What Is the Clarity Act? Why Banking Groups Are Fighting Desperately, What Coinbase Gained
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The U.S. Senate Banking Committee will markup the Clarity Act on May 14, addressing stablecoin regulation. A compromise proposal allows activity-based rewards but prohibits bank-like interest payments. The bill, aiming to establish a federal framework for payment stablecoins, would create a dual regulatory system and require issuers to hold 1:1 high-quality liquid assets. If passed by the committee and Senate, it will proceed to House negotiations and then to the President. The Act seeks to clarify stablecoins as "payment instruments," reduce regulatory uncertainty, and attract traditional capital, significantly benefiting issuers like Circle and exchanges like Coinbase.
Latest Developments on the Clarity Act
TradingKey - On May 9, the U.S. Senate Banking Committee announced that it will hold a markup hearing on the Clarity Act on May 14. Since January, the bill has been stalled over the issue of whether stablecoins can pay interest. The banking industry has remained opposed, fearing it would lead to an outflow of bank deposits, while cryptocurrency companies argue that prohibiting yields would undermine their competitiveness and have strongly advocated for the ability to pay interest.
On May 1, Senators Thom Tillis (R) and Angela Alsobrooks (D) released compromise provisions that allow rewards based on activities such as payments, transfers, and staking, but strictly prohibit stablecoin issuers from paying interest of the same nature as bank deposits. This middle-ground proposal has enabled the bill to move forward.
However, the May 14 markup is only one significant step toward the bill becoming law, and other hurdles remain. If it successfully passes the committee this month, a full Senate vote is expected in June, followed by final negotiations with the version already passed by the House. It would then be sent to President Trump for signing, at which point the bill would be officially enacted.
What is the Clarity Act?
The Clarity Act, formally known as the "Clarity for Payment Stablecoins Act of 2023," aims to establish a formal federal regulatory framework for payment stablecoins such as USDC and PYUSD, addressing the long-standing "legal vacuum" in the U.S. stablecoin sector.
The Clarity Act provides clear regulations for regulators, issuers, and users as follows:
Role | Key Provisions |
Regulation | A dual regulatory system is adopted, where non-bank issuers can apply for registration with the Federal Reserve. While state governments also have jurisdiction over existing issuers, the Federal Reserve maintains intervention power under extreme circumstances. |
Issuers | Issuers must hold high-quality liquid assets, such as U.S. dollars and Treasuries, at a 1:1 ratio. They are required to undergo regular third-party audits and must consider interoperability between different blockchains to avoid market fragmentation. |
Users | Users' stablecoin assets must be segregated from the issuer's own funds, and mechanisms must be in place to ensure users have priority in receiving repayment should an issuer fail. |
What is the significance of the Clarity Act?
Prior to the Clarity Act, the cryptocurrency market faced numerous issues, including regulatory confusion and non-compliant stablecoins. This was clearly detrimental to the development of stablecoins in that market and inconsistent with Trump’s proposed crypto strategic goal of turning the United States into a global cryptocurrency hub.
In recent years, the SEC has frequently launched surprise enforcement actions against stablecoin issuers. The bill clarifies that stablecoins are "payment instruments" rather than "securities," which will significantly reduce litigation and provide companies with clear operating guidelines. Furthermore, many large banks and pension funds have hesitated to enter the crypto market, primarily due to a lack of legal basis. Once the Clarity Act is passed, stablecoins will possess a legal status similar to bank deposits, helping to attract trillions of dollars in traditional capital into the on-chain ecosystem.
Coinbase is the primary beneficiary of the Clarity Act.
Throughout the advancement of the Clarity Act, Coinbase, the largest U.S. cryptocurrency exchange, has been one of the most engaged institutions. CEO Brian Armstrong has made several trips to Washington to advocate for shifting stablecoin regulation from the SEC to the more predictable Federal Reserve or state regulators, marking a significant shift in his stance on the bill from "active lobbying" to "conditional resistance," and finally to "full support and promotion."
Coinbase’s vigorous push for the legislation is driven by potential profitability. First, as a major shareholder and partner of Circle (the issuer of USDC), the establishment of a regulatory framework would facilitate massive institutional adoption of USDC. Second, Coinbase has been embroiled in SEC allegations concerning "unregistered securities" for years. Once the bill classifies stablecoins as "payment instruments" rather than "securities," stablecoin-related services on Coinbase's platform will gain permanent immunity under federal law.
This content was translated using AI and reviewed for clarity. It is for informational purposes only.
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