The most consequential piece of crypto legislation in U.S. history is approaching its endgame. The Digital Asset Market Clarity Act — better known as the CLARITY Act — passed the House in July 2025 and is now grinding through the Senate, where a single unresolved fault line threatens to derail th...
"Don't let perfection be the enemy of progress." — Brad Garlinghouse, CEO, Ripple
The most consequential piece of crypto legislation in U.S. history is approaching its endgame. The Digital Asset Market Clarity Act — better known as the CLARITY Act — passed the House in July 2025 and is now grinding through the Senate, where a single unresolved fault line threatens to derail the entire effort: whether stablecoin issuers and their affiliated platforms may pay yield to holders.
Three White House meetings in February 2026, convened by Patrick Witt, Executive Director of the President's Council for Advisors for Digital Assets, have brought Wall Street banks and crypto's largest firms into the same room — and revealed an unbridgeable gap. The banking lobby, led by the Bank Policy Institute and American Bankers Association, arrived at the February 10 session with a one-page "Yield and Interest Prohibition Principles" document demanding a total ban. The crypto contingent — Coinbase, Circle, Ripple, and a16z — conceded ground on passive yield but insisted that activity-based rewards remain legal. The outcome of this fight will determine how $314 billion in stablecoin capital — and potentially trillions more — is governed for a generation.
This report maps the legislative architecture, dissects the economic stakes, and assesses the probable outcomes for market participants on both sides of the divide.
The CLARITY Act represents the first serious attempt to replace the SEC's regulation-by-enforcement model with a statutory framework purpose-built for digital assets. At its core, the bill divides crypto assets into three categories:
The House passed the CLARITY Act in July 2025. On the Senate side, the process has bifurcated. The Senate Agriculture Committee advanced its companion bill, the Digital Commodity Intermediaries Act, on January 29, 2026, on a party-line vote after rejecting a series of Democratic amendments — including one from Senator Cory Booker targeting Trump-family crypto conflicts of interest. The Senate Banking Committee, chaired by Tim Scott, released a 278-page amendment on January 12 and scheduled markup for January 15 — then postponed indefinitely.
The reason for the delay: stablecoins.
Before a full Senate vote is possible, both committees' drafts must be reconciled. Any Senate-approved bill must then be harmonized with the House version. The target: passage by April 30, 2026. On February 20, Ripple CEO Brad Garlinghouse publicly stated he sees an "80% chance" of passage by that deadline. Treasury Secretary Scott Bessent told reporters on February 13 that Congress should pass the bill "this spring."
At ETHDenver on February 18, SEC Commissioner Hester Peirce underscored the shift in regulatory posture: "A few years ago, if someone had told me that I would be standing at a crypto conference with the Chairman of the SEC, I would have thought that person was hallucinating." SEC Chairman Paul Atkins and Commissioner Peirce jointly outlined a forthcoming rulemaking to establish new capital-raising pathways for token issuers — a signal that the regulatory apparatus is aligning around the CLARITY Act framework, not against it.
The GENIUS Act, signed in July 2025, explicitly banned stablecoin issuers from paying "any form of interest or yield" to holders. But the banking lobby claims the law left a critical loophole: it does not explicitly prevent affiliated exchanges or platforms from offering rewards or yield-bearing programs on stablecoins they did not issue.
Coinbase exemplifies the tension. As of February 19, 2026, Coinbase One subscribers earn a 3.5% annual yield on USDC balances — paid as a "loyalty reward" funded by Coinbase, not as interest paid by Circle (USDC's issuer). The platform also offers up to 10.8% yield through onchain lending integrations with Morpho on Base. Compare that to the 0.1–0.5% offered by major U.S. bank savings accounts. The economic incentive for depositors to migrate is obvious.
The Bank Policy Institute's position is unambiguous: any form of stablecoin reward, whether labeled interest, yield, loyalty, or cashback, constitutes a threat to the deposit base that funds American lending. Their February 10 principles document called for:
The crypto industry's counter-position, published by the Crypto Council for Innovation on February 13, concedes the ban on passive yield for static holdings but argues that rewards tied to transactions, payments, trading activity, or promotional campaigns must remain permissible. The distinction matters: banning all rewards would effectively kill crypto's competitive advantage in payments and commerce.
The banking lobby's most powerful argument comes from a U.S. Treasury Department estimate: if stablecoins are permitted to offer yield, as much as $6.6 trillion in deposits — roughly 30–35% of all U.S. commercial bank deposits — could migrate from the traditional banking system into stablecoin products.
Bank of America CEO Brian Moynihan has cited this figure publicly, calling it an existential risk to bank lending capacity. The logic: bank deposits fund loans. If deposits flow to stablecoins backed by Treasury bills, the capital exits the fractional-reserve lending system entirely.
Critics, however, argue the figure is a stress-case ceiling, not a projection. The modeling assumes high substitutability between traditional deposits and tokenized cash — an assumption that breaks down when considering FDIC insurance, direct-deposit infrastructure, and the inertia of retail banking relationships. Moreover, as several economists have noted, when a customer moves dollars from Bank A into a stablecoin, the issuer purchases Treasury bills with that cash. The seller of those T-bills now has extra cash at Bank B. Deposits cannot leave the aggregate banking system — they can only redistribute.
Today's stablecoin market sits at $314 billion — dominated by Tether's USDT ($183.6 billion, 59.65% market share) and Circle's USDC ($74 billion). Even under aggressive growth assumptions, the gap between $314 billion and $6.6 trillion is enormous. But the banking lobby is legislating for the endgame, not the present.
The White House has convened three high-stakes meetings in February 2026, each escalating in intensity:
Meeting 1 — February 2: Representatives from Coinbase, Circle, Ripple, and Crypto.com met with banking representatives in the Diplomatic Reception Room. The crypto side argued that yields are a key consumer benefit, not a threat to deposits. No agreement was reached.
Meeting 2 — February 10: Banks arrived with their "Yield and Interest Prohibition Principles" document. The crypto side reported that banking representatives "didn't want to deal." White House officials reportedly confiscated phones to keep discussions private. CoinDesk reported that the bankers' posture was one of total refusal, with no room for compromise on any form of yield.
Meeting 3 — February 19–20: A smaller, more focused session. Coinbase, Ripple, and a16z represented the crypto industry. Banking representation was limited to trade associations. Patrick Witt took a more active role as mediator. This meeting produced what sources called "progress" — the first time that word had been used — but no formal deal.
The emerging contours of a potential compromise: yield on idle stablecoin balances is banned; rewards tied to specific activities — payments, trading, short-term promotions — may be permitted under defined regulatory guardrails. Enforcement for violations would carry severe penalties.
Based on reporting from the third White House meeting, the bill's stablecoin provisions appear to be converging on a framework that:
This framework would force platforms like Coinbase to restructure their USDC rewards programs. The current model — 3.5% yield simply for holding USDC — would likely be illegal. But cashback on crypto-card purchases, trading fee rebates, and promotional campaigns would survive.
For the broader stablecoin market, the compromise preserves growth potential while effectively preventing stablecoins from becoming direct substitutes for savings accounts. It is, in essence, a regulatory moat around the banking industry's deposit franchise — one that crypto companies have accepted as the price of legislative clarity.
For stablecoin issuers (Circle, Tether, Paxos): Largely favorable. The CLARITY Act provides the regulatory certainty they need to onboard institutional clients. Circle's IPO prospects improve materially with a clear legal framework.
For crypto exchanges (Coinbase, Kraken, Crypto.com): Mixed. Loss of passive yield programs removes a key customer acquisition tool, but regulatory clarity unlocks institutional capital flows that dwarf retail yield revenue. Coinbase's USDC rewards program will require restructuring, but its broader business — custody, staking, trading — benefits from the bill's passage.
For traditional banks: Strategic victory on yield, but the bill still codifies stablecoin-native rails as legitimate payment infrastructure. Banks that fail to develop stablecoin capabilities — as JPMorgan has with JPM Coin and Citi with its tokenized deposit pilot — risk losing payment market share to non-bank stablecoin platforms.
For DeFi protocols: The CLARITY Act's commodity classification for most tokens removes the existential threat of SEC enforcement actions. Protocols with fee-switch mechanisms and genuine revenue models benefit most. However, the bill's KYC requirements for "digital commodity intermediaries" may push purely decentralized protocols further offshore.
For institutional investors: The passage of the CLARITY Act would remove the single largest barrier to institutional crypto allocation. PwC's February 2026 report declared that institutional crypto adoption has "passed the point of reversibility." Coinbase Institutional reports that 76% of global investors plan to expand digital asset exposure, with 60% targeting over 5% of AUM.
The CLARITY Act is on track for passage by April–May 2026, with an 80% probability per Ripple's Brad Garlinghouse and strong White House support. This would be the most significant piece of U.S. crypto legislation ever enacted.
The stablecoin yield ban is the final obstacle. Three White House meetings in February have narrowed the gap: passive yield will be banned, but activity-based rewards will likely survive. This framework preserves crypto's utility in payments while protecting banks' deposit franchise.
The $6.6 trillion deposit-flight estimate is a negotiating weapon, not an economic forecast. Current stablecoin market cap is $314 billion. The threat is real at scale but overstated as a near-term risk.
Regulatory clarity will unlock institutional capital. The joint SEC-CFTC framework, combined with the bill's three-category asset classification, replaces enforcement ambiguity with statutory certainty — the prerequisite for pension funds, endowments, and sovereign wealth funds to allocate meaningfully.
Banks won the yield war but may lose the payments war. By focusing legislative energy on banning stablecoin interest, banks have conceded that stablecoin-native payment rails are legitimate infrastructure. The long-term competitive threat to traditional banking comes not from yield products but from 24/7, near-instant, low-cost payment settlement.
The CLARITY Act represents a watershed for U.S. crypto policy — the moment when a multi-trillion-dollar asset class moves from legal ambiguity to statutory legitimacy. The stablecoin yield fight that has consumed Washington's attention for weeks is, in the final analysis, a rearguard action by an incumbent industry protecting its most profitable product (cheap deposits) against a faster, more transparent alternative.
The compromise taking shape in the White House — ban passive yield, permit activity rewards — is an imperfect solution that satisfies no one completely. That is precisely why it is likely to pass. Both sides have enough to claim victory and enough to fear from continued legal limbo.
For the $314 billion stablecoin market, the path forward is clear: growth will come not from offering savings-account substitutes, but from building superior payment, settlement, and commerce infrastructure. The banks are right that stablecoins threaten deposits — they're just wrong about the mechanism. It won't be yield that drains the banking system. It will be speed.