Stablecoin Yield Fight Threatens to Sink CLARITY Act as Coinbase and White House Clash

The Senate Banking Committee postponed its markup hearing for the CLARITY Act after Coinbase CEO Brian Armstrong withdrew support for the legislation. The move has thrown the bill into uncertainty and raised concerns about the broader regulatory framework for digital assets. Armstrong cited multiple issues with the draft, including what he described as a 'de facto ban' on tokenized equities and a restriction on stablecoin yield. The decision also raised questions about the future of the CLARITY Act as it approached a 'do-or-die' moment before the midterm election calendar took priority.

The CLARITY Act aims to establish a comprehensive regulatory framework for digital assets in the United States. Among its key provisions is a restriction on digital asset service providers paying interest or yield 'solely in connection with the holding of a payment stablecoin'. This provision has drawn sharp criticism from the crypto industry, with Coinbase arguing that such restrictions could eliminate a major revenue stream and give global competitors an edge.

Coinbase's decision to walk away from the CLARITY Act reflects broader tensions between the crypto industry and traditional banking interests. Banking groups have argued that allowing crypto platforms to offer interest on stablecoin balances could siphon deposits away from community banks and undermine local lending. This has led to intense lobbying efforts from both sides, with the Senate Banking Committee serving as the battleground for these conflicting priorities.

Why Did This Happen?

The CLARITY Act has been shaped by months of bipartisan negotiations and industry input, but stablecoin yield provisions remain a sticking point. The Senate draft text sought to bar digital asset providers from paying yield simply for holding stablecoins, while allowing activity-based rewards tied to transactions, staking, or liquidity provision according to financial reports. Coinbase has argued that these restrictions could undermine innovation and create a level of uncertainty that would deter investment.

Armstrong framed the dispute as a battle against bank lobbying efforts seeking to stifle competition through regulation. He told FOX Business that it 'just felt deeply unfair' that one industry could use regulatory capture to ban its competition.

How Did Markets React?

The uncertainty surrounding the CLARITY Act has already had immediate effects on the crypto market. Shares of crypto companies including Coinbase, Circle, and Bullish dropped following the news. Bitcoin and other major altcoins also gave back earlier week gains.

The White House has not publicly commented on Coinbase's decision, but sources close to the administration have expressed frustration. A source told The Block that the administration may consider abandoning the legislation altogether unless Coinbase returns to negotiations with a stablecoin yield agreement acceptable to banking interests.

What Are Analysts Watching Next?

Industry observers are closely monitoring the next steps in the CLARITY Act's legislative process. David Sacks, the White House's crypto czar, has urged the industry to use the delay to resolve any remaining differences and emphasized that 'passage of market structure legislation remains as close as it's ever been'.

Analysts from Bernstein have also highlighted the urgency of the situation. The firm argues that the bill must advance by the second quarter of 2026 to avoid being overtaken by midterm election dynamics. Political timing remains a key factor in the CLARITY Act's success, with the Trump administration's pro-crypto stance currently giving the industry an advantage.

The CLARITY Act is also subject to scrutiny from regulatory experts. Former SEC Chief Accountant Lynn Turner has warned that the bill, as written, is 'severely deficient' and could enable 'another FTX-type fraud'. Turner has called for additional safeguards, including audited financial statements and enhanced oversight by the PCAOB.

The CLARITY Act represents a critical step toward a regulated U.S. cryptocurrency market. By imposing clearer limits on stablecoin yields and establishing federal oversight, the bill seeks to foster innovation while containing systemic risk. The final shape of the legislation will likely influence the global digital asset landscape for years to come.

For now, the fate of the CLARITY Act remains uncertain. The standoff between Coinbase and the White House highlights the challenges of balancing innovation, regulation, and market stability in the digital asset space. As lawmakers continue to navigate these tensions, the broader financial industry will be watching closely.