The deadlock between banks and the crypto industry reps regarding the new crypto legislation continues, as the White House meeting between both parties failed. The White House hosted the summit on February 2nd to renegotiate the terms of the CLARITY Act. The follow-up meeting was held yesterday, February 10th, and ended in an impasse.
The major disagreement between banks and the crypto industry is regarding the stablecoin “yields”, which reward the user for keeping coins in their crypto wallets. Banks argue that stablecoin rewards are similar in principle to interest provided by banks; hence, they could result in a massive outflow of funds from banks to crypto. This can hurt the banks’ business and muddle their loaning capacity. The crypto industry, on the other hand, terms any move to “ban stablecoin rewards” as limiting innovation.
What is the CLARITY Act?
The CLARITY Act (Digital Asset Market Clarity Act of 2025) aims to provide structure and draw distinct regulatory oversight on cryptocurrencies and other digital assets. It resolves confusion regarding whether crypto comes under the jurisdiction of the SEC or that of the CFTC.
The Act significantly shifts power from the stringent SEC, which treats crypto as “securities” that need strict licensing, to the CFTC, which treats it as “digital commodities” that have lenient terms and conditions. Hence, the Act was cheered by the crypto industry and feared by banks as it may lead to unchecked stablecoin competition.
Crypto Industry’s Argument
Crypto executives see the Act as a necessity, as it protects both crypto exchanges and crypto users by giving legislative legitimacy to platforms and transactions. It also puts an end to the SEC’s “regulation by enforcement” policy, which has cost crypto platforms like Ripple Labs and Coinbase millions of dollars in legal battles.
Crypto firms also argue that stablecoin yields are a necessary part of their business model, which helps them to compete with banks. Coinbase CEO Brian Armstrong pulled his support for the Act in mid-January, citing how banks are lobbying to “kill switch” the stablecoin rewards.
Armstrong vocalised the sentiment shared by the rest of the crypto industry while pulling his support for the Clarity Act: “Crypto needs to be treated on a level playing field with the rest of financial services so we can build this industry in a safe and trusted way in America.”
Banks’ Case Against Clarity Act Changes
The Act shifts power away from the SEC and to the CFTC. The banks fear that this may give stablecoins unchecked power to compete against banks. Moreover, stablecoin rewards may result in a deposit drain from banks to crypto. The Banking Policy Institute (BPI) has repeatedly cited the U.S. Treasury Department report issued in April 2025, which calculates the high-end risk scenario for banks as a $6.6 Trillion deposit erosion.
In short, banks fear that stablecoin rewards may lure their customers to the crypto world, displacing massive funds from bank accounts to crypto wallets. Hence, they want stablecoin rewards to be explicitly banned with no prospects for any workarounds.
Broader Implications
The crypto market is currently in a crash as Bitcoin (BTC) fell under the $70k support and was wiped out by about $500 billion. The CoinMarketCap 20 Index fell 29.5% in a month, signalling a downward spiral for the entire crypto market. Many analysts project that pro-crypto legislation can give the market an impetus to climb back up.
In this critical context, further movements on the Clarity Act can be decisive for the entire crypto market. Although the U.S. administration is overly pro-crypto and plans to make America the “crypto capital”, deeper tensions between legacy banking and crypto are likely to continue.
