Deng Tong, Golden Finance
The Senate Agriculture Committee is set to unveil its cryptocurrency market structure bill (the CLARITY Act) on January 21 and hold a markup hearing on January 27. The cryptocurrency industry is closely watching the bill as it will determine how the country’s regulatory bodies—the Securities and Exchange Commission and the Commodity Futures Trading Commission—will oversee the cryptocurrency market.
On January 15, the Senate Banking Committee canceled a hearing originally scheduled to amend and vote on comprehensive cryptocurrency legislation after $Coinbase (COIN.US)$ announced the withdrawal of support for the bill. It remains unclear when the hearing will be rescheduled.
The Senate Banking Committee was originally set to hold an amendment hearing on Thursday morning. The bill aims to clarify the regulatory jurisdictions between the Commodity Futures Trading Commission and the Securities and Exchange Commission, define when digital assets should be classified as securities or commodities, and establish new disclosure requirements.
The draft text of the bill was released Monday evening, with a deadline for submitting amendments set for late Tuesday night, paving the way for a planned vote on Thursday. However, support began to falter on Wednesday.
On January 15, Coinbase CEO Brian Armstrong stated that after reviewing the draft of the Senate Banking Committee's cryptocurrency bill, Coinbase could not support this version of the legislation. Key issues include: a de facto ban on tokenized stocks; restrictions on DeFi, granting the government unlimited access to personal financial records while undermining privacy rights; weakening the CFTC’s authority, stifling innovation, and subordinating it to the SEC; and related amendments that could suppress stablecoin reward mechanisms and allow banks to block competitors. Armstrong noted that the draft is 'worse than maintaining the status quo,' and he would prefer no bill to a bad one. However, he remains optimistic about achieving a more reasonable version through continued collaboration, emphasizing that the cryptocurrency industry should receive regulatory treatment in the U.S. equivalent to traditional finance.
What are the current controversies surrounding the bill? Who supports it, and who opposes it? When can the bill be implemented? What are its specific contents?
1. Controversies Surrounding the CLARITY Act
The provisions regarding yield-bearing stablecoins in the CLARITY Act have become a focal point of contention between cryptocurrency companies and banking groups.
Banking groups argue that stablecoin products offering yields resemble deposit-taking or unregulated investment vehicles. Last week, a group of U.S. community bankers urged Congress to amend the GENIUS Act, stating that stablecoin issuers are exploiting a loophole that allows yields to be indirectly passed to token holders via exchanges and other partners. Bankers warned that reward programs offered by cryptocurrency exchanges could siphon tens of billions of dollars away from community banks, undermining their ability to lend to small businesses, farmers, students, and homebuyers. Advocates from the banking sector noted that permitting the use of stablecoins as rewards could deal them an even greater blow, with the Treasury Department estimating in April last year that widespread adoption of stablecoins could drain $6.6 trillion from the traditional banking system.
Cryptocurrency companies, however, contend that such programs are more akin to loyalty rewards or payment incentives commonly seen in the fintech space. In a letter to the Senate Banking Committee, the Crypto Council for Innovation and the Blockchain Association refuted the banks' proposals, arguing that 'payment stablecoins are not used to fund loans' and that these amendments would stifle innovation and consumer choice. If the bill were to pass without favorable provisions, it could significantly impact Coinbase’s balance sheet, as the exchange generated $247 million from stablecoin revenue in the fourth quarter, in addition to $154.8 million from blockchain rewards.
Malekan, an adjunct professor at Columbia Business School, believes that US banks have been spreading 'myths' about stablecoin yields to protect their interests, and Congress should prioritize consumers over highly profitable banks. The legislation now seems to partly depend on whether stablecoin issuers should be allowed to share their economic data with third parties. The main conflict lies in the 'yield bottleneck,' namely, who can profit from the interest on stablecoin reserves.
First, the view that the growth of stablecoins will only lead to a reduction in bank deposits is incorrect: stablecoins may actually increase bank deposits because much of the demand for stablecoins comes from overseas. Since issuers are required to hold Treasury bills and bank deposits as reserves, this will promote the overall growth of banking activities.
Second, competition from stablecoins will not harm lending businesses but will only affect bank profits. Banks can compete by offering depositors higher interest rates.
II. Who Opposes and Who Supports
1. Voices of Opposition
$Coinbase (COIN.US)$He is the biggest opponent of the bill.
If the bill restricts stablecoin issuers from offering rewards on cryptocurrency exchanges and other platforms, Coinbase 'may reconsider its support for the bill.'
Coinbase CEO Brian Armstrong stated on Wednesday that he had reviewed the draft text of the Senate Banking Bill but 'regrettably, he cannot support the current version of the bill.'
There are too many issues, including the de facto prohibition of tokenized stocks, the ban on decentralized finance (DeFi), granting the government unlimited access to your financial records, depriving you of your privacy rights, weakening the authority of the US Commodity Futures Trading Commission (CFTC), stifling innovation and subordinating it to the US Securities and Exchange Commission (SEC), and the draft amendment will eliminate rewards for stablecoins while allowing banks to prohibit their competitors.
