Lede
Senate Banking Chair Tim Scott has officially released an amended draft of the CLARITY Act, formally titled the Digital Asset Market Clarity Act. This legislative proposal represents a significant effort to establish a regulatory framework that allows cryptocurrency companies to offer specific activity-based rewards to stablecoin users without these assets being treated as securities or bank-like products. According to Chair Tim Scott, the bill is the result of months of serious work and reflects a variety of ideas and concerns raised across the Committee. He emphasized that families and small businesses benefit from having clear rules of the road, and the draft bill is intended to provide everyday Americans with the protections and certainty they deserve in the evolving digital asset marketplace.
The proposal specifically addresses the ongoing debate regarding whether stablecoin rewards should be classified as interest or promotional incentives. By providing this clarity, the act seeks to foster innovation while ensuring that the regulatory environment remains robust and predictable for both service providers and consumers. The release of this draft follows intensive discussions regarding the role of stablecoins in the broader financial ecosystem and the need for federal oversight that does not stifle the utility of digital assets for common transactions.
Context
The Digital Asset Market Clarity Act provides a detailed list of activities and incentives that would be exempt from certain prohibitions. According to the draft bill, the proposed restrictions on yield would not apply to incentives that are directly connected to everyday financial activity. This broad category includes rewards linked to payments, transfers, remittances, and settlements, essentially protecting the standard utility of stablecoins as a medium of exchange. The draft further specifies that benefits tied to the functional use of wallets, accounts, platforms, or blockchain networks are also permitted under the new rules.
The scope of these exemptions is intended to cover various promotional and operational models common in the fintech and crypto sectors, including:
- Loyalty and promotional programs designed to encourage user retention.
- Subscription-based incentives that offer benefits for recurring service use.
- Rebates provided to users in relation to their stablecoin transactions and use cases.
Additionally, the draft addresses crypto-native functions that are essential to the decentralized finance ecosystem. It explicitly permits rewards associated with providing liquidity or collateral to various platforms. Furthermore, participation in the technical and administrative aspects of blockchain networks—such as governance, validation, and staking—is considered a permissible activity. By covering broader ecosystem activity, the bill attempts to safeguard the diverse ways users interact with stablecoins beyond simple holding, ensuring that technical participation remains incentivized.
Impact
A critical provision in the draft bill clarifies that digital asset service providers are prohibited from paying any form of interest or yield, whether in cash or tokens, solely in connection with the holding of a payment stablecoin. This specific clause is aimed at preventing stablecoins from being used as unregulated investment vehicles. This issue has led to a significant divide between the crypto sector and traditional financial institutions. Recently, a group representing US community bankers voiced concerns to Congress, urging an amendment to the GENIUS Act to close what they describe as a yield loophole. They argue that stablecoin issuers are currently bypassing regulations by passing yield to tokenholders indirectly through exchange partners.
These bankers warned that such practices could siphon billions of dollars away from community banks, potentially weakening their ability to provide essential loans to small businesses, farmers, students, and homebuyers. However, the Crypto Council for Innovation and the Blockchain Association have rebuffed these claims in a letter addressed to the Senate Banking Committee. These advocacy groups maintain that payment stablecoins are not used to fund loans and argue that the bankers’ proposed revisions would ultimately stifle innovation and limit consumer choice in the financial market. The debate highlights the tension between traditional banking models and the emerging digital asset economy, as lawmakers weigh the risks of capital flight against the benefits of financial technology.
Outlook
The progression of cryptocurrency legislation in the United States continues to be influenced by the need for bipartisan consensus and thorough committee review. Recently, the US Senate Agriculture Committee decided to delay its markup of a key crypto market structure bill. Chairman John Boozman confirmed that the markup has been rescheduled for the final week of January, citing the necessity for additional time to secure broad bipartisan support before moving forward with the legislation. This delay highlights the complexities involved in drafting comprehensive digital asset laws that satisfy a wide range of stakeholders with competing interests.
As the final week of January approaches, the focus will remain on how the Digital Asset Market Clarity Act and other related bills will be reconciled within the legislative process. Lawmakers are tasked with balancing the growth of the digital economy with the stability of the traditional financial system. The coming weeks will be critical for determining the legislative path for stablecoins and the broader cryptocurrency market, as committees work to finalize drafts that can win enough support to pass through the Senate. Achieving lasting regulatory clarity remains a priority for the industry, which seeks to move beyond the current environment of uncertainty regarding the status of digital asset rewards and their impact on the banking sector.
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