The Debate Over Stablecoin Yield
Supporters of the CLARITY Act argue that it brings order to digital assets, while critics contend it serves a different purpose entirely. At the heart of this debate is a fundamental question that both beginners and experienced investors should understand: Who gets to earn yield, and who does not? The act is seen by some as a measure to protect the traditional banking system from new forms of competition.
Why Yield Threatens the Banking Model
For decades, banks have operated on a model that relies heavily on deposits. They typically pay savers very little, often around 0.1 percent, and then use these deposited funds to make loans. Stablecoin issuers, however, operate differently. They commonly hold short-term US Treasury bills, which in recent years have yielded approximately 4.5 percent. This significant difference in yield creates a substantial problem for traditional banks. If stablecoins were permitted to pass even a portion of this yield to their users, it could lead to a rapid outflow of deposits from banks.
A real-world example illustrates this point clearly. Money market funds, which already offer higher yields by holding government debt, attracted hundreds of billions of dollars in 2023 and 2024 as savers actively searched for better returns. Stablecoins could potentially offer a similar attractive option, but with the added benefits of faster transfer times and global accessibility.
According to a study conducted by the Kansas City Federal Reserve, if stablecoins were allowed to pay competitive interest rates, US banks could potentially lose as much as 25.9 percent of their deposits. This loss would translate to a reduction of roughly 1.5 trillion dollars in lending capacity. Community banks, which are particularly reliant on deposits to fund local loans, would likely experience the most significant impact from such a shift.
Key Perspectives on the CLARITY Act
After reviewing the Senate Banking draft text over the last 48hrs, Coinbase unfortunately can’t support the bill as written.
There are too many issues, including:
– A defacto ban on tokenized equities
– DeFi prohibitions, giving the government unlimited access to your financial…— Brian Armstrong (@brian_armstrong) January 14, 2026
Video Statement from @bgarlinghouse, @Ripple CEO on the Clarity Act postponement and Coinbase’s withdrawal of support from CfC St. Moritz.
“Clarity is always better than chaos and the industry needs clarity”. pic.twitter.com/HcOr6UGH3u
— Leonidas (@LeoHadjiloizou) January 16, 2026
The Senate Banking Committee’s CLARITY Act is the result of more than six months of good-faith, bipartisan negotiations and has benefited from consultation with industry participants, legal and academic experts, and key stakeholders.
Here are the facts:https://t.co/hEBjGKt09K
— U.S. Senate Banking Committee GOP (@BankingGOP) January 13, 2026
The Clarity Act Is Not “Capture.”
It Is Alignment.The Clarity Act governs behavior – but the architecture governs power.
Law can constrain actors, but only transparent, atomic systems eliminate the incentives and mechanisms for abuse.Digital asset markets don’t fail because… pic.twitter.com/z2vfD9inEq
— Rob Cunningham | KUWL.show (@KuwlShow) January 14, 2026
What the CLARITY Act Actually Does
Instead of engaging in direct competition on rates or technology, banking groups have turned to legislative measures. Section 404 of the CLARITY Act specifically bans yield payments on stablecoins through any method. This prohibition encompasses direct payments from issuers as well as indirect payments facilitated through exchanges, partners, or affiliates. The wording of this section is intentionally broad, designed to close every possible avenue through which yield could be shared with users.
Coinbase CEO Brian Armstrong conducted a thorough review of the 278-page draft legislation. After less than two days of examination, he withdrew the company's support for the bill late at night. By the following morning, the planned markup of the bill was postponed. Armstrong's primary concern was straightforward: the bill did not merely regulate cryptocurrency; it legally entrenched an advantage for traditional banks.
This approach aligns with a pattern observed in previous financial regulatory efforts. Following the 2008 financial crisis, the Dodd-Frank Act reshaped the financial landscape in ways that often favored large, established institutions that possessed the resources to manage compliance. Many within the cryptocurrency industry view the CLARITY Act as a digital parallel to that same playbook.
The timing of these developments is also noteworthy. On December 29, China took a contrasting approach by permitting its digital yuan to carry interest. While the United States is engaged in debates about banning stablecoin yield, Beijing is actively experimenting with paying it.