The true battle of interests behind the CLARITY Act

Author Charlie Liu, partner at Generative Ventures

Last week, a new draft related to the CLARITY Act leaked. Circle dropped about 20% in a single day to a record low. Coinbase also fell nearly 10%.

Just a few weeks ago, they were the hot stocks in “agentic commerce,” the future payment infrastructure darlings. Now they’ve become a mirror reflecting Washington’s policy risks.

And following last week’s events as a “second act” to the first—Clarity Act stalled, crypto camp split, and interests clashing between DeFi and TradFi—the key issue isn’t the reward terms but this: In the U.S., the real decision isn’t about yield provisions—it’s about who owns the dollar accounts.

In recent days, many news outlets and media analyses have already discussed the impact of the event. But what I find more worth writing about is why a seemingly technical stablecoin rewards clause would simultaneously and profoundly affect Circle, Coinbase, banks, and Wall Street.

And why the core of this isn’t whether a platform can still give users some rewards in the future, but whether the U.S. is willing to let stablecoins grow into on-chain savings accounts.

This isn’t a fight over yield terms. It’s a fight over “dollar accounts.”

Section 404 of the Senate draft is the core of the entire news: digital asset service providers may not pay any form of interest or yield just because users hold payment stablecoins.

And judging by the structure of the provisions, 404 first targets the platform/distribution layer; it doesn’t automatically mean a blanket attack on all issuers.

But if rewards are tied to permitted activities—such as payments, transfers, exchanges, settlement, platform use, membership plans, merchant acceptance cashback, providing liquidity or collateral, governance, and staking—then they still fall within allowed behaviors.

At the same time, the bill explicitly prohibits packaging such compensation as “deposits,” “FDIC-protected,” “zero risk,” or “equivalent to bank deposit interest rates,” and requires the SEC and CFTC to jointly establish relevant disclosure rules within 360 days after enactment.

In other words, Washington isn’t saying “stablecoins can’t incentivize users.” It’s saying “You can incentivize behaviors, but you can’t package stablecoins as on-chain checking or savings accounts.”

If you only look at discussions within the crypto community, you might think this is a product design issue. But once you bring in the banking side, the nature of the problem changes immediately.

An ABA and other banking industry groups’ joint letter in January was almost a clear warning: they urged Congress to prohibit inducements—whether directly paid by issuers or indirectly through affiliates, platforms, or partners—so that payment stablecoins don’t become substitutes for investments and deposits.

And over the past month, the White House has repeatedly brought banks and the crypto camp together. The one thing they can’t agree on is this.

The banks’ logic is straightforward: if fully reserved stablecoins can be offered on platforms with “checking-like yields” close to short-term Treasury rates, then deposits will naturally flow out. That would undermine banks’ funding costs, lending capacity, and the broader financial stability narrative.

The estimate from Standard Chartered of roughly $500 billion in potential deposit outflows may not be the most precise figure, but it’s enough to serve as a political weapon in legislation.

Some may see this as just marketing fine print, not something worth elevating to the grand idea of “dollar accounts.”

But if it were truly just a detail, banks wouldn’t have publicly applied pressure with multiple letters in January, and the White House wouldn’t have personally convened banks and the crypto industry at the end of January and again in early February for this discussion.

What truly turned this into a core contradiction isn’t “incentives” themselves but the behind-the-scenes possibility: moving dollars onto the blockchain and making them inherently attractive like a savings account.

As I mentioned in my previous post: what truly determines the incentives debate is whether in the U.S. stablecoins are only payment/trading media or whether they will become savings vehicles. The latest draft actually aims to embed that sentence into law.

Circle more like an AI stock; Coinbase more like a policy stock

Circle and Coinbase both took hits this time, but not in the same way.

Circle’s stock price over recent weeks has acted like an emotional mood indicator.

At the end of February, the market first celebrated their earnings report because the numbers were impressive: USDC circulation at year-end was $75.3 billion, up 72% YoY; Q4 total revenue was $770 million, up 77% YoY; reserve income was $733 million.

Then in early March, the agentic commerce story pushed it higher again. Media portrayed Circle and Stripe building the road to a “future that doesn’t exist yet”—a world where autonomous AI agents settle transactions frequently using stablecoins.

This story is obviously appealing because it makes Circle look less like just a stablecoin issuer riding interest rate cycles and more like a payment infrastructure for the AI era.

