"CLARITY Act" Approaching "Clear Moment"! Cryptocurrency Regulation Bill to Face US Senate, Stablecoin Interest Dispute Is Not Over Yet

U.S. senators are scheduled to hold a hearing next week on long-awaited formal legislation that cryptocurrency enthusiasts have been eagerly anticipating. This legislation will establish a federal regulatory framework for the U.S. cryptocurrency market, potentially ending the long-standing stalemate between traditional banks and the cryptocurrency exchange Coinbase around the bill; this standoff has pitted cryptocurrency companies against the U.S. banking industry. The U.S. cryptocurrency regulatory bill, known as the "CLARITY Act," if signed into law, would explicitly define the jurisdiction of U.S. financial regulators over this rapidly growing industry, and could potentially drive mass adoption of digital assets. Senator Tim Scott, Chairman of the Senate Banking Committee, announced on Friday that the committee will hold an executive meeting at 10:30 a.m. on May 14 in the Dirksen Senate Office Building in Washington, D.C. The cryptocurrency industry has been pushing for this crucial legislation, stating that it is vital for the future of digital assets in the U.S. and necessary to address core issues that have long plagued cryptocurrency companies. Among other things, the bill will define when cryptocurrency tokens are considered securities, commodities, or other categories, providing legal clarity for the industry. Additionally, a compromise clause around idle stablecoin holdings rewards is becoming the most contentious point between the banking industry and the cryptocurrency industry. The bill also includes a provision aimed at resolving a fierce controversy between cryptocurrency companies and the banking industry. According to a compromise reached by Republican Senator Thom Tillis and Democratic Senator Angela Alsobrooks, the practice of paying rewards for idle stablecoin holdings in a U.S. dollar-backed cryptocurrency system will be prohibited, as it is similar to bank deposits, which could pose a life-or-death moment for some Wall Street banking giants. For prominent stablecoin holders, they simply hold idle U.S. dollar-backed stablecoins in their accounts, and the platform gives you "interest/rewards" based on the balance. This is too much like earning interest on bank deposits, causing concerns in the banking industry that it could draw deposits away from the regulated banking system. The compromise plan aims to prohibit the payment of rewards for "idle stablecoin holdings," but will allow other activity rewards related to stablecoins, such as sending payments. The banking industry trade organizations still oppose this provision, stating that it gives cryptocurrency companies too much leeway and may cause deposits to flow out of the regulated banking system. The term "sending a payment" refers to when a user completes a real payment/transfer action using a stablecoin, such as: paying a merchant, transferring money to a friend, sending cross-border remittances, paying service fees, or settling on-chain payments via a wallet/exchange. In other words, the regulatory framework strives to prohibit "earning interest on stablecoins like bank deposits," but may allow incentives for "making real payments/transfers using stablecoins." Wall Street banking representatives have made a final attempt to garner more support from some Republican members of the Senate Banking Committee for their position before the hearing, but it remains unclear whether they will succeed. Banking industry lobbyists have been seeking amendments to the "Clarity Act" to address loopholes stemming from legislation enacted last year that allows intermediary institutions to pay interest on stablecoin payments. Bank representatives have generally argued that this will lead to deposits flowing out of insured banks, potentially threatening financial stability. Cryptocurrency companies, on the other hand, claim that prohibiting third parties, such as cryptocurrency exchanges, from paying interest on stablecoin holdings is anti-competitive. The industry hopes that the "Clarity Act" will be passed in the coming months before the November midterm elections; in those elections, the Democrats could regain control of the House, which is less friendly to the cryptocurrency industry compared to the Republicans. The House passed its version of the "Clarity Act" in July of last year, but the Senate needs to pass the bill by the end of 2026 to send it to President Donald Trump's desk within a favorable timeline. Additionally, while the House passed its version last July, if the Senate passes a version different from the House's, it typically requires both chambers to reconcile and pass the same text. Many Democratic members of Congress have been opposed to the bill, arguing that it is too weak on anti-money laundering provisions and more measures should be taken to prevent political officials from profiting from cryptocurrency projects. The bill needs the support of at least seven Democratic senators to pass in the full Senate. Former President Trump sought industry funding support, promising to be a "cryptocurrency president," and his family's own cryptocurrency project has helped drive the industry into mainstream American society.