Summary

• Clarity Act stuck in Senate on Stablecoin Rewards, 70% chance of passage this year
• Stablecoin yield (or anything that resembles it) goes away, and rewards look more like what you have on your Visa card. Coinbase pulled out because of crypto restrictions in the bill (not stablecoin).
• Industry will likely pivot to sweep, and Stableocin becomes just another rail, which will require consumer and merchant adoption, without the big “draw” of balance rewards. Thus, balances stay in transactional and interest-bearing accounts, and friction increases w/ stablecoin payments.
• Politics of key players and quotes in blog today.

The Digital Asset Market Clarity Act of 2025 (H.R. 3633) is the last hope for Stablecoin issuers to save rewards. While the bill passed the House with a strong bipartisan vote on July 17, 2025, its progress has stalled in the Senate (as of Feb 2028) with intense disagreements regarding the regulation of stablecoin “rewards” and yield-like incentives.

Current Legislative Status

• House Status: H.R. 3633 passed the House of Representatives on July 17, 2025, by a vote of 294–134.
• Senate Status: The bill was referred to the Senate Committee on Banking, Housing, and Urban Affairs on September 18, 2025. A scheduled committee markup (a clause-by-clause vote) was originally set for January 15, 2026, but was postponed after major industry players, including Coinbase, withdrew their support over revised draft language.
• White House Mediation: The White House Crypto Policy Council has intervened to broker a compromise between banking groups and the crypto industry. It has set a March 1, 2026 deadline for reaching a deal on stablecoin reward language to move the bill forward.
  

House-Passed Language

In its current form as passed by the House, H.R. 3633 is “rewards friendly” with support of Coinbase, the Act serves as a “market structure” bill that divides jurisdiction between the SEC and CFTC. Its impact on stablecoin rewards is characterized by the following:

• Reliance on the GENIUS Act: The House version of the Clarity Act cross-references the GENIUS Act (signed into law in July 2025) for stablecoin regulation. While the GENIUS Act explicitly prohibits stablecoin issuers from paying interest or yield, it is silent on rewards paid by third-party platforms such as exchanges or wallet providers.
• The “Loophole” Preservation: Because the House-passed text does not explicitly ban rewards from intermediaries, it effectively preserves what banking lobbies call a “loophole”. Under this version, a platform could still offer rewards (e.g., “holding rewards”) to users for maintaining stablecoin balances, provided the payment is not made directly by the issuer.

Senate

• Senate’s Proposed Restrictions: The primary reason for the bill’s current delay in the Senate is an attempt by negotiators to add more restrictive language that did not exist in the original House-passed version. The proposed Senate draft seeks to prohibit rewards for “idle” balances while only permitting “activity-linked incentives” tied to specific actions like transactions, staking, or providing liquidity.
  • Section 404, which specifically addresses the conduct of digital asset service providers. Unlike the GENIUS Act, which focused its interest prohibition primarily on “issuers,” the CLARITY Act expands this restriction to the broader ecosystem of intermediaries.
  • Section 404(b)(1) of the Senate draft provides the following prohibition: “No digital asset service provider shall pay the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding of such payment stablecoin”. The inclusion of the word “solely” is a direct inheritance from the GENIUS Act’s Section 4(a)(11), a provision that has been the subject of intense interpretive debate.
  • Section 404(b)(2) of the CLARITY Act introduces a definitive carve-out for what are now termed “activity-based rewards.” The text states: “The prohibition in paragraph (1) shall not apply with respect to an activity-based reward or incentive”. This distinction is intended to preserve the ability of platforms to offer consumer incentives that resemble traditional loyalty programs
• The Alsobrooks Compromise: is Section 404(b)(2) and was the result of a proposal by Senator Angela Alsobrooks that would allow rewards only if a customer takes an “affirmative action,” such as executing a trade, rather than merely letting stablecoins “sit in an account”.
• The American Bankers Association (in letters to the Senate) warning that rewards are a “loophole” around the GENIUS Act interest ban.
• A joint letter from America’s Credit Unions urged Congress to prohibit “yield, rewards, or interest-like payments” on payment stablecoins in the CLARITY Act. Their argument: incentives could pull deposits out of regulated institutions, citing USDOT estimates of up to $6.6 trillion in potential deposit migration if stablecoins offer competitive returns
• Republicans released fact sheets emphasizing investor protection and illicit finance controls but did not publicly detail a final rewards provision.

Alsobrooks Compromise 

Under the Alsobrooks Compromise, a digital asset service provider may offer a return or reward to a stablecoin holder only if the customer takes a verifiable “affirmative action” (ie NOT passive yield). 

The proposal defines “affirmative action” through a series of permitted economic behaviors that demonstrate the stablecoin is being used as a medium of exchange or a functional tool within a digital ecosystem, rather than a passive store of value. These actions include:

• Transaction-Based Execution: Incentives provided when a user executes a trade or utilizes the stablecoin to purchase goods or services from a merchant.
• Active Governance and Security: Rewards earned for “staking” or allocating stablecoins to secure a protocol or participate in network governance modules.
• Liquidity Provision: Incentives paid to users who actively deposit their stablecoins into automated market makers (AMMs) or liquidity pools to facilitate decentralized trading.
• Collateralization: Rewards or fee reductions granted to users who use their stablecoins as collateral for regulated on-chain lending or margin trading.

This compromise is designed to ensure that innovation is not stifled while guaranteeing that digital assets do not “mimic a bank-like product without bank-like protections”. Resistance from banking representatives was heavy as they argued that the definition of “activity” could be interpreted so broadly that it effectively preserves the yield model under a different name.

The tension surrounding this compromise reached a fever pitch in early February 2026, when the White House intervened to set a March 1 deadline for a final agreement on these definitions.  Negotiators like Patrick Witt, the White House crypto advisor, have signaled that while the “no yield on idle balances” rule is a firm red line for the administration, the precise scope of “activity” remains the final hurdle to a bipartisan deal.

The Coinbase Defection

The momentum behind the CLARITY Act suffered a catastrophic blow on January 14, 2026, when Coinbase CEO Brian Armstrong publicly withdrew the company’s support for the Senate’s version of the bill.

Armstrong’s decision was predicated on what he described as a series of “poison pill” amendments that were introduced during the Senate Banking Committee’s rewrite of the House-passed text. Coinbase’s objections were centered on four primary areas that the company viewed as existential threats to the domestic digital asset industry:

1. The De Facto Ban on Tokenized Equities: Section 505 of the Senate draft included language that would make it nearly impossible to trade tokenized versions of traditional securities (like fractions of real estate, stocks, or bonds) on a blockchain. Coinbase viewed this as a protectionist measure for traditional exchanges like the NYSE, which has simultaneously been developing its own tokenized trading platform.
2. DeFi Privacy and Surveillance: The revised draft expanded the definitions of financial intermediaries to include developers and contributors to decentralized finance (DeFi) protocols. This change would grant the government what Armstrong described as “unlimited access to your financial records,” effectively ending the non-custodial and permissionless nature of DeFi in the United States.
3. The Shift in Agency Jurisdiction: While the House version favored the CFTC, the Senate draft significantly broadened the SEC’s authority over “ancillary assets”. This was seen by Coinbase as a revival of the “regulation by enforcement” approach that had previously plagued the industry.
4. Restrictions on Stablecoin Rewards: Perhaps most critically for Coinbase’s balance sheet, the bill’s move to ban rewards on idle balances threatened a core revenue stream.  In 2025, stablecoin-related revenue for Coinbase was estimated at $1.3 billion, much of which was derived from its partnership with Circle on USDC.

The White House reportedly labeled Coinbase’s move a “rug pull” against the administration, as it occurred just hours before a key committee markup, forcing the indefinite postponement of the vote. Armstrong countered that the banking industry was attempting “regulatory capture” to eliminate its competition, arguing that “banks should have to compete on a level playing field”.

Impact on Committee Dynamics

The Coinbase withdrawal fractured the pro-crypto coalition in the Senate. While Ripple and Circle continued to support the bill as a “massive step forward” for institutional clarity, Coinbase’s opposition gave moderate Democrats and Republican holdouts cover to demand further concessions. This split highlighted a deeper divide in the industry: Ripple’s model focuses on becoming the “regulated plumbing” for global payments, whereas Coinbase is fighting to protect its high-margin retail yield and DeFi ecosystems.

The 2026 Senate Legislative Calendar 

The fate of the CLARITY Act is inextricably linked to the 2026 legislative calendar and the looming midterm elections in November.  As of February 2026, the bill is in a state of precarious “limbo,” with the legislative window for complex financial reform closing rapidly.

