U.S. Senators are scheduled to review a long-awaited formal piece of legislation next week, which aims to establish a federal regulatory framework for the American cryptocurrency market. This could potentially resolve the prolonged stalemate between traditional banks and cryptocurrency exchanges like Coinbase Global, Inc. over the bill, a standoff that has pitted crypto companies against the U.S. banking sector.
The proposed legislation, known as the CLARITY Act, would, if signed into law, clarify the jurisdiction of U.S. financial regulators over this rapidly growing industry and likely accelerate the mass adoption of digital assets. Senator Tim Scott, Chairman of the Senate Banking Committee, announced on Friday that the committee will hold an executive session on May 14 at 10:30 a.m. (14:30 GMT) in Washington D.C.'s Dirksen Senate Office Building.
The cryptocurrency industry has been actively pushing for this critical legislation, describing it as vital for the future of digital assets in the United States and necessary to address long-standing core issues plaguing crypto firms. Among other provisions, the bill would define when crypto tokens qualify as securities, commodities, or other categories, thereby providing legal clarity for the sector.
Simultaneously, a compromise clause regarding rewards for idle holdings of stablecoins has become the most contentious point of division between the banking and crypto industries. The bill includes a provision designed to address a fierce dispute between cryptocurrency companies and banks. Under a compromise brokered by Republican Senator Thom Tillis and Democratic Senator Angela Alsobrooks, the practice of paying customer rewards on idle holdings of dollar-backed crypto tokens—specifically within the U.S. stablecoin system—would be prohibited. This is because such rewards resemble bank deposits and could potentially threaten the viability of major Wall Street commercial banks.
For holders of substantial stablecoin balances, the current practice involves platforms offering "interest/rewards" simply for holding dollar-pegged stablecoins in an account. This is perceived as too similar to interest-bearing bank deposits, raising concerns within the banking industry that it could siphon deposits away from the regulated banking system.
The proposed compromise seeks to ban rewards for "idle stablecoin holdings" but would allow rewards for other stablecoin-related activities, such as sending payments. Banking trade groups continue to oppose this clause, arguing it gives crypto companies too much leeway and could still lead to an outflow of deposits from the regulated banking system.
Here, "sending a payment" refers to a user completing a genuine payment or transfer using stablecoins, such as paying a merchant with USDC/USDT, sending money to a friend, making cross-border remittances, paying service fees, or completing on-chain payment settlements via a wallet or exchange. In essence, the regulatory framework aims to prohibit "stablecoins earning interest like bank deposits" but may permit incentives like cashback, fee subsidies, or transaction rewards for "using stablecoins for real payments/transfers."
Wall Street banking representatives have launched a final effort to garner more support from some Republican members of the Senate Banking Committee for their position before the hearing, though it remains unclear if they will succeed. Banking lobbyists have been seeking amendments to the Clarity Act to close a "loophole" created by legislation signed into law last year, which allows intermediaries to pay interest on stablecoins. Bank representatives generally argue this would lead to deposits leaving the insured banking system, potentially threatening financial stability.
Cryptocurrency companies, however, contend that prohibiting third parties, such as crypto exchanges, from paying interest on stablecoins would be anti-competitive. The industry hopes the Clarity Act can pass in the coming months ahead of the November midterm elections, where Democrats may regain control of the House of Representatives. The crypto industry views Democrats as far less friendly toward it than Republicans.
The House of Representatives passed its version of the Clarity Act in July of last year. The Senate would need to pass the bill by the end of 2026 to send it to President Donald Trump's desk on a favorable timeline. Furthermore, even though the House passed its version last July, if the Senate passes a different version, the two chambers would typically need to reconcile and pass identical text.
Many congressional Democrats have opposed the bill, arguing its anti-money laundering provisions are too weak and that it should do more to prevent political officials from profiting from cryptocurrency projects. The bill would need the support of at least seven Democratic votes in the full Senate to gain approval.
President Trump, who has courted industry funding by promising to be a "crypto president," and whose family's own cryptocurrency projects have helped push the industry into the American mainstream, would be the final arbiter if the bill reaches his desk.
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