The Digital Asset Market Clarity (CLARITY) Act is quickly turning into a battle over who controls US dollar yield onchain. At stake is whether open decentralized finance (DeFi) protocols can continue to offer transparent, activity-based returns, or whether yield generation will be funneled through a narrow group of banks and large custodians.
After missing its original Jan. 15 markup deadline and being pushed to later this month, the bill’s latest draft has intensified industry concerns. By tightening rules around stablecoin rewards, critics argue the CLARITY Act risks pushing onchain dollar yield offshore rather than strengthening compliant crypto markets in the United States.
CLARITY Act and the future of onchain dollar yield
At its core, the CLARITY Act is shaping up as a proxy fight over who gets to intermediate yield from stablecoins and tokenized dollars. Open DeFi lending markets and payment rails see rewards as a core mechanism for liquidity and network growth. Traditional financial institutions, meanwhile, fear stablecoin yields could pull deposits away from banks.
The concern from crypto-native firms is clear: if compliant onchain structures are restricted too heavily, demand for US dollar yield will not disappear. Instead, it will migrate to offshore jurisdictions or become concentrated among a small set of incumbent intermediaries with the resources to navigate complex regulations.
Coinbase withdraws support as industry unease grows
Industry tensions came into focus when Coinbase publicly pulled its support for the bill. The move reflected growing fears that the compromise version of CLARITY tilts too far toward incumbents while imposing a punitive framework on DeFi and onchain rewards.
Coinbase CEO Brian Armstrong said it was better to have no legislation than a flawed one, warning that poorly designed rules could lock in structural disadvantages for open crypto markets. Legal voices echoed that sentiment, stressing that legislation of this scope could shape digital asset markets for generations.
Who controls yield versus how risk is managed
Jakob Kronbichler, CEO and co-founder of Clearpool’s onchain credit marketplace, sees the bill’s core risk as regulators deciding where yield is allowed to exist, rather than focusing on how risk is transparently managed onchain.
Demand for dollar-denominated yield, he argues, is structural. If US-compliant DeFi liquidity is constrained, capital is likely to move offshore or consolidate within a handful of large intermediaries. That outcome, he warns, would shape institutional onchain credit markets for the next decade.
Stablecoin rewards and the “solely for holding” debate
Ron Tarter, CEO of stablecoin issuer MNEE and a former lawyer, points to a critical phrase in the bill: “solely in connection with holding.” In his view, CLARITY attempts to draw a line between passive, deposit-like interest and rewards tied to actual network activity or usage.
This distinction aims to address banking industry concerns while acknowledging that many crypto platforms rely on rewards as a transparent incentive mechanism. The risk, according to Tarter, is that pushing stablecoin rewards offshore reduces both US innovation and regulatory visibility rather than improving consumer protection.
Developer responsibility and decentralization lines
One positive note for DeFi builders is that the current draft avoids classifying developers of non-custodial software as financial intermediaries. Kronbichler sees this as essential for innovation and institutional participation in US-facing onchain markets.
The challenge will be maintaining clear boundaries. Compliance obligations, critics argue, should apply to entities that actually control custody, access, or risk parameters—not to open-source developers with no operational control. If those lines blur, institutional desks may avoid US-based onchain credit altogether.
Tarter expects the “control” test to become one of the most contested issues as lawmakers debate what truly decentralized software means in practice.
Honest yield, transparency, