KEYTAKEAWAYS
- The Clarity Act collapsed after its latest draft alarmed the crypto industry, prompting Coinbase and others to withdraw support and forcing the Senate to delay the vote indefinitely.
- Core disputes center on DeFi liability, expanded SEC authority, tokenized equities, and a proposed ban on stablecoin yields viewed as favoring banks.
- With lawmakers and industry far apart, U.S. crypto market structure reform is likely to face years of negotiation and uncertainty.
CONTENT
The U.S. Clarity Act, once seen as a landmark crypto reform, has stalled after industry backlash led by Coinbase, exposing deep divisions over DeFi, stablecoins, and regulatory power.
The U.S. market structure bill known as the Clarity Act, originally scheduled for an early-2026 push and widely regarded as a major milestone for the crypto industry, took a sharp turn this week. What had been expected to bring long-awaited regulatory clarity instead unraveled just ahead of a planned vote in the Senate Banking Committee, after industry leaders — including major U.S. crypto exchange Coinbase — collectively withdrew their support. As a result, the bill’s review has been postponed indefinitely.
WHY DID IT TURN FROM A POSITIVE CATALYST INTO A DISASTER?
The original intent of the Clarity Act was to address the long-standing fragmentation of U.S. digital asset regulation and the lack of clear jurisdiction. The industry initially placed high hopes on the bill, expecting it to put an end to the SEC’s “regulation by enforcement” approach and to establish the CFTC as the primary regulator for crypto markets.
However, the momentum reversed completely within 48 hours of the Senate Banking Committee releasing the latest draft text. Coinbase CEO Brian Armstrong publicly stated that, after internal review, the revised provisions not only failed to solve existing problems but instead pushed many previously lawful business activities to the edge of illegality.
Armstrong was blunt in his assessment: it would be better to have no bill at all than a bad one. As Coinbase and several major industry groups withdrew their support, the Senate was forced to cancel a critical vote originally scheduled for mid-January, leaving the bill’s future in serious doubt.
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INDUSTRY ACCUSATIONS VS. LAWMAKERS’ COUNTEROFFENSIVE
Coinbase’s strong opposition centers on four provisions in the draft that the industry views as innovation-killing. In response, Senate Republicans released a “Myth vs. Fact” memo to push back. Both sides present sharply different interpretations, with the core disputes outlined below:
1️⃣ DeFi and Privacy: A Fight for Survival
Coinbase’s view: The bill imposes what it calls “hostile” regulation on decentralized finance (DeFi). By requiring developers to bear responsibility for protocol activity, the rules are seen as technically unworkable and as granting the government sweeping access to users’ financial records—posing a serious threat to privacy.
Senate response: Lawmakers argue the measures are necessary to combat money laundering and illicit finance. They say the bill clearly distinguishes between developers who merely publish code and intermediaries who control user funds, emphasizing that “code is protected, but misconduct is not.”
2️⃣ Expanding SEC Power, Marginalizing the CFTC
Coinbase’s view: The industry hoped the bill would curb targeted enforcement by the U.S. Securities and Exchange Commission. Instead, the latest draft fails to draw clear boundaries and effectively sidelines the U.S. Commodity Futures Trading Commission, reducing it to a subordinate role and allowing the SEC to continue expanding its jurisdiction.
Senate response: Official documents state that the bill relies on existing securities law to clarify the distinction between securities and commodities and establishes a joint SEC–CFTC advisory committee to coordinate oversight—aimed at closing regulatory gaps rather than expanding authority.
3️⃣ A De Facto Ban on Tokenized Equities
Coinbase’s view: Certain provisions amount to a de facto ban on tokenized equities. The exchange argues this would stifle financial market modernization and push what could have been a U.S.-based tokenization supercycle into overseas jurisdictions.
Senate response: Lawmakers say the restrictions are intended to protect investors and prevent a repeat of failures like FTX, ensuring that all security-like digital assets are subject to rigorous disclosure and anti-fraud requirements.
BANKS’ STRATEGIC CALCULUS: WHY BAN STABLECOIN YIELDS?
Beyond the broader regulatory disputes, the provision that has sparked the strongest backlash from the crypto community is the bill’s restriction on stablecoins—widely viewed as the product of intense lobbying by traditional banks.
At the center of the controversy is a clause that imposes a ban on stablecoin rewards/yield.
▶ Banks’ fear: The CEO of Bank of America has warned that allowing yield-bearing stablecoins could trigger as much as $6 trillion in deposit outflows. For decades, banks have relied on near-zero-interest deposits to earn spreads on U.S. Treasuries, generating roughly $250 billion in annual profits across the six largest banks. From the industry’s perspective, the ban functions as a defensive moat—preventing Treasury yields from being passed on to users and shielding traditional profit pools from competition.
▶ A regulatory moat: The provision restricts crypto platforms from offering any yield on stablecoins. Coinbase has bluntly described this as a “handout to banks,” arguing that lawmakers are using regulation to eliminate competitors and insulate banks from fintech pressure.
▶ User impact: For everyday investors, the ban removes a legitimate source of passive income, significantly reducing the appeal of holding stablecoins and weakening one of crypto’s most practical use cases.
Coinbase argues that sacrificing technological innovation to protect incumbent financial institutions runs directly counter to the principles of free-market competition—and risks entrenching inefficiency rather than fostering a more open, competitive financial system.
SENATE STANCE AND THE ROAD AHEAD: A LEGISLATIVE PROCESS THAT COULD TAKE YEARS
Facing a coordinated industry backlash, Senate Banking Committee Chairman Tim Scott sought to ease tensions, describing the setback as a temporary pause rather than a collapse, and stressing that good-faith negotiations are still ongoing. Republicans have also attempted to counter criticism by releasing “myth-busting” materials, arguing that the bill has been misinterpreted and emphasizing that it reflects years of bipartisan work aimed at strengthening national security and consumer protection.
Yet the divide between lawmakers and the crypto industry—particularly over how DeFi should be defined and whether stablecoin yields should be allowed—remains profound, making near-term consensus unlikely.
As the crypto industry continues its gradual move toward the mainstream, it is increasingly caught between traditional financial interests, regulatory and legislative hurdles, and competing stakeholder agendas. In this early and highly uncertain phase, every policy decision carries outsized consequences. The key question is which forces are genuinely acting in the long-term interest of the industry and its decentralized ethos—and which are merely invoking investor protection to preserve the dominance of legacy finance.
