Industry Frustration Mounts Over CLARITY Act and Excessive Concessions to Traditional Financial Institutions

The CLARITY Act, aimed at providing regulatory clarity for the U.S. crypto industry, continues to face delays as Senate leaders seek to renegotiate key language to ensure bipartisan support. The bill proposes to divide oversight between the SEC and CFTC while establishing federal rules for crypto exchanges and custodians. However, industry groups have raised concerns over late amendments that may limit key business models.

Coinbase, a major crypto exchange, has withdrawn its support for the CLARITY Act due to provisions on stablecoin rewards and DeFi, which it claims could stifle innovation. CEO Brian Armstrong stated that the bill is 'materially worse than the current status quo.' Ripple Labs and Coin Center, however, continue to support the legislation.

The Senate Banking Committee has postponed its markup of the crypto bill to continue negotiations, with Chairman Tim Scott emphasizing the need for bipartisan consensus. The Agriculture Committee has also delayed its markup until late January, adding to the uncertainty.

Why Did This Happen?

The CLARITY Act aims to replace the current enforcement-driven approach with clear statutory rules for crypto firms. It includes provisions to ban wash trading and enforce asset segregation and market surveillance. However, these measures face resistance from some Democrats who worry about weakened investor protections.

Industry groups have also raised concerns that the bill gives too much power to traditional financial institutions, particularly in the area of stablecoin rewards. The Banking Committee's draft text prohibits paying interest on stablecoin holdings but allows activity-based rewards for staking or providing liquidity.

How Did Markets React?

The uncertainty surrounding the CLARITY Act has led to mixed reactions in the crypto market. While some industry leaders like Ripple CEO Brad Garlinghouse see it as a win for the industry, others, like Coinbase, argue it could harm innovation. Meanwhile, stablecoin transaction volumes hit a record $33 trillion in 2025, indicating strong adoption.

Institutional investors have also been making moves in the stablecoin space. ATW Partners recently announced a $50 million investment in Frax's frxUSD stablecoin, highlighting the growing interest in tokenized financial assets. BitGo will provide custody for the investment, further bridging the gap between traditional and digital finance.

What Are Analysts Watching Next?

Analysts are closely monitoring how the CLARITY Act will impact stablecoin rewards and DeFi. The Banking Committee's revised language on stablecoin incentives allows rewards for specific network activity but prohibits passive yield. This has sparked a debate between crypto firms and banks over fair competition.

The outcome of the markup process will determine whether the bill moves forward or is delayed further. If passed, it could reshape how stablecoins and crypto exchanges operate, particularly regarding liquidity and user incentives. With the Agriculture Committee pushing its markup to late January, the final version of the bill may not be clear until the end of the month.

Market participants are also watching how President Trump's crypto ventures, such as World Liberty Financial, may be affected by the ethics provisions in the bill. Some Democratic senators have described ethics language as a 'red line' in negotiations, adding another layer of complexity to the legislative process.

The CLARITY Act's passage could have long-term implications for the U.S. crypto industry, particularly as it aligns with the broader trend of institutional adoption. With stablecoin transaction volumes expected to rise further in 2026, the regulatory environment will play a key role in shaping future market dynamics.