But after the draft leaked on March 24, the market flipped and treated it as the biggest “beta” for CLARITY risk.

Within weeks, the same company was labeled with three different valuation narratives: earnings-driven stock, AI infrastructure stock, and policy victim stock.

The most surreal part is that what Circle did during this period didn’t fundamentally change at all. What changed was only the labels Wall Street attached to it.

Coinbase, on the other hand, isn’t as “story-driven.” It’s more like the market directly marked it as the first victim in this chain.

The reason is simple: its stablecoin economics are no longer peripheral.

Coinbase disclosed that Q4 stablecoin revenue was $364.1 million. USDC held across Coinbase’s product lines reached an all-time high of $17.8 billion, with a market cap of $76.2 billion.

In investor disclosures, the company explicitly framed all this within the “Everything Exchange is working” narrative.

In other words, Coinbase isn’t competing over a small product feature but over an entire growth flywheel: balance retention, user stickiness, subscription benefits, platform loyalty, and the synergy between dollar balances and on-chain services.

On March 24, the market caused Coinbase to fall 9.8%, essentially pricing very crudely but directly: if stablecoin yield based on balances is squeezed, this flywheel will slow down.

But I think this is also where many people mistakenly lump Circle and Coinbase together.

The “hit” Circle took is closer to indirect transmission because the draft directly targets digital asset service providers paying interest or yields to holders. That means the first layer hit is the platform/distribution/interface layer. As an issuer, Circle’s most direct income still mainly comes from reserve yields in the short term.

Coinbase is different. Its user relationships, platform distribution, USDC incentives, and Coinbase One rewards were already on that same line. So under the same decline, Circle looks more like “policy uncertainty compressing growth expectations,” while Coinbase looks more like “a growth engine might be directly dismantled.”

On this level, the market’s intraday declines already hinted at this distinction, but many reports still haven’t fully clarified it.

Both U.S. and Chinese media got half right, but three layers are still missing

Over the past week, I mostly saw mainstream U.S. media framing it in two directions.

One is the stock price: Circle’s sharp drop, Coinbase following, and crypto stocks being more sensitive to Washington headlines than many expected.

The other is the legislative window: banks and the crypto camp still haven’t reached an agreement. The White House has coordinated, but with time narrowing before midterm elections, whether the bill can pass in 2026 is now questionable.

This narrative isn’t wrong, but it mostly stays at the “what happened” level.

Chinese media and self-media tend to cut directly to trading effects.

One side asks: Was Circle “mistakenly killed”? Was Coinbase the most hurt? Will Tether’s audit actions seize the opportunity to deliver a final blow?

The other side asks: Will the final compromise text be released this week? And will “activity-based rewards” be interpreted too narrowly?

This perspective is closer to the market and more sensitive, but many discussions still stop at “which company benefits” or “which is harmed.”

I believe both sides are missing three layers.

The first layer is political economy.

Many write it as “banks vs crypto,” but they don’t fully explain whether the U.S. will allow stablecoins to become substitutes for savings accounts.

Putting together Section 404, ABA’s public statements, White House coordination, and media reports, the picture is quite clear: Washington isn’t against stablecoins; it wants to first restrict them to payment tools.

It’s willing to accept stablecoins that grow into more efficient layers like Visa, SWIFT, or B2B settlement, but not in a rush to let them become high-yield checking or savings accounts.

The second layer is the difference between issuance and distribution.

Circle will be hurt because once the platform layer can’t rely on “hold-and-earn” to grow USDC balances, the growth rate and valuation expectations will be affected.

But the most direct impact isn’t on Circle—it’s on the platform and distribution layers.

Coinbase’s decline looks more like its growth engine being directly discounted by the market. Circle’s future growth slope might be revised downward.

Labeling both as “stablecoin bearishness” is too broad.

The third—and most profound—layer is that demand for yield won’t disappear; it will migrate.

Suppressing the savings aspect of payment stablecoins doesn’t mean demand for cash-like yields vanishes.

It’s more likely to shift into tokenized money market funds, on-chain securities, or other yield structures that are more clearly regulated as securities.

This aligns with another overlooked language in the CLARITY draft: Section 505 states clearly that a financial product originally a security remains a security after tokenization; a non-security asset doesn’t become a security just because it’s tokenized. More importantly, tokenization cannot serve as an exemption to evade existing registration requirements.

