The Digital Asset Market Clarity Act, better known as the CLARITY Act, was intended to draw clear lines around crypto assets and which regulator gets the first call.
CryptoSlate has already walked readers through the bill’s larger architecture ahead of the January increase, including what’s changed, what’s left unresolved, and why jurisdiction and state primacy may be just as important as the main definitions.
The part that currently uses the most oxygen is narrower and much more nuanced: It’s about who can pay consumers to keep dollars parked in a particular spot.
That dispute became harder to ignore after Coinbase said it could not support the Senate bill in its current form, and the Senate Banking Committee postponed a planned increase. Since then, the bill has entered the phase where staff is rewriting verbs and lawmakers are testing whether a new coalition is realistic.
Senate Democrats said they would continue to talk to industry representatives about their concerns, while the Senate Agriculture Committee pointed to a parallel schedule, including their Jan. 21 draft and a hearing scheduled for Jan. 27.
If you want the easiest way to understand why stablecoin rewards have become the stumbling block, forget the slogans and imagine one screen: a user sees a dollar balance labeled USDC or another stablecoin and an offer to earn something by keeping it there. In Washington that ‘something’ is interest. In banking, there is a substitute for deposits.
The Senate draft focuses the conflict Section 404titled “Keeping rewards for stablecoin holders,” a section that essentially tells platforms what they can and cannot do.
The line Congress is trying to draw
Section 404 says that digital asset service providers cannot offer any form of interest or return “solely in connection with owning a payment stablecoin.”
That focuses on the simplest reward product: park a payment stablecoin on an exchange or in a hosted wallet and receive returns that increase over time, with no additional behavior required. That looks like interest to lawmakers, and it looks like a direct funding competitor to banks that rely on deposits.
The key phrase here is “solely in connection with the business,” because this makes the prohibition dependent on causality. If the only reason a user receives value is because he/she owns the stablecoin, the platform is out of reach. If a platform can credibly tie the value to something else, the design provides a path forward.
CLARITY tries to define that path by allowing “activity-based rewards and incentives,” and then list what that activity can include: transactions and settlement, use of a wallet or platform, loyalty or subscription programs, merchant underwriting discounts, providing liquidity or collateral, and even “governance, validation, staking, or other participation in the ecosystem.”
Simply put, Section 404 makes a distinction between getting paid for parking and getting paid for participation. In product language, it invites a second battle over what counts as participation, because fintech has spent a decade learning how to turn economics into engagement with a few extra taps.
The parts that users will actually notice
Most readers will focus on the yield ban and overlook the layer that could reshape the front end of stablecoin products: marketing and disclosures.
Section 404 prohibits marketing that suggests a payment stablecoin is bank deposit or FDIC insured, that rewards are “risk-free” or comparable to deposit interest, or whether the stablecoin itself pays the reward. It also calls for standardized, plain-language statements that a payment stablecoin is not a deposit and is not insured by the government, plus a clear attribution of who is funding the reward and what a user must do to receive it.
Banks and credit unions care about perception because perception moves deposits. Their public argument is that passive stablecoin returns encourage consumers to treat stablecoin balances like safe cash, which could accelerate deposit migration, with community banks taking the hit first.
The Senate bill echoes these concerns by requiring a future report on deposit outflows and explicitly identifying deposit flight from community banks as a risk to study.
However, crypto companies say stablecoin reserves are already generating revenue, and platforms want flexibility to share some of that value with users, especially in products that compete with bank accounts and money market funds.
The most useful question we can ask here is what this bill will survive and in what form.
A flat APY for holding stablecoins on an exchange is the risky case, because the benefit is “solely” tied to holding, and platforms need a real activity hook to keep that going.
Cashback or points for spending stablecoins is much safer, because merchant discounts and transaction-related rewards are explicitly considered, and that tends to favor cards, trading benefits, and various other use-to-earn mechanisms.
Collateral or liquidity-based rewards are likely possible because “providing liquidity or collateral” is in the list, but the UX burden increases there because the risk profile is more like lending than payments. DeFi pass-through yield in a custodial container remains theoretically possible.
However, platforms will not be able to avoid disclosures, and disclosures create friction because platforms will have to explain who pays, what qualifies, and what risks exist in a way that will be tested in enforcement and in court.
The common thread is that Section 404 pushes rewards away from revenue from inactive balances and toward rewards that resemble payments, loyalty, subscriptions, and commerce.
The publisher’s firewall and the phrase that will decide partnerships
Section 404 also contains a clause that doesn’t look like much until you put it next to real stablecoin distribution deals. It states that a stablecoin issuer with an allowed payment is not expected to pay interest or returns just because a third party independently offers rewards, unless the issuer “leads the program.”
This is the bill’s attempt to prevent issuers from being treated as interest-paying banks because an exchange or wallet adds additional incentives on top of that. It also warns issuers to be careful about how close they get to platform rewards, as that proximity can easily be seen as directional.
“Directs the program” is the key hinge here. Direction can mean formal control, but the hard cases involve influence that resembles outside control: co-marketing, revenue shares tied to balances, technical integrations designed to support a rewards funnel, or contractual requirements on how a platform describes the stablecoin experience.
After Coinbase’s objection and markup delay, that ambiguity became the battleground, as late-stage bills often boil down to whether to limit, broaden, or define a single word.
Unfortunately, the most plausible endpoint is not a clean victory for either side. A new regime will most likely be implemented in the market where platforms will still offer rewards, but they will do so through activity-based programs similar to payments and engagement mechanisms, while issuers keep their distance unless they are willing to be treated as participants in the compensation structure.
That’s why Section 404 is important beyond the current news cycle. At issue are which rewards can be offered at scale without stablecoins being sold as deposits under a different name, and which partnerships are expected to cross the line from distribution to direction.