Who controls the digital dollar yield rights? The Wall Street and crypto capital battle behind the CLARITY Act

The dispute over the CLARITY Act is not fundamentally a conflict between the crypto industry and regulators, but rather a reallocation of the underlying interests within the financial system. Traditional banks rely on low-cost deposits to maintain net interest margins, while interest-bearing stablecoins directly access users through government bond yields, reshaping capital flows and the transmission pathways of the dollar system. Regulatory focus has shifted from “whether to allow innovation” to “how to quantify residual risks and systemic stability.” Under this framework, the true dividing line will no longer be CeFi versus DeFi, but who can establish a new balance between transparency, compliance structures, and capital efficiency. The direction of CLARITY may determine the foundational rules for digital dollars and institutional-grade RWAs over the next decade.

CLARITY: (May 2025 – December 2025)

While the GENIUS Act aims to address infrastructure security issues of stablecoins, the CLARITY Act (H.R. 3633) targets a broader and more complex set of issues, including the structure of the secondary crypto asset markets, token classification, and regulatory jurisdiction delineation.

Breakthroughs in the House and the reshaping of jurisdiction boundaries

On May 29, 2025, Chairman French Hill of the House Financial Services Committee, together with the House Agriculture Committee and several bipartisan lawmakers, formally introduced the Digital Asset Market Clarity Act (CLARITY Act). Its core purpose is to eliminate the long-standing “Regulation by Enforcement” chaos in the U.S. crypto market, providing entrepreneurs, investors, and markets with predictable legal certainty.

Structurally, the CLARITY Act implements bold jurisdictional divisions. It explicitly grants the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over the spot markets of “digital commodities,” while retaining the SEC’s authority over digital assets classified as investment contracts. To support this emerging market, the bill directs the CFTC to establish a comprehensive registration system for digital commodity exchanges, brokers, and traders, introducing a “Provisional Status” that allows existing market participants to operate legally during the compliance transition period.

At the House level, the bill received significant bipartisan support. On July 17, 2025, the day before the President signed the GENIUS Act, the CLARITY Act was passed in the House with an overwhelming vote of 294 to 134. This victory masks underlying conflicts of interest, and market sentiment remains optimistic about the U.S. establishing a comprehensive crypto regulatory framework by the end of 2025.

Ripple effects: expansion of commodity pool definitions and compliance challenges for DeFi

Notably, when amending the Commodity Exchange Act (CEA), the CLARITY Act introduced a far-reaching clause. It classifies “spot trading” of digital commodities as part of “Commodity Interest Activities.” Under traditional financial regulation, only derivatives (futures, options, swaps) trigger “Commodity Pool” regulation; spot trading (e.g., physical gold or oil) does not.

The CLARITY Act breaks this boundary. This means any investment fund, pooled investment vehicle, or liquidity pool within DeFi protocols involved in spot digital asset trading could be classified as a “Commodity Pool.” Consequently, operators and advisors must register as Commodity Pool Operators (CPOs) or Commodity Trading Advisors (CTAs) with the CFTC and comply with NFA’s strict disclosure, compliance, audit, and margin requirements. This stringent compliance cost signals that native crypto asset management models will face forced alignment with traditional Wall Street standards.

Senate parallel tracks and underlying tensions

As the House bill moves to the Senate, legislative complexity increases exponentially. The Senate has not directly adopted the House text but is reorganizing internal power and interests. In the second half of 2025, two parallel legislative tracks emerged:

One, led by Chairman John Boozman of the Senate Agriculture, Nutrition, and Forestry Committee, based on the House CLARITY Act’s CFTC jurisdiction provisions, drafted and advanced the Digital Commodity Intermediaries Act. This bill focuses on regulating spot market intermediaries, emphasizing client fund segregation and conflict of interest protections, passing initial committee approval by late January 2026.

The other, led by the Senate Banking, Housing, and Urban Affairs Committee, is drafting a broader, comprehensive revision covering banking innovations and consumer protections. Behind closed doors, traditional banking lobbies have begun exerting full pressure, aiming to block the establishment of interest-bearing stablecoins as a core strategic goal. This sets the stage for a legislative crisis in early 2026.

Senate deadlock and interest group clashes (January 2026)

In early 2026, U.S. crypto legislation took a dramatic turn. On January 12, the Senate Banking Committee released a 278-page draft of the CLARITY bill (Title I called the “2026 Lummis-Gillibrand Responsible Financial Innovation Act”). In Chapter 4, “Responsible Banking Innovation,” the draft imposes strict restrictions on stablecoin holders’ reward mechanisms. The committee attempts to close loopholes left by the GENIUS Act by proposing a ban on digital asset service providers offering interest or yields on stablecoins.

Traditional banking lobby’s systemic defense and macro concerns

Represented by the American Bankers Association (ABA), Bank Policy Institute (BPI), Consumer Bankers Association (CBA), Independent Community Bankers of America (ICBA), and U.S. credit unions, the banking sector shows unprecedented vigilance and hostility toward interest-bearing stablecoins. Their core argument is not merely profit competition but systemic defense of macro financial stability and the real economy’s credit transmission.

