Key Insights
- Coinbase rejects tension with the White House and calls to defer the CLARITY Act review.
- Markup of the legislation was halted due to industry concerns connected to DeFi and stablecoin yield.
- Leaders in the crypto industry are divided because banks risk losing money to yield-bearing stablecoins rather than conventional deposits.
The CLARITY Act has become the focus of the policy discussion in Washington following the rejection of the bill by Coinbase CEO Brian Armstrong, who disregarded reports that the White House is withdrawing support of the bill or that the administration has diminished its relationships with the crypto exchange.
CLARITY Act and White House Relationship Dispute.
The dispute has emerged after Coinbase dropped its sponsorship of the crypto market structure bill, which it says would impact decentralized finance, stablecoin yield, and tokenized stock trading.
Although the act was initially framed as a move towards regulatory stability, recent events have brought to light policy disputes among policymakers, crypto companies, and banking lobbyists over its possible effects.
Armstrong responded to claims of a conflict between Coinbase and the administration of President Donald Trump, saying that its relationship with the White House has been positive.
Writing on X, he dismissed speculation that officials were “furious” with Coinbase or that executive support for the CLARITY Act was being withdrawn. His comments came after journalist Eleanor Terrett reported alleged tensions tied to Coinbase’s decision to step back from the bill.
Source: Coinbase CEO Brian Armstrong(x)
According to Armstrong, Coinbase’s withdrawal does not reflect a communication breakdown but rather opposition to specific provisions in the latest draft. He said the company would prefer a delay in passage rather than approval of the bill in its current form.
Armstrong characterized several elements of the draft as harmful to consumers and innovation, describing the text as “catastrophic” while maintaining that compromise remains possible.
Coinbase’s Objections to the CLARITY Act
Formally, Coinbase had previously withdrawn its support for the bill earlier in the week, claiming that amendments to the CLARITY Act would destroy the decentralized financial ecosystem, limit tokenized equity trading, and deny firms the ability to distribute the yield generated by stablecoins to their users.
The exchange shared a comprehensive list of complaints with legislators, emphasizing how the bill may redefine DeFi activity and stablecoin-based products.
Such objections affected congressional scheduling. A scheduled markup of the legislation was also delayed by the Senate Banking Committee, which gave itself more time to discuss the legislation with industry players.
Armstrong said he was optimistic that an updated version of the bill would return to the table soon, suggesting that the process of lawmakers and crypto companies agreeing on a particular reform was not yet complete.
Rifts In the Crypto Industry
The CLARITY Act controversy has also brought divisions within the crypto community to the surface. White House executives stated the bill would bring much-needed regulatory clarity to digital asset markets, though trade-offs may be necessary.
Galaxy Digital CEO Mike Novogratz stated that the bill could pass within the next two weeks, describing his outlook as optimistic following recent discussions with the senators.
Novogratz has already taken a conciliatory position, saying that the law does not imply that all problems should be solved immediately and that some, including the limit on stablecoin yields, could be raised again in the future.
Impact on the Banking Industry and the Stablecoin interest rate
In an X post, Arrington argued that banks seek to preserve their business model by charging customers while paying little or no interest on deposits. He said lawmakers allow such restrictions because of the banking sector’s lobbying influence.
Armstrong publicly agreed with Arrington’s assessment, responding “Exactly” to the argument that banking interests are shaping the legislative discussion around yield.
The issue gained further attention after Bank of America CEO Brian Moynihan warned that yield-generating stablecoins could divert as much as $6 trillion from traditional bank deposits.
Moynihan said such a shift could reduce bank liquidity, limit lending capacity, particularly for small and midsize businesses, and increase borrowing costs.
Broad Legislative and Regulatory Environment
The U.S. Senate Agriculture Committee halted the implementation of the Digital Asset Market Clarity Act due to unresolved questions regarding the regulation of DeFi, stablecoin yields, and jurisdiction.
Meanwhile, Galaxy Digital noted that a Senate Banking draft would expand the Treasury Department with similar authority to conduct comprehensive surveillance measures, as seen with the Patriot Act, which is concerning given the potential effects on innovation and the crypto industry.
Recently, Federal Reserve Chair Jerome Powell cautioned that a Justice Department investigation into his testimony before Congress may damage the central bank’s independence.
