CLARITY Act Showdown: Coinbase Threatens to Abandon Crucial Crypto Bill Over Stablecoin Rewards Ban

WASHINGTON, D.C. — November 2025 — A major legislative battle is brewing in the United States Senate that could reshape the future of cryptocurrency regulation and determine whether millions of Americans can continue earning rewards on their digital dollar holdings. The CLARITY Act, a comprehensive crypto market structure bill scheduled for markup this Thursday, faces unexpected opposition from one of its former supporters: Coinbase, the nation’s largest cryptocurrency exchange. The exchange is reportedly reconsidering its endorsement of the legislation over provisions that would ban stablecoin rewards, setting up a dramatic confrontation between the crypto industry and traditional banking interests.

The CLARITY Act’s Stablecoin Rewards Controversy

According to a Bloomberg report citing sources familiar with Coinbase’s thinking, the exchange may withdraw its support for the CLARITY Act if lawmakers include language prohibiting stablecoin issuers from offering rewards through cryptocurrency platforms. This development comes just days before the Senate Banking Committee’s crucial markup session, where committee members will debate and potentially amend the legislation. The stablecoin rewards provision has emerged as one of the most contentious elements in the comprehensive regulatory package.

Banking industry advocates have aggressively lobbied for the ban, arguing that stablecoin rewards products could siphon trillions of dollars from traditional banking systems. Meanwhile, cryptocurrency advocates counter that these products represent legitimate financial innovation that benefits consumers. The Treasury Department estimated in April 2025 that widespread stablecoin adoption could potentially draw approximately $6.6 trillion from conventional banking institutions, a figure that has alarmed traditional financial stakeholders.

The Legislative Timeline and Political Context

The legislative process faces significant timing challenges that could delay implementation for years. According to analysis from TD Cowen’s Washington Research Group, the CLARITY Act may not pass Congress until 2027, with final implementation potentially stretching to 2029. However, Senate Banking Committee Chair Tim Scott has expressed confidence that the legislation can advance more quickly. The 2026 midterm elections add another layer of complexity, as changing political dynamics could alter the bill’s trajectory and support levels.

Coinbase’s Strategic Position and Banking Charter Ambitions

Coinbase has strategically positioned itself to navigate the evolving regulatory landscape. The exchange has applied for a national trust banking charter, which would formally authorize it to offer rewards under existing regulations. This move represents a calculated effort to establish legitimacy within the traditional financial framework while maintaining cryptocurrency innovation. The banking industry, however, is fighting to close what it perceives as regulatory loopholes through the CLARITY Act’s provisions.

The financial stakes for Coinbase are substantial. Stablecoin-related services generated nearly $247 million in revenue during the fourth quarter of 2024, while blockchain rewards contributed an additional $154.8 million. These figures demonstrate the economic importance of rewards programs to cryptocurrency platforms. A ban on stablecoin rewards would directly impact products like Circle’s USDC stablecoin, which currently offers users approximately 3.5% annual returns through partner platforms.

The GENIUS Act Loophole and Regulatory Arbitrage

The current regulatory landscape contains significant ambiguity that the CLARITY Act seeks to address. The GENIUS Act, passed in July 2024, prohibits stablecoin issuers from directly offering interest or yield to token holders. However, the legislation does not explicitly extend this ban to cryptocurrency exchanges or third-party platforms. This regulatory gap has enabled issuers to potentially circumvent the law by offering rewards through partner platforms, creating what banking advocates describe as a dangerous loophole.

Cryptocurrency firms argue that this structure represents legitimate innovation rather than regulatory evasion. They maintain that partnerships between stablecoin issuers and platforms create value for consumers while operating within existing legal frameworks. The debate centers on fundamental questions about financial regulation in the digital age:

• Regulatory jurisdiction: Whether cryptocurrency platforms should face different rules than traditional financial institutions
• Consumer protection: How to ensure safety while allowing innovation
• Financial stability: Managing systemic risks from new financial products
• Competitive fairness: Balancing innovation with established industry concerns

Industry Mobilization and Advocacy Efforts

Both sides of the debate have mobilized substantial advocacy resources. Banking industry groups have reportedly run advertisements on major news networks, encouraging viewers to pressure their senators to support the DeFi provisions in the CLARITY Act. These advertisements frame the issue as protecting the traditional banking system from destabilizing competition.

Conversely, cryptocurrency advocacy organization Stand With Crypto claims its supporters have sent over 135,000 emails to senators urging protection for stablecoin rewards. This grassroots mobilization demonstrates the growing political engagement of cryptocurrency users and industry stakeholders. The organization frames the issue as protecting consumer choice and financial innovation from entrenched banking interests.

Broader Implications for Cryptocurrency Regulation

The CLARITY Act represents more than just a debate about stablecoin rewards. It serves as a comprehensive framework for cryptocurrency market structure regulation in the United States. The legislation addresses multiple aspects of digital asset markets, including:

• Market transparency: Reporting requirements for cryptocurrency transactions
• Consumer protection: Safeguards for digital asset investors
• Institutional participation: Rules for traditional financial firms entering crypto markets
• Innovation pathways: Regulatory sandboxes and pilot programs

Coinbase’s potential withdrawal of support could significantly impact the legislation’s prospects. As one of the largest and most established cryptocurrency exchanges in the United States, Coinbase’s endorsement carries weight with lawmakers seeking to balance innovation with responsible regulation. The exchange’s opposition to specific provisions while supporting the overall framework creates complex political dynamics for legislators.

International Competitive Considerations

The United States is not operating in a regulatory vacuum. Other jurisdictions, including the European Union with its Markets in Crypto-Assets (MiCA) framework and Singapore with its Payment Services Act, have established comprehensive cryptocurrency regulations. These international frameworks create competitive pressure for the United States to develop clear regulations that foster innovation while maintaining financial stability.

Industry analysts note that regulatory uncertainty in the United States could drive cryptocurrency innovation and investment to other jurisdictions with clearer rules. This concern has motivated some lawmakers to seek balanced legislation that protects consumers and financial stability without stifling technological advancement. The stablecoin rewards debate sits at the intersection of these competing priorities.

Technical Implementation Challenges

Implementing a ban on stablecoin rewards presents significant technical and enforcement challenges. Regulators would need to distinguish between legitimate yield-generating activities and prohibited rewards programs. Additionally, decentralized finance protocols operating on blockchain networks could potentially circumvent geographic restrictions through their permissionless nature.

The architecture of blockchain technology creates unique regulatory challenges. Smart contracts can automatically distribute rewards without centralized control, making traditional enforcement mechanisms less effective. This technological reality requires regulators to develop novel approaches to oversight and compliance in decentralized systems.

Conclusion

The CLARITY Act faces a critical juncture as Coinbase threatens to withdraw support over stablecoin rewards provisions. This development highlights the complex balancing act facing cryptocurrency regulation: protecting traditional financial systems while fostering innovation. The Senate Banking Committee’s markup session this Thursday will provide crucial insights into the legislation’s future direction and the broader regulatory landscape for digital assets.

The outcome will significantly impact millions of cryptocurrency users, financial institutions, and the competitive position of the United States in the global digital economy. As the debate continues, stakeholders across the financial spectrum are watching closely, recognizing that the CLARITY Act could establish foundational rules for cryptocurrency markets for years to come. The stablecoin rewards controversy represents just one facet of this larger regulatory conversation, but it encapsulates the fundamental tensions between innovation and stability in financial markets.

FAQs

Q1: What is the CLARITY Act and why is it important?
The CLARITY Act is comprehensive cryptocurrency market structure legislation currently under consideration in the United States Senate. It aims to establish clear regulatory frameworks for digital assets, addressing market transparency, consumer protection, and institutional participation. The legislation is important because it could shape cryptocurrency regulation for years and determine how digital assets integrate with traditional financial systems.

Q2: Why does Coinbase oppose the stablecoin rewards ban in the CLARITY Act?
Coinbase opposes the ban because stablecoin rewards represent significant revenue for the exchange and provide value to cryptocurrency users. The exchange has also applied for a banking charter that would authorize it to offer such rewards under existing regulations. Coinbase views the ban as unnecessary restriction that could harm consumers and innovation.

Q3: How do stablecoin rewards work and why are they controversial?
Stablecoin rewards allow holders of dollar-pegged cryptocurrencies to earn interest or yield on their holdings, typically through partnerships between issuers and platforms. They are controversial because banking advocates believe they could draw trillions of dollars from traditional banking systems, potentially destabilizing established financial institutions while operating in regulatory gray areas.

Q4: What is the difference between the GENIUS Act and the CLARITY Act regarding stablecoin rewards?
The GENIUS Act, passed in 2024, prohibits stablecoin issuers from directly offering rewards but doesn’t explicitly ban third-party platforms from doing so. The CLARITY Act seeks to close this potential loophole by extending the prohibition to cryptocurrency exchanges and other platforms, creating more comprehensive restrictions on stablecoin rewards programs.

Q5: When might the CLARITY Act take effect if passed?
Analysts estimate the CLARITY Act might not pass Congress until 2027, with final implementation potentially stretching to 2029. However, Senate Banking Committee leadership has expressed confidence the legislation could advance more quickly. The timeline depends on political dynamics, including the 2026 midterm elections and ongoing negotiations between stakeholders.