The CLARITY Act Stalemate: Inside the $6.6 Trillion War Between Banks and Crypto Over America's Financial Future
A Treasury study estimates $6.6 trillion could migrate from bank deposits to stablecoins if yield payments are allowed. That single number explains why the most important piece of crypto legislation in U.S. history is stuck in a lobbying brawl between Wall Street and Silicon Valley — and why the White House just stepped in with an end-of-February ultimatum.
From FIT21 to CLARITY: The Long Road to Crypto Regulation
The United States has been trying to answer a deceptively simple question for years: who regulates crypto? The SEC claims most tokens are securities. The CFTC says Bitcoin and Ethereum are commodities. And the industry argues that neither agency's existing framework fits the technology.
The first serious attempt at an answer came with FIT21 (Financial Innovation and Technology for the 21st Century Act), which the House passed in May 2024. That bill died in the Senate. When the 119th Congress convened, lawmakers tried again with the CLARITY Act — a refined successor that passed the House in July 2025 with bipartisan support.
The CLARITY Act establishes the framework the industry has been demanding. The CFTC gets exclusive jurisdiction over digital commodity spot markets — covering Bitcoin, Ethereum, and most tokens that have achieved sufficient decentralization. The SEC retains authority over tokens that function as investment contracts. A new registration regime for digital commodity exchanges, brokers, and dealers falls under CFTC oversight.
Unlike FIT21, the CLARITY Act drops the complex "decentralization test" that would have forced tokens to ping-pong between regulators as projects centralized and decentralized over time. It also provides explicit safe harbors for DeFi activities like hosting front-end interfaces, running nodes, and publishing open-source code — though the SEC and CFTC retain enforcement authority over fraud and manipulation.
The bill cleared the Senate Agriculture Committee on January 29, 2026, on a 12-11 party-line vote — the first time a crypto market structure bill has ever advanced beyond a Senate committee. But getting through the Senate Banking Committee, and eventually to the full Senate floor, has proved far more difficult.
The Stablecoin Yield Bomb
At the center of the deadlock is a dispute that sounds technical but carries existential implications for both industries: should stablecoin issuers be allowed to pay yield to holders?
For context, stablecoins like USDC and USDT are backed by reserves — typically U.S. Treasuries and cash equivalents — that generate substantial returns. Circle earned over $900 million from USDC reserves in 2025 alone. Currently, none of that yield flows to stablecoin holders. The GENIUS Act, the companion stablecoin bill that passed earlier, explicitly prohibits stablecoin issuers from paying interest.
But crypto companies have found creative workarounds. Coinbase offers "USDC Rewards" to users who hold the stablecoin on its platform. Other protocols offer yield through DeFi strategies. The banking lobby argues these "rewards" are functionally identical to interest — just with a different label.
JPMorgan Chase CFO Jeremy Barnum put the banks' position bluntly: "Creating a parallel banking system that offers deposit-like products with interest — but lacks centuries of bank safeguards — is clearly dangerous."
The Treasury Department's own analysis backs the scale of the threat. If stablecoins can offer yield, an estimated $6.6 trillion could flow out of traditional bank deposits and into stablecoin products. For banks, that means less capital available for lending, fewer mortgages, fewer small business loans — and fundamentally smaller balance sheets.
The crypto industry's response is equally pointed. The Blockchain Association's Summer Mersinger called the banks' opposition "a relentless pressure campaign by the big banks to rewrite this bill to protect their own incumbency." Crypto advocates argue that stablecoin holdings are custodied, not reinvested for the issuer's profit like bank deposits, making the comparison fundamentally flawed.
The current legislative compromise tries to thread the needle: stablecoins cannot offer rewards for passively holding them (which would resemble a savings account), but rewards tied to activity and transactions remain permissible. Neither side is satisfied.
The White House Ultimatum
On February 2, 2026, the stalemate prompted direct White House intervention. President Trump's crypto adviser Patrick Witt convened a summit in the Diplomatic Reception Room, bringing together crypto executives from Coinbase, Circle, Ripple, and Crypto.com alongside banking trade association representatives.
The two-hour meeting failed to produce agreement. According to attendees, the crypto contingent — which outnumbered bankers by a wide margin — came away feeling the banks were deliberately stalling negotiations. The White House responded with marching orders: reach a compromise on stablecoin yield language before the end of February.
The pressure reflects the administration's broader agenda. The Crypto Council for Innovation has floated an ambitious timeline of getting the CLARITY Act to President Trump's desk by early April 2026. Prediction markets on Polymarket currently give the bill a 50-65% chance of becoming law this year.
