CLARITY Act Explained: Why banks & crypto firms are fighting over reward policy — What it means for your digital wallet?

The Clarity Act, a long-awaited legislation that would create a regulatory framework for cryptocurrency, is set to be considered by senators next week, potentially breaking a deadlock between cryptocurrency firms and the banking industry.

If passed into law, the bill will bring greater regulatory clarity for the fast-growing sector, potentially boosting digital asset adoption.

Tim Scott, chairman of the Senate Banking Committee, said on Friday that the panel would hold an executive session on May 14 at 10:30 a.m. (1430 GMT) in the Dirksen Senate Office Building in Washington, D.C.

What does the CLARITY Act seek to define for the crypto industry?

The bill aims to establish a clear regulatory guidelines for digital assets by defining:

• Which crypto assets are securities
• Which ones are commodities
• Which regulator oversees them
• How crypto exchanges, brokers, and dealers should operate
• What consumer protection standards must be followed

The crypto industry has been pushing for the legislation, saying it is existential to the future of digital assets in the U.S. and necessary to fix core, longstanding problems for crypto companies, a Reuters report said.

What the CLARITY Act says about the use of stablecoins?

The bill also tries to resolve a growing clash between crypto firms and banks over stablecoins — digital tokens linked to the US dollar.

Under a compromise reached by Republican Senator Thom Tillis and Democratic Senator Angela Alsobrooks, companies would not be allowed to offer interest or rewards on stablecoins simply for holding them, given their resemblance to bank deposits. The crypto lobby had originally hoped that they could pass on rewards to customers for keeping stablecoin in an account.

However, rewards on other activities associated with stablecoins, such as sending a payment, would be permitted.

What it means for your digital wallet?

For crypto wallet users, the CLARITY Act could mean no interest for simply holding stablecoins, but rewards tied to payments, transfers and other blockchain activities may still continue.

Why Crypto firms and banks are clashing over rewards policy?

Banking groups oppose reward policy, arguing it gives crypto companies too much freedom and could encourage people to move money out of traditional banks into stablecoins.

Meanwhile, Crypto companies say that prohibiting ‍third parties, such as crypto exchanges, from paying interest on stablecoins would be anti-competitive.

Paul Grewal, chief legal officer for Coinbase, wrote on X that the proposed language is not a “narrow fix” and instead designed by the banking lobby for “killing competition.”

“For months, their target was yields ‘equivalent’ to interest-bearing bank accounts. Now it’s transaction-based rewards, loyalty incentives, and other consumer benefits tied to blockchains,” Grewal wrote. “Enough already.”

A spokesperson for Senator Angela Alsobrooks referred Bloomberg to a joint statement issued earlier this week by both senators. The statement said they disagree with the banking lobby’s stance on the bill’s proposed yield rules. Offices of Thom Tillis and Senate Banking Chairman Tim Scott did not respond to requests for comment.

“Our compromise also allows crypto companies to offer other forms of customer rewards,” Alsobrooks and Tillis wrote in the statement. “Most importantly, it helps put us on a bipartisan path to pass the CLARITY Act, providing the regulatory certainty needed to foster innovation. Some in the banking industry may not want either of these things to happen, and we respectfully agree to disagree.”

(With inputs from Reuters and Bloomberg)