Key Deadlines and Milestones

The chances of the CLARITY Act passing the Senate in 2026 are currently estimated by prediction markets at approximately 68% to 70%. Despite the January setback, there are several factors that maintain the bill’s momentum:

• Bipartisan Pressure: Leader Chuck Schumer (D-NY) and Chairman Tim Scott (R-SC) have both expressed a desire to pass the bill before the midterms to avoid ceding the regulatory lead to the EU or Asia.
• The “Dollar Dominance” Narrative: Treasury Secretary Scott Bessent has framed the bill as a national security priority, arguing that regulated stablecoins are the best way to ensure the U.S. dollar remains the primary currency of the digital age.
• Political Funding: The enormous war chest of the Fairshake PAC ($193M) serves as a potent reminder to lawmakers that the crypto industry has the resources to influence key races if its priorities are ignored.

However, the “Alsobrooks Compromise” remains the linchpin. If the committee can successfully define “activity-based rewards” in a way that satisfies both the White House and enough moderate Democrats to hit the 60-vote threshold, the bill could move to the floor by April 2026. Conversely, if Coinbase and the bank lobby remain entrenched, the bill is likely to slide into the next Congress, leaving the industry to navigate the OCC’s increasingly restrictive guidance.

Scenarios

If the CLARITY Act passes, its statutory language on “activity-based rewards” would supersede the OCC’s more restrictive interpretative guidance. This would force the OCC to revise Part 15 to allow for transactional incentives, provided they meet the “affirmative action” criteria established by the Alsobrooks Compromise. But right now that’s a big “if”.

Scenario 1 – The Transition to Transactional Rewards

In a post-CLARITY Act world, stablecoin rewards are likely to undergo a “morphological shift” from yield-bearing products to transactional utility products. The industry will likely adopt a model resembling the credit card “cash-back” ecosystem. For a “debit” card like product. Which does make me wonder if this structure could be an end run on Durbin for non-exempt banks, but that’s for another blog.  

1. Merchant-Funded Rebates: Instead of the issuer paying interest, merchants will offer discounts or rebates for using stablecoins as a payment rail. This is permitted under the OCC proposal as long as the issuer does not fund the incentive.
2. Card-Like Loyalty Points: Platforms will offer “points” for every dollar transacted (rather than held), which can be redeemed for platform services, lower trading fees, or partner products.
3. Tiered Service Access: Instead of a 5% yield, users holding a certain balance might “unlock” premium features, such as zero-fee international remittances or instant settlement, which provides economic value without paying a direct financial return on the asset itself.

Scenario 2 – Sweep: The Ultimate Regulatory Workaround

The most sophisticated response to the GENIUS Act’s interest prohibition is the development of the “tokenized money market fund (MMF) sweep”. This model leverages a critical distinction in the law: while stablecoin issuers are prohibited from paying interest, money market funds—as SEC-regulated investment companies—are required to distribute income to their holders.

The Mechanics of the Instant Sweep

The most likely scenario for the future of “yield-bearing” stablecoins involves a partnership between stablecoin issuers and major asset managers like BlackRock (ex  Institutional Digital Liquidity Fund (BUIDL)).

• The Partnership Model: A stablecoin issuer (like Circle) or an exchange (like Coinbase) partners with a tokenized MMF.
• The Sweep Protocol: Using protocols like “Multiliquid” or Franklin Templeton’s “Benji” infrastructure, a user’s “idle” stablecoin balance is automatically and instantly “swept” into an SEC-registered, yield-bearing tokenized MMF (such as DIGXX or LUIXX).
• Atomic Redemption: When the user needs to spend their stablecoin, the platform executes a single atomic transaction that redeems the MMF shares and provides the user with the equivalent stablecoin in milliseconds, allowing for 24/7 liquidity.

Why This Scenario is Probable

This “sweep” architecture is uniquely positioned to satisfy all regulatory stakeholders:

• For the OCC/Fed: The stablecoin itself remains a “pure” payment instrument with no yield, satisfying the GENIUS Act.
• For the SEC: The yield is generated by a regulated security (the MMF) with full disclosure and auditing.
• For the User: The experience is identical to a yield-bearing account, providing a competitive return (currently around 3.5% to 5%) while maintaining the “always-on” liquidity of a digital dollar.

As traditional financial giants like J.P. Morgan and Visa continue to build out their tokenized settlement rails, the “sweep into stablecoin” model will likely become the standard for institutional treasury management and retail wealth products alike. Once sweep is established, stablecoins become a “rail” and compete with cards on efficience, consumer experience all with little stand alone incentives for use, and a complex on-boarding with gas charges at each hop.

I’d encourage anyone interested in this topic to try to make a consumer stablecoin payment. Stripe made it easy for me to accept stablecoins (30min), but it takes me 45 min to use them. Feel free to use this link “Buy Tom a Coffee” (you don’t have to complete the transaction).