But the February deadline may be more aspirational than realistic. Banking representatives at the summit were trade association officials who need buy-in from member institutions before committing to specific legislative language. And the White House meeting was just one of multiple fronts — the stablecoin yield question also intersects with the GENIUS Act, which the Senate passed separately but which could be reopened if the market structure bill changes the ground rules.
Five Fault Lines That Could Kill the Bill
Beyond stablecoin yields, four other unresolved disputes threaten to derail the legislation:
1. Ethics and Presidential Crypto Ventures
Democrats have pushed for provisions barring elected officials and their families from issuing or endorsing digital assets. The demand gained urgency after President Trump launched the $TRUMP meme coin and his family's involvement in World Liberty Financial. Senate Democrats, led by Senator Booker, argue that passing crypto legislation without ethics guardrails would legitimize conflicts of interest. Republicans counter that such provisions are politically motivated and unnecessary.
2. DeFi Liability and Registration
How to regulate decentralized finance remains one of the hardest technical questions. The CLARITY Act provides safe harbors for specific DeFi activities, but Democrats raise concerns about money laundering, sanctions evasion, and national security risks. The balance between protecting open-source developers and preventing illicit finance has no easy answer — and both sides know that getting the language wrong could either kill innovation or enable the next billion-dollar exploit.
3. CFTC Staffing Crisis
The CFTC currently has one commissioner — Chairman Michael Selig, nominated by Trump and confirmed by the Senate. A full commission has five members. Democrats want a provision requiring bipartisan quorum before the agency can issue major rules, arguing that handing sweeping new authority to a one-person commission undermines democratic oversight. The staffing gap also raises practical questions about whether the CFTC can actually handle its expanded mandate.
4. Senate Banking Committee Impasse
The CLARITY Act must pass through two Senate committees — Agriculture (done) and Banking (stalled). The Banking Committee postponed its January 15 markup after Coinbase CEO Brian Armstrong publicly withdrew support, citing concerns about a tokenized equities ban and DeFi restrictions in the committee's draft. Committee leadership has since pivoted to housing legislation per White House direction, pushing the crypto markup into late February or March at the earliest.
5. The Seven-Democrat Math Problem
Even if all disputes are resolved, the CLARITY Act needs 60 votes to overcome a Senate filibuster. With Senate Republicans holding a narrow majority, that means at least seven Democrats must vote yes. The party-line Agriculture Committee vote — zero Democratic support — illustrates the challenge. Senate Democrats are holding a closed-door meeting on February 4, 2026, their first member-level discussion since the Banking Committee delay. How that meeting goes may determine whether bipartisan support is achievable.
What Happens If the Bill Fails
The stakes of failure extend beyond crypto. Without a market structure framework, the regulatory vacuum that has defined U.S. crypto policy since Bitcoin's inception continues. Projects incorporate offshore. Exchanges maintain ambiguous legal status. And the SEC and CFTC continue fighting over jurisdiction through enforcement actions rather than legislation.
Meanwhile, competing regulatory frameworks in the EU (MiCA), the UK, Singapore, and Hong Kong provide the clarity that American legislation has not. Every month of delay increases the risk that crypto innovation migrates to jurisdictions where the rules are already settled.
For the banking industry, failure carries its own risks. Stablecoins are already growing at 40%+ annually regardless of legislation. Without a regulatory framework that brings stablecoins under banking oversight, banks may find themselves competing against unregulated products rather than the regulated ones they could influence through the legislative process.
The Path Forward
The most likely scenario is messy compromise. The White House's February deadline creates pressure, but the practical timeline for Senate Banking Committee action extends into March. If both committees advance their versions, a conference process to reconcile the bills adds more weeks. The optimistic case — a bill on the president's desk by April — requires everything to go right.
The pessimistic case — collapse under the weight of competing interests — is equally plausible. If Democrats and Republicans cannot agree on ethics provisions, if the banking lobby successfully blocks stablecoin yield, or if the DeFi community torpedoes a bill it views as too restrictive, the CLARITY Act joins FIT21 in the graveyard of promising crypto legislation.
The most consequential outcome may not be the bill's passage or failure, but the precedent set by the process itself. For the first time, crypto regulation is being negotiated at the White House, with banking CEOs and protocol founders in the same room. Regardless of whether this particular bill becomes law, the political infrastructure for eventual regulation is being built — one contentious meeting at a time.
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