Banks vs Stablecoins sudden failure of DC’s Clarity Act clearly shows that there’s a huge battle going on over who will control the future of money.
Crypto YouTuber and market expert Crypto Sensei explained in a simple way in his latest video why the U.S. Clarity Act for digital assets was suddenly voted down by the Senate Banking Committee. Many in the industry are now saying that the legislation seemed more like protectionism than clarity.
The main reason for this was that Coinbase CEO Brian Armstrong withdrew his support just hours after seeing the draft bill. They said the bill was even worse than the current system. According to reports, Chairman Tim Scott postponed the committee vote after this move.
This situation raises the question of who will ultimately decide the future of crypto and digital money the government or the market itself.
Table of Contents
Coinbase Breaks Ranks, Bill Stalls
Speaking to reporters on Capitol Hill, Armstrong said that Coinbase received the 270-page draft only on Monday night, and within 36 hours, he identified some points that he said could cause significant harm to the average American consumer if the bill were to pass the committee first and then be fixed.
According to the video, Armstrong’s main concerns were:
- Stricter restrictions on rewards and yields for users of exchanges like Coinbase
- Diminishing the CFTC regulatory role over normal crypto markets
- Language that effectively prevents the SEC from allowing the tokenization of real-world assets (RWAs)
Despite this, Ripple CEO Brad Garlinghouse, speaking at a conference in Switzerland, said he was surprised by Coinbase’s strong reaction. He said the rest of the industry still supports the bill in its negotiated form.
Stablecoin Yield In Center of a $6.6 Trillion Fight
The video focuses heavily on the fact that banks are viewing this bill as a shield against stablecoins.
An outside analysis is cited which states that 53 banking associations colluded to secure a $6.6 trillion protection bill for themselves. Its main point is Section 404, which states that offering any form of yield or reward on stablecoins will be prohibited. Not only issuers, but exchanges, their partners, and affiliates will also be barred from doing so.
The real issue here is this:
Banks in the US typically offer only around 0.01 percent returns on deposits. Stablecoin money is often held in short-term US Treasuries, which offer returns of 4 to 5 percent. If this benefit is shared with users, people could move their money out of banks and into stablecoins.
According to the video, the Kansas City Fed estimated that if stablecoins begin to offer competitive yields, approximately 25.9 percent of bank deposits, or approximately $1.5 trillion, could be removed from the banking system. This could reduce banks’ lending power and pose a serious risk to small community banks.
In recent earnings calls, CEOs of major banks like JPMorgan and Bank of America have also stated clearly that they consider interest-bearing stablecoins to be a parallel banking system, and to them, it is not just a new product but a threat to the system.
Privacy Fears a Flurry Of “Dragnet” Provisions
In addition to the yield, the host also shed light on critics view that the bill’s current text hides too many surveillance powers.
Popular commentator Paul Barron, who is mentioned extensively in the video, describes the Clarity Act as a dragnet. According to them, the bill includes points like:
- Real-time transaction monitoring without warrants
- Extending Bank Secrecy Act regulations to non-custodial wallets
- Granting new special measures to the Treasury that could freeze assets
- Sharing user data with foreign central banks
For DeFi users, this could mean more tracking of wallet activity and reduced privacy levels. Host says this will hurt retail users the most, especially those who use non-custodial wallets or decentralized protocols.
Lawmakers Say ‘Progress’, But Industry Sees Capture
Senators Tim Scott, Cynthia Lummis, and Bill Hagerty issued statements saying negotiations are still ongoing and everyone is still at the table. Tim Scott called the delay just a brief pause, while Bill Hagerty expressed confidence that a consensus bill is near.
But according to the video, the reaction on crypto Twitter has been overwhelmingly negative. Many analysts are calling the proposal a Dodd-Frank-like law for digital assets. They allege regulatory capture by banks, and there are warnings that banning stablecoin Yield while China is experimenting with interest-bearing e-CNY could be a strategic mistake for the US.
Currently, the bill’s future is uncertain. The video suggests that even if the revised draft passes the committee quickly, combining it with other measures, reconciling with the House, and getting it passed by both chambers will take considerable time perhaps several months, a time the current Congress may not have.
The message for crypto investors is clear: Washington is now not just debating whether to regulate crypto, but deciding who will own the yield and control the future of tokenized finance. The outcome will determine whether stablecoin returns remain in the banking system, migrate to on-chain systems, or are eliminated altogether through regulation.
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People Also Ask – Banks vs Stablecoins:
Does the current bill completely ban stablecoin yields?
According to the analysis in the video, Section 404 blocks stablecoin yields in almost every way. Not only issuers, but exchanges and their affiliates will also be unable to provide yields to users. Yes, the final wording is still under negotiation, so changes are possible.
Is the entire crypto industry against this bill?
No. Coinbase has withdrawn its support, and many retail users are also against it. But Ripple CEO Brad Garlinghouse says the rest of the industry is trying to fix the bill, not eliminate it altogether.
What happens next in the Senate?
According to Chairman Tim Scott, lawmakers and their teams are working on amendments in good faith. No new markup date has been announced yet, and time is quite limited in this legislative session.
How could this affect DeFi users?
If strict AML and surveillance rules remain in the final version, DeFi platforms, and some of Hatta’s non-custodial wallets, could face more stringent compliance and reporting requirements. This could reduce both privacy and access for U.S.-based users.
