than made transparent and compliant onshore, the US risks losing both innovation and visibility into these markets.”

This represents a significant policy dilemma. The same regulations designed to protect community bank deposits might inadvertently send billions in economic activity to foreign jurisdictions with looser oversight.

What the Latest Draft Says

The revised CLARITY Act attempts to split the difference between these competing interests. The latest 278-page draft prohibits paying interest “solely for holding” stablecoin balances but allows “activity-based” rewards tied to specific actions.

Under this framework, platforms could potentially offer rewards for opening accounts, making transactions, providing liquidity, or staking. The key distinction focuses on passive holdings versus active participation. Banks consider this compromise insufficient, arguing it still allows yield-like programs to continue under different labels.

The bill also addresses decentralized finance protocols. It protects software developers from liability when they publish code without controlling customer funds, while requiring centralized intermediaries that interact with DeFi protocols to implement risk management and cybersecurity standards.

Political Stalemate and Next Steps

The markup delay reflects deep divisions that extend beyond just stablecoin yields. Senators filed 137 amendments before the original January 15 deadline, with disputes ranging from ethics provisions for Trump administration officials to expanded surveillance authority over DeFi platforms.

Senator Elizabeth Warren filed over 20 amendments focusing on conflict-of-interest provisions, while Republican committee leadership argues these ethics questions do not belong in crypto market structure legislation. Democrats also pushed for stricter DeFi regulations, including provisions allowing transaction holds of up to 180 days for suspicious activity.

Both the Senate Banking Committee and Agriculture Committee rescheduled their markups for late January 2026. White House crypto adviser David Sacks stated that “passage of market structure legislation remains as close as it’s ever been,” encouraging the industry to use this pause to resolve remaining differences.

Market analysts project stablecoin supply could grow from $309 billion currently to $420 billion by the end of 2026. This growth translates to a rewards pool potentially worth $6 billion to $10 billion annually, making the stakes of this legislative fight increasingly significant.

Where the Chips Fall

The CLARITY Act’s trajectory will determine more than just regulatory boundaries. It will shape where institutional onchain credit develops over the next decade and whether the United States maintains its position as the center of digital dollar innovation or watches that activity migrate to more accommodating jurisdictions.

For now, the crypto industry, banking sector, and lawmakers continue negotiating a framework that must balance innovation with financial stability, competition with consumer protection, and domestic growth with offshore risk.