Armstrong expressed gratitude for the hard work of Senate members in reaching bipartisan consensus, 'but this version would be substantially worse than the current status quo. We would rather have no bill than receive a bad one.'
Ryan Rasmussen, the director of research at Bitwise Invest, also expressed a similar view, stating that the current draft of the CLARITY Act is detrimental to tokenization, stablecoins, DeFi, privacy, developers, users, investors, and innovation.
Venture capitalist Tim Draper also voiced support for Coinbase CEO Brian Armstrong, stating, 'Armstrong’s argument makes sense. The current compromise proposal in the Senate is worse than having no bill at all. It sounds like banks are interfering.'
The cryptocurrency community is also actively resisting. The organization 'Stand with Crypto' claims that its supporters have sent more than 135,000 emails to senators to protect stablecoin rewards.
2. Voices of Support
Paul Atkins, Chairman of the U.S. Securities and Exchange Commission: 'This bill aligns with the President’s strategic focus of making the United States the global capital of cryptocurrency. Therefore, with clear legislation and rules, the market gains certainty. We fully support it, and we are very optimistic that this bill will be signed into law by the President this year. I believe it will greatly benefit the cryptocurrency market.'
Tim Scott, Chairman of the Senate Banking Committee: 'This bill provides ordinary American citizens with the protection and certainty they deserve. Investors and innovators cannot keep waiting while Washington does nothing, allowing criminals to exploit loopholes. This bill prioritizes the interests of the general public, takes strict actions against criminals and foreign adversaries, and ensures that the future of finance remains in the United States.'
Brad Garlinghouse, CEO of Ripple, stated that he remains 'optimistic that these issues can be resolved through the markup process. This is an important step toward providing a practical framework for cryptocurrencies while continuing to protect consumer rights. The success of this bill is the success of the cryptocurrency industry.'
3. When Will It Be Implemented?
Justin Slaughter, Vice President of Regulatory Affairs at Paradigm, stated: Due to the lengthy rule-making process, the implementation of the Cryptocurrency Market Structure Act may take many years. Even if the House of Representatives and the Senate pass the bill and President Donald Trump signs it into law, the effective date of all rules may still require nearly two presidential terms. Since 'this bill alone requires the formulation of 45 rules,' it is very likely that 'the implementation process will span not only this presidential term but potentially the entirety of the next one as well.'
Investment bank TD Cowen stated: The midterm elections could weaken the support needed to pass the bill. It is more likely to pass in 2027 and be fully implemented by 2029.
Paul Atkins, Chairman of the U.S. Securities and Exchange Commission, expressed confidence that the cryptocurrency market structure bill would be submitted to U.S. President Donald Trump for signing this year. The most important action the government can take for investors at present is to 'bring the crypto asset market out of the regulatory gray area.' Bipartisan-supported market structure legislation will help protect us from improper regulatory actions and ensure we achieve President Trump's goal of making the United States the global capital of cryptocurrencies.
Attachment: Key Points of the CLARITY Act
Clear distinction between securities and commodities: The bill defines 'ancillary assets' (tokens) and specifies when these assets should be considered digital commodities rather than securities based on principles of decentralization and control.
Ancillary assets refer to network tokens whose value depends on the entrepreneurial or managerial efforts of the ancillary asset issuer (original issuer or creator) or related parties. The U.S. Securities and Exchange Commission (SEC) is responsible for clearly defining the specific composition of ancillary assets.
Disclosure requirements for crypto projects: Crypto asset issuers must disclose comprehensive information about the project, financial resources, and development to the U.S. Securities and Exchange Commission until the network is certified as sufficiently decentralized.
Crackdown on illicit fund flows: The Bank Secrecy Act explicitly extends to cryptocurrency service providers (brokers, dealers, exchanges) to combat money laundering and terrorist financing, including stricter regulations for cryptocurrency ATMs.
Protection for pure software developers: The draft explicitly states that individuals who merely develop code, release code, or operate validation services (without controlling assets) should not be regulated as financial intermediaries.
Integration into the banking system: Banks and credit unions may offer cryptocurrency custody services, issue stablecoins, and use distributed ledger technology in their operations, provided they do so in a manner consistent with security regulations.
Stablecoin regulation: Rules have been established for 'payment stablecoins,' including prohibiting service providers from paying interest solely for holding stablecoins to preserve their nature as a means of payment (rather than an investment instrument).
Establishment of a regulatory 'sandbox': The U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission will jointly create a 'micro-innovation sandbox' allowing companies to test innovative blockchain products under supervision with limited regulatory exemptions.
Legal Certainty for NFTs: Establishes a 'safe harbor' for non-fungible tokens (NFTs), explicitly stating that when NFTs represent artworks, collectibles, or access rights, they are generally not considered securities.
Customer Protection in Bankruptcy: The draft amends bankruptcy laws to ensure that customers' crypto assets are protected as customer property and do not become part of the bankruptcy estate in the event of an intermediary’s failure, such as an exchange collapse.
Regulation of DeFi Protocols: Attempts to regulate decentralized finance (DeFi) protocols by distinguishing between genuinely decentralized systems and 'shared control' systems, while introducing voluntary cybersecurity standards.
Editor/Doris
