Coinbase Opposes Senate Crypto Bill Amid Concerns Over SEC Overreach and DeFi Restrictions

Coinbase CEO Brian Armstrong announced the company will not support the latest version of the Senate's crypto market structure bill, citing concerns over regulatory overreach and potential restrictions on DeFi. In a public statement, Armstrong criticized the bill for granting excessive authority to the Securities and Exchange Commission (SEC) and limiting the role of the Commodity Futures Trading Commission (CFTC). He also warned that the bill could stifle innovation by banning tokenized equities and reducing stablecoin rewards.

The bill, formally known as the CLARITY Act, aims to define how digital assets are classified and regulated. The Senate Banking Committee had been expected to vote on it on Thursday, but a delay has been reported. The draft includes provisions that would restrict stablecoin yields, a move backed by traditional banks but opposed by crypto firms like Coinbase.

Coinbase's withdrawal of support has added uncertainty to the bill's future. With the markup now in question, lawmakers face pressure from both the banking industry and crypto stakeholders to adjust key provisions. Armstrong emphasized that Coinbase would prefer no bill over a poorly designed one, a position reflecting broader industry skepticism about the current draft.

Why Did This Happen?

The bill's restrictions on stablecoin rewards have been a central point of contention. Stablecoin yields, particularly for tokens like USDC, have been a significant revenue source for crypto firms. The current draft would bar companies from offering interest on stablecoin holdings, a provision seen as favorable to traditional banks but detrimental to crypto innovation.

Armstrong highlighted that the bill could also weaken the CFTC's authority in regulating digital commodities. This shift would increase the SEC's oversight, potentially leading to more stringent rules for crypto firms. The CEO also raised concerns about how the bill could expand government access to DeFi transaction data, effectively subjecting decentralized protocols to Bank Secrecy Act requirements.

What Are Analysts Watching Next?

Analysts have long anticipated that crypto legislation could take years to fully implement. Paradigm's vice president of regulatory affairs, Justin Slaughter, noted that the bill requires 45 rulemakings, a process that could span multiple presidential terms. This timeline mirrors the lengthy implementation of the Dodd-Frank Act, which took over a decade to fully roll out.

With the markup delayed, lawmakers are now expected to revisit amendments to the bill. Some of the key amendments include provisions that would further limit stablecoin rewards and strengthen SEC oversight. If passed, these amendments could reshape how crypto companies operate in the U.S. and influence the global digital asset market.

Global Implications and Regulatory Trends

Regulatory actions are not limited to the U.S. Dubai's financial regulator, the Dubai Financial Services Authority (DFSA), recently banned privacy tokens and imposed stricter rules on stablecoins. The DFSA's updated framework prohibits privacy coins like Monero and Zcash in the Dubai International Financial Centre (DIFC).

At the same time, Pakistan has signed a memorandum of understanding with an affiliate of World Liberty Financial to explore using stablecoins for remittances and trade. This move reflects the growing global interest in digital assets as a tool for cross-border payments.

The U.S. Senate's CLARITY Act is part of a broader effort to bring clarity to the regulatory status of digital assets. If passed, it would provide a legal framework for classifying tokens as either securities or commodities. However, the debate over who should regulate crypto markets—SEC or CFTC—remains unresolved.

The outcome of the bill could have long-term implications for the crypto industry. If the final version includes restrictions on stablecoin rewards and DeFi, it could push innovation overseas to more crypto-friendly jurisdictions. Conversely, a more balanced approach could encourage investment and adoption within the U.S., aligning digital assets with traditional financial services.