Coinbase Torpedoes Senate ‘CLARITY Act’ Over Yield Bans and Surveillance

The Senate Banking Committee’s attempt to pass the Digital Asset Market Clarity Act collapsed Thursday morning after Coinbase withdrew its support hours before a scheduled markup. The abrupt reversal forced Committee Chair Tim Scott (R-SC) to cancel the vote, effectively freezing the legislation and exposing a deepening fracture within the crypto lobby.

The Dealbreakers: Yield, Equities, and Privacy

Coinbase CEO Brian Armstrong did not mince words, stating the company would “rather have no bill than a bad bill.” In a public statement, Armstrong and VP of Policy Kara Calvert outlined three “poison pills” in the Senate draft that made the legislation unworkable for the largest U.S. exchange:

• De Facto Ban on Tokenized Equities: New language effectively prohibits on-chain representations of traditional securities, a sector Coinbase has explicitly targeted for future growth.
• Stablecoin Yield Prohibition: The draft bans exchanges from passing stablecoin interest yield to customers. This is an existential threat to Coinbase’s revenue model; the company generated nearly $1.3 billion in stablecoin-related interest income in 2025.
• Surveillance Overreach: Provisions allowing unlimited government access to user financial records without sufficient warrant protections.

The Institutional Context: Protecting the Bank Moat

The prohibition on stablecoin yield is not a safety measure. It is a competitive firewall requested by the banking lobby. Banks argue that if crypto exchanges can offer 4-5% yield on stablecoins (derived from Treasuries) while offering instant settlement, it would trigger massive deposit flight from traditional checking accounts. By banning these pass-through rewards, the Senate draft effectively neutralizes stablecoins as a competitor to commercial bank deposits.

The draft amendments would kill rewards on stablecoins, allowing banks to ban their competition. Brian Armstrong

Civil War in the Lobby

Coinbase’s exit isolated it from other industry heavyweights who were willing to accept an imperfect bill to secure regulatory legitimacy. Ripple CEO Brad Garlinghouse publicly broke with Armstrong, arguing that “clarity is better than chaos” and urging the industry to accept the framework as a starting point. Kraken and Circle also signaled continued engagement, highlighting a tactical split: while Ripple fights for the legal status of XRP, Coinbase is fighting for the economic viability of its yield products.

Despite the legislative collapse, markets remained stoic. Coinbase (COIN) stock held firm at $230 (+1%), while the broader crypto market traded flat, suggesting investors had already priced in a gridlocked Washington.