The Real Reason the CLARITY Act Stalled: A USDC Yield War Between Coinbase and the Banks

3-Point Summary

• The CLARITY Act stalled not because of regulators, but due to internal industry conflict.
• The core battle centers on whether stablecoins like USDC should be allowed to generate yield.
• Coinbase’s opposition to a yield ban significantly weakened political momentum for the bill.

The CLARITY Act stalled because the industry itself couldn’t agree on who controls the economics of digital dollars.

50-Second Shorts Video

Watch the 50-second video to understand why the CLARITY Act stalled before diving into the full analysis below.

Why the CLARITY Act Stalled: Not Regulation, but an Internal War

1) What the CLARITY Act Was Trying to Do

The CLARITY Act is a U.S. bill designed to bring regulatory clarity to digital assets. Its core goals can be summarized as:

• Clearly classifying digital assets as securities, commodities, or payment instruments
• Defining rules for exchanges, brokers, and custodians
• Setting standards for stablecoin reserves and risk management
• Providing enough legal certainty for institutional investors to participate

The most controversial part of the latest draft is a provision that would effectively ban yield on stablecoin balances. In practice, this raises the question: “Can digital dollars like USDC pay interest at all?”

2) How Institutional Investors See It

For institutional investors (banks, funds, asset managers), the CLARITY Act is less about “whether” to enter the market and more about “under what rules”.

• Upside: Clear rules reduce compliance and legal risk
• Concern: A ban on stablecoin yield could weaken product competitiveness
• Banks: Worry that interest-bearing stablecoins would compete with deposits
• Crypto firms: See this as protectionism that stifles innovation

In short, institutional capital is ready, but how stablecoin yield is regulated will heavily shape their strategies.

3) Why Momentum Collapsed — An Internal Conflict, Not Just Regulation

The main reason the CLARITY Act lost momentum is not external pressure from regulators, but an internal conflict within the industry — especially around Coinbase and stablecoin yield.

3-1. The Impact of the Stablecoin Yield Ban

The draft bill would prohibit exchanges and brokers from offering direct or indirect yield on stablecoin balances, including any economic benefit that is “equivalent to interest.” In effect, this would make most stablecoin yield-based business models nearly impossible.

3-2. Why Coinbase Pushed Back

Coinbase earns hundreds of millions of dollars annually from USDC-related revenue, largely through sharing interest income on USDC reserves with Circle.

A strict ban on stablecoin yield directly threatens this core revenue line. As a result, Coinbase reportedly signaled to lawmakers that it could not support the bill in its current form, which significantly weakened political momentum behind the CLARITY Act.

3-3. The Bottom Line: Internal Division Stopped the Bill

The CLARITY Act stalled at the intersection of:

• Banks vs. crypto firms over who controls “digital dollar” economics
• Internal conflicts within the crypto industry over stablecoin yield
• Coinbase’s strategic decision to oppose a bill that undercuts its business model

In combination, these factors drained the bill of the support it needed to move forward.

4) What Happens Next — Three Possible Paths

Scenario 1: Strong Yield Restrictions, Slow Passage

• Strict limits or de facto bans on stablecoin yield remain in place
• Banks’ political influence prevails
• U.S. stablecoins evolve into “non-yield digital dollars” with constrained business models

Scenario 2: A Compromise on Yield

• Yield allowed under caps, or only for certain regulated entities
• Stablecoin yield models shrink but do not disappear
• Crypto firms, banks, and policymakers settle on an imperfect but workable middle ground

Scenario 3: Long-Term Stalemate

• Coinbase’s opposition, election cycles, and shifting legislative priorities delay the bill for years
• The U.S. continues under fragmented, agency-driven regulation instead of a unified framework
• Regions like the EU, Singapore, and Hong Kong gain relative advantage with clearer rules

Conclusion

The CLARITY Act debate is not just about regulation — it is about who captures the economics of digital dollars.

Banks fear deposit flight and push to limit stablecoin yield. Crypto firms argue that such limits block innovation and user choice. Coinbase sees its core USDC revenue model at risk and resists accordingly.

Until this power struggle over USDC and stablecoin yield is resolved, the future of U.S. digital asset regulation will likely remain uncertain and contested.

Younchan Jung
Researcher exploring structural shifts in AI, blockchain, and the on‑chain economy.

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