With its markup date postponed from January 15 to the end of the month, the Digital Asset Market Clarity (CLARITY) Act has evolved into a proxy battle over the control of US dollar yield onchain. The central question is whether open decentralized finance (DeFi) protocols and payment rails will manage this yield, or if it will be consolidated within a select group of large custodians and banks.
The latest draft of the bill includes stricter provisions on how stablecoin rewards can be offered. Critics, including stablecoin issuers and institutional DeFi platforms, are warning that these changes risk pushing onchain credit offshore rather than securing it within the United States.
Coinbase's Withdrawal Signals Growing Industry Discontent
Coinbase's decision to withdraw its support for the bill this week underscored widespread industry concerns that the proposed compromise heavily favors established players. The current text appears to lock in a punitive model for both DeFi and the offering of rewards.
Coinbase CEO Brian Armstrong stated that it is preferable to have "no bill than a bad bill." Similarly, Jake Chervinsky, chief legal officer at Variant Fund, commented that the CLARITY Act is the type of legislation that "will live for 100 years," emphasizing the need to "take all the time we need to get it right."
How the CLARITY Act Could Reshape Onchain Dollar Yield
Jakob Kronbichler, CEO and co-founder of the onchain credit marketplace Clearpool, discussed with Cointelegraph the "core risk" of the CLARITY Act: regulators deciding where yield is permitted, rather than focusing on risk management within onchain markets.
Kronbichler argued that "demand for dollar yield won’t disappear because of legislation." He suggested that if compliant onchain liquidity structures face constraints, the activity is "likely to move offshore or concentrate in a small number of incumbent intermediaries."
Ron Tarter, CEO of stablecoin issuer MNEE and a former lawyer, shared Kronbichler's concerns. He told Cointelegraph that if stablecoin rewards are pushed offshore instead of being made transparent and compliant onshore, the U.S. risks losing both innovation and visibility in these markets.
Kronbichler warned that this regulatory choice "will shape where institutional onchain credit develops over the next decade."
Tarter interprets the CLARITY Act as drawing a clear distinction between passive, deposit-like interest and activity-based incentives. He identified the phrase "solely in connection with holding" as a key point.
From his perspective, the bill attempts to mediate between banking groups concerned about stablecoin yields siphoning deposits and platforms that view rewards as a fundamental revenue stream and incentive.
DeFi Developers and the "Control" Line
Kronbichler noted a positive aspect in the CLARITY Act's current approach: it "makes a sensible distinction by not treating developers of non-custodial software as financial intermediaries." He considers this distinction crucial for fostering innovation and ensuring institutional comfort.
He argued that the primary challenge lies in ensuring compliance obligations remain tied to entities that truly control access, custody, or risk parameters, rather than extending to general software maintainers who lack such control. If these distinctions become blurred, institutional desks may find it difficult to assess liability, potentially leading them to avoid U.S.-facing onchain credit products altogether.
Tarter concurred that the developer control test is likely to be one of the most contentious issues during the markup process. He anticipates significant debate over what constitutes genuinely decentralized software and "situations where a small group can materially control outcomes."
Distinguishing "Honest Yield" from Network Activity
Jesse Shrader, CEO of Amboss, a data analytics platform for the Bitcoin Lightning Network, highlighted a genuine consumer protection issue with rewards offered "simply for holding," which can mask dilution or rehypothecation. He pointed to past failures like Celsius and BlockFi as examples of the risks involved.
Shrader drew a distinct line between opaque, platform-defined yields and yields derived from network activity, which he believes are more transparent from a network design standpoint.
For lawmakers aiming to maintain this distinction, Shrader's primary recommendation is straightforward: require regulated tokens to clearly disclose "the sources of their yield so consumers can adequately assess their risk."
The question remains: what outcome from the CLARITY Act would genuinely protect users without stifling compliant onchain dollar markets for all participants?
Shrader expressed appreciation for "a light touch from regulators." Meanwhile, Tarter believes a successful outcome would involve U.S. policy protecting users "without banning compliant innovation," and crucially, without locking in a rewards regime that only the largest custodians can afford to navigate.