Coinbase May Withdraw Support for CLARITY Act Over Stablecoin Rewards Ban

Coinbase Global Inc., the largest U.S. cryptocurrency exchange, is threatening to withdraw its support for the CLARITY Act if the legislation restricts its ability to offer rewards on stablecoin holdings. The bill, set for a markup session in the Senate Banking Committee this week, includes provisions that could limit stablecoin-based incentives, which are a significant revenue stream for the exchange according to Bloomberg.

Stablecoin rewards have become a focal point in the broader debate over crypto regulations. The banking industry has raised concerns that such incentives could siphon trillions in deposits from traditional banks into crypto platforms as reported by Cointelegraph. Coinbase, however, argues that stablecoin rewards are essential for maintaining a competitive payments system and preserving the dollar's dominance in digital commerce according to Bitcoin.com.

The CLARITY Act, a major crypto market-structure bill, could reshape the regulatory landscape for stablecoins and decentralized finance (DeFi). If the bill passes, it would mark a significant step in federal oversight of digital assets as noted by Cryptopolitan. However, Coinbase and other crypto firms are pushing for clear parameters that preserve their ability to offer rewards through third-party platforms according to Cointelegraph.

Why Did This Happen?

Coinbase has applied for a national trust banking charter, which would allow it to offer rewards under traditional banking rules. However, the banking industry is pushing for stricter limits, arguing that such incentives threaten deposit stability and community lending as Cointelegraph reports.

The debate has intensified as lawmakers consider whether to extend the stablecoin rewards ban from the GENIUS Act—passed in July—to include third-party platforms like Coinbase. The current law prohibits stablecoin issuers from offering interest or yield on token holdings but allows exchanges to provide rewards through partner platforms according to Cointelegraph.

How Did Markets React?

The uncertainty around the CLARITY Act has raised concerns about the bill's prospects for passage. With Coinbase warning it may withdraw support if the bill restricts stablecoin rewards, the legislation's bipartisan backing has weakened as Cryptopolitan notes.

Analysts estimate that the CLARITY Act may not pass until 2027 and could take until 2029 for implementation. Senate Banking Committee Chair Tim Scott, however, remains optimistic about faster progress according to Cointelegraph.

What Are Analysts Watching Next?

The Senate Banking Committee's markup session is seen as a critical step in shaping the final bill. Lawmakers are weighing the risk of stifling innovation in crypto markets against the potential impact on traditional banking as reported.

One possible compromise could restrict rewards to entities with banking licenses or financial charters. Five crypto firms have already received conditional approvals from the Office of the Comptroller of the Currency to operate as national trust banks according to Cointelegraph.

The administration supports swift action on crypto legislation but faces mounting pressure from both sides of the issue. Crypto firms argue that preserving stablecoin rewards is crucial for maintaining U.S. competitiveness in the digital economy according to Bitcoin.com.

Banks, meanwhile, continue to warn that stablecoin incentives could drain deposits and weaken local financial systems. The American Bankers Association has highlighted the risks to small businesses, farmers, and other groups that rely on community bank lending as noted by Cryptopolitan.

The outcome of the Senate markup could determine whether the CLARITY Act moves forward in its current form or faces delays and revisions. With Coinbase and other crypto firms closely monitoring developments, the final bill will likely reflect ongoing tensions between innovation and regulation in the digital asset space according to Cointelegraph.