CLARITY Act Vote Pulled as Crypto Industry Pushes Back

Key Takeaways

• •
  Senate vote on the CLARITY Act was cancelled after industry backlash
• •
  The bill bans stablecoin yield, protecting bank deposits
• •
  Banking groups are accused of shaping the law in their favor
• •
  DeFi and tokenized assets would face heavy restrictions

Why Stablecoin Yield Sits at the Center

Critics argue the economic logic behind the bill is simple. Banks typically pay depositors minimal interest, while stablecoin issuers hold reserves in short-term US Treasury bills that generate significantly higher returns. If that yield were passed on to users, stablecoins would become a powerful alternative to bank deposits.

Supporters of the CLARITY Act argue this threatens financial stability. Opponents counter that it threatens bank profitability. The bill responds by banning yield on stablecoins altogether, removing the competitive pressure rather than allowing the market to adapt.

One of the most controversial provisions is Section 404. The language does not merely prevent stablecoin issuers from offering yield. It blocks yield distribution through exchanges, affiliates, partners, or any indirect structure. Every potential path to competitive returns is closed by statute.

Industry figures say this goes far beyond consumer protection. It effectively ensures stablecoins cannot challenge the traditional deposit model, regardless of technological or economic efficiency.

Banking Groups and Regulatory Capture Claims

More than 50 banking associations have publicly backed the legislation, including the American Bankers Association and dozens of state-level groups. Critics describe the effort as coordinated lobbying on an unprecedented scale, designed to protect trillions of dollars in deposits.

Analysis referenced by opponents, including modeling from the Federal Reserve Bank of Kansas City, suggests that if stablecoins paid competitive rates, banks could lose roughly a quarter of their deposits. That would translate into a sharp reduction in lending capacity, hitting community banks hardest. Rather than innovate, critics argue, the industry sought protection through legislation.

The bill’s vulnerabilities became public after Brian Armstrong reviewed the draft in detail and withdrew support late at night. By the next morning, the Senate vote was off the calendar. Supporters say Armstrong identified risks that many analysts initially overlooked, particularly the long-term consequences for innovation and market structure.

DeFi and Tokenized Assets Also Targeted

Beyond stablecoins, the CLARITY Act would reshape other parts of crypto. Tokenized equities would be forced into the SEC’s traditional securities framework, limiting decentralized, peer-to-peer models. DeFi protocols would face mandatory AML and KYC rules that undermine permissionless access, fundamentally altering how decentralized finance operates.

Developers argue this transforms open networks into permissioned systems that resemble legacy finance, stripping away the very features that made them innovative.

The controversy has also taken on a geopolitical dimension. While US lawmakers debate banning yield on dollar-linked stablecoins, China has moved in the opposite direction by allowing interest-like incentives on its digital yuan. Critics say this contrast highlights diverging strategies: protection of incumbents versus aggressive experimentation.

Clarity for Banks, Not for Innovation

For many in the crypto sector, the CLARITY Act now symbolizes a harsh reality. After years of asking for clear rules, they believe clarity has arrived in the form of explicit protection for banks, rules written by incumbents, and competition curtailed through Congress rather than markets. What is being promoted as innovation policy, critics warn, may instead mark one of the most significant regulatory power plays in modern US financial history.