In plain terms: Washington is willing to allow pathways for tokenization but not by opening the floodgates or rewriting securities laws just because assets are on-chain. Section 505 also aims to prevent the market from marketing tokenized RWA or financial assets as “naturally equivalent” to the underlying assets.

Once yield demand shifts away from stablecoin balances, the most likely beneficiaries aren’t the ones best at crypto storytelling but rather TradFi institutions better at on-chain securities and compliant distribution.

Banks, Coinbase, and Wall Street aren’t fighting over the same thing

The most interesting part is that, on the surface, they’re “arguing over provisions,” but underneath, three entirely different business models are racing for a future ticket.

Banks are fighting for the liability side.

They’re not worried about “crypto getting cooler,” but about “dollars moving from deposit accounts onto the chain,” and once moved, still maintaining near risk-free interest attractiveness.

If that happens, their core moat—low-cost deposits—though not glamorous, is the most profitable and will be undermined.

That’s why banks keep redefining this as financial stability rather than policy competition.

Coinbase is fighting for entry and distribution rights.

In my previous article, I mentioned its “everything exchange” strategy: everything on-chain, all transactions within one account, and maintaining competitive dollar balances.

It’s not just about preserving the 3.5% USDC rewards but about a broader platform vision—users putting dollars, crypto, future on-chain securities, derivatives, and subscriptions into one interface.

This time, Coinbase’s tough stance isn’t just because of short-term earnings; it believes these provisions will shape the next decade’s space, not just a quarterly compromise.

Investor narratives already reflect this: “Everything Exchange” is its direction, with USDC on the platform as a key component.

Wall Street’s fight is over whether tokenization still needs to happen through familiar channels.

Section 505’s language already provides an answer: after securities go on-chain, they still will be; tokenization won’t automatically lighten registration requirements.

That means “on-chain U.S. stocks” can happen, but Washington doesn’t intend to hand over gatekeeper roles of existing exchanges, broker-dealers, custodians, and clearinghouses to crypto-native platforms.

As I wrote before, “it’s not whether you can tokenize, but who can legally lead this path,” and that’s even more true now.

As for DeFi, it’s now overshadowed by stablecoin yield.

Many think CLARITY only has Section 404 left, but the draft also contains safe harbor and rule-of-construction language related to developers, front ends, wallets, and messaging systems worth watching.

It states that those who compile, verify, run nodes, develop wallets and software shouldn’t be automatically bound by the Act just because they do those things. But it also clarifies that this doesn’t automatically change laws like money transmitter, AML, or CFT regulations for behaviors outside their scope.

In other words, the U.S. isn’t closing the door on DeFi; it’s trying to separate “code writers” from “those who control user funds, execute transactions, and provide regulated entry points.”

But how that line will be drawn in the future still heavily depends on regulatory interpretation.

Short-term is bearish; long-term may not be a bad direction

So my current view isn’t entirely the same as the initial market reaction.

In the short term, banks have indeed gained a small advantage.

Coinbase is the hardest hit, and Circle can’t avoid some damage.

Over the past few years, the most straightforward and also most effective data story in the U.S. stablecoin market has been: “turn on-chain dollars into a more attractive dollar balance.”

Once that path is blocked, platform strength, distribution efficiency, and growth multiples from capital markets will be revalued.

But in the long run, I don’t think this necessarily spells disaster for the entire stablecoin industry.

It’s more like a forced shift. If regulators ultimately pin stablecoins to the payment tool lane, the industry will be pushed to talk less about APY and more about real payment use cases.

Whoever can integrate stablecoins into B2B settlement, cross-border payments, merchant acceptance, corporate treasuries, and e-commerce payments will have more long-term value.

Circle is the same.

Recently, the market has portrayed it as an AI payments stock and then as a policy victim stock. But more likely, its future is being pushed to accelerate from “interest rate cycle beneficiary” to “payment network and B2B infrastructure builder.”

This path is more difficult than just issuing rewards, and growth may not be as exhilarating. But once it’s achieved, valuation quality could be higher.

The market has finally realized that a technical clause about stablecoin yield actually conceals three larger wars—banks defending liabilities, Coinbase fighting for entry rights, and Wall Street seeking legal dominance over tokenization.

Many pivotal moments in history don’t happen in grand speeches but in these seemingly unremarkable legal sentences.