The table below compares the core arguments and deep logic of traditional banks versus the crypto industry on interest-bearing stablecoins:

Coinbase’s strong opposition and legislative deadlock

Faced with the destructive yield ban in the Senate draft, the crypto industry reacted fiercely. Coinbase, the largest U.S. crypto exchange, in mid-January, took extreme countermeasures. CEO Brian Armstrong publicly withdrew support for the CLARITY bill, stating the current draft is “worse than doing nothing” (i.e., no clear legislation).

This tough stance is a necessary choice to defend the industry’s core. In Q3 2025, Coinbase’s net income from stablecoins (mainly USDC issued via the Centre alliance with Circle) reached $243 million, accounting for 56% of its quarterly net income. This profit-sharing model based on risk-free dollar assets is central to Coinbase’s resilience against volume cycles. Cutting off this revenue stream would severely damage its valuation and disrupt industry dynamics.

Coinbase’s public break has triggered a political domino effect. The crypto industry’s bipartisan consensus is fragile; internal divisions threaten bill passage. Facing continued opposition from key Democrats and some Republicans reconsidering community bank interests, Senate Banking Committee Chair Tim Scott (R-SC) in late January indefinitely canceled the scheduled markup and vote, opting to pause progress to avoid an immediate rejection. As a result, U.S. comprehensive digital asset legislation is now deeply stalled.

White House emergency mediation and high-stakes negotiations (February 1-20, 2026)

With the potential for total legislative collapse over a single issue, the White House intervened directly in early February 2026. As the November midterms approached, Biden’s administration and Treasury recognized that without signing legislation before the spring recess, the legislative agenda could be derailed amid political polarization. Patrick Witt, Executive Director of the President’s Digital Asset Advisory Committee, took on the delicate role of mediating between traditional finance and crypto leaders.

Below is a timeline and insider details of the White House’s mediation efforts in February 2026:

As of February 20, 2026, with the March 1 deadline looming, the fate of U.S. crypto regulation hinges on whether traditional banks and emerging crypto capital can craft a profit model that protects retail deposits from destructive siphoning while maintaining innovation vitality.

Theoretical and legal frameworks for breakthrough: Neutral yield principles and residual risk assessment

Amidst the White House’s deadlock, an internal draft circulated in late January 2026 by the SEC Crypto Task Force and cross-departmental committees—titled the Digital Markets Restructure Act of 2026—offers a profound, internally consistent new regulatory paradigm. Its “Yield Neutrality” and “Residual Risk Assessment” concepts fundamentally overturn nearly a century of U.S. financial product classification logic.

Breaking the monopoly: Yield neutrality principle

Section 205 of the draft aims to fundamentally overturn the outdated notion that “paying interest necessarily equates to banking deposits or securities.” It establishes a groundbreaking “Yield Neutrality” legal principle:

Decoupling from banking license privileges: It explicitly states that providing yields, interest, or economic returns on digital assets or stable value instruments is legally “neutral.” Such yields “shall not be limited, conditioned, or exclusively reserved for deposit-taking institutions (i.e., traditional banks) or their affiliates.” This directly negates the core demand of banks to monopolize interest income at the legal level.

Strict conditional licensing: Non-bank entities can earn yields if they hold a “Unified Registration Certificate” (URC), but must meet four non-negotiable preconditions:

Extreme transparency: All underlying logic and yield mechanisms of stablecoins must be fully disclosed in the “Unified Digital Market Registry.”

Traceability and legality: The source of yields must be clearly identified and publicly verifiable—coming from legitimate mechanisms such as risk-free interest from Fed-managed assets, compliant asset-backed value, secondary market fees, or transparent on-chain operations (e.g., staking rewards).

Risk classification and dynamic supervision: The yield instruments and their transmission must be categorized and monitored under a “Residual Risk Assessment Model” established by the bill.

Prohibition of false endorsements: It is strictly forbidden to imply or state that the stablecoin’s yields are backed by “full faith and credit” of the U.S. government or FDIC insurance (unless actually insured).

Preemption and legal supremacy: This clause explicitly states that federal legislation supersedes and takes precedence over any existing laws that might interpret yield rights as exclusively belonging to banks (targeting potential restrictive provisions in the GENIUS Act), achieving comprehensive legal disentanglement.

Overhauling Howey: Residual Risk Assessment Model

If “Yield Neutrality” addresses “who can distribute yields,” then the “Residual Risk Assessment” in Sections 103 and 202 fundamentally solves the technical challenge of how regulators should scientifically evaluate and quantify these interest-bearing tools.

For decades, SEC relied excessively on the 1946 Howey Test to determine whether crypto assets are securities, leading to endless litigation. The “Restructure Act” abandons static, label-based judgments (e.g., stablecoins, smart contracts, tokens) in favor of a modular, dynamic, risk-based regulatory framework.

The core idea is to measure “Residual Risk”—the remaining investment, leverage, or market integrity risks after applying cryptographic verification, tamper-proof smart contracts, and strict legal structures. These residual risks are categorized into three independent but quantifiable dimensions:

This assessment model is metaphorically described as a dynamic “smart thermostat.” Its core logic is “economic abstraction measurement”: evaluating how much the asset’s economic risk exposure diverges from user control or legal recourse. Regulatory intervention scales proportionally: when residual risk inflates due to manipulation or opacity, oversight and disclosure requirements intensify; when decentralized tech or cryptography can fully neutralize management or counterparty risks, regulation recedes.

To enable seamless data sharing among SEC, CFTC, and prudential regulators, the bill proposes establishing a “Market Structure Coordination System” (MSCS).

Applying this framework to the current deadlock in interest-bearing stablecoins reveals a clear path: if third-party platforms merely act as transparent “pipes,” holding 100% of assets in Fed reserves or short-term U.S. Treasuries, and pass through yields automatically and transparently with strict asset segregation, then the residual enterprise and exposure risks are minimal. Under the “Residual Risk Assessment Model,” such business models would be deemed extremely low risk. Regulators’ role would shift from old paradigms of banning or criminalizing such products to continuous technical verification of custody safety and disclosure authenticity. This approach, based on factual technology and objective risk features rather than institutional identity or licensing history, provides a robust legal and technical escape route for bridging political divides in Congress.

Impact of CLARITY bill’s success or failure:

The fate of the CLARITY Act and the ultimate ownership of interest-yielding stablecoins are not merely about industry profit redistribution. The spillover effects will penetrate the crypto sphere and trigger systemic consequences for U.S. macro debt financing, dollar hegemony, and the evolution of traditional finance.

1. Deep integration and reshaping of the U.S. Treasury market, strengthening digital dollar dominance

By the end of 2025, the total market cap of interest-bearing stablecoins worldwide exceeded $15 billion, with broader payment stablecoins approaching trillions of dollars. Under GENIUS compliance, all dollar stablecoins must be backed primarily by U.S. short-term Treasuries (T-bills) and cash reserves.

Secondary impact: If CLARITY adopts the “Yield Neutrality” principle, allowing regulated interest-bearing mechanisms under strong oversight, it will massively boost demand from institutional investors (like corporate treasuries) and global retail users. Macro forecasts suggest the compliant, interest-yielding stablecoin ecosystem could rapidly expand to trillions of dollars. To maintain a 1:1 reserve ratio, issuers (trusts, asset managers) will become the largest, most stable buyers of U.S. Treasuries, injecting enormous liquidity into the market.

Tertiary impact: This high-precision, globally driven demand for structured sovereign debt will become a strategic tool for the Fed and U.S. Treasury to manage the sovereign debt curve. Persistent large-scale buying will push down short-term yields, effectively reducing the U.S. government’s borrowing costs and improving fiscal deficits. More broadly, for the “Global South” suffering from high inflation and currency devaluation, the “digital dollar” with anti-inflation yields will become a safe haven asset. Hundreds of millions of overseas citizens could convert their wealth directly into dollar-backed digital assets without offshore bank accounts, further entrenching dollar dominance and reinforcing its role as the world’s primary reserve currency.

2. Mandatory transformation and pain for traditional banking

Banks’ fierce lobbying against interest-bearing stablecoins stems from their clear anticipation that this new financial infrastructure will devastate their net interest margin (NIM) model.

Secondary impact: A total ban on third-party interest-bearing stablecoins would cause irreversible outflows of cheap deposits from traditional banks, especially small and mid-sized community banks with weaker risk profiles. With no minimum deposit thresholds and yields around 4-5%, traditional checking and savings accounts would become obsolete.

Tertiary impact: To survive this liquidity war, banks will be forced into radical self-revolution—shifting from defensive policies to aggressive technological innovation. We will see large-scale launches of “Tokenized Deposits” on consortium or public blockchains, or banks issuing their own compliant high-yield stablecoins. To offset higher deposit costs, banks will drastically cut physical branches and staff, embracing digitalization to reduce operational costs. This will reshape the cost structure and profit expectations of the banking industry, further consolidating market power among top fintech-savvy giants.

3. The “institutionalization” and major bifurcation of the crypto-native DeFi ecosystem

CLARITY not only redistributes interests but also fundamentally reshapes the crypto ecosystem. It designates the CFTC as the direct regulator of “digital commodities” and greatly expands the definition of “Commodity Pools” to include spot digital markets.

Secondary impact: This legal redefinition will trigger a wave of regulatory classification. Any fund, DAO treasury, or liquidity pool involved in spot digital assets or structured yield strategies could be classified as a “Commodity Pool.” Operators will be forced to register with the CFTC and meet high compliance standards.

Tertiary impact: DeFi will face a stark bifurcation. Well-funded protocols and major centralized exchanges will embrace regulation, further entrenching their oligopoly and transforming into “super-compliant nodes” linking traditional liquidity with crypto. Smaller protocols, early-stage teams, or privacy-focused developers will leverage exemptions for “non-controlling blockchain developers” to exit U.S. jurisdiction, moving into more decentralized, permissionless, or offshore environments. This marks the end of the “Wild West” era of crypto in 2026, replaced by a highly institutionalized “New Digital Wall Street” led by Wall Street capital, licensed giants, and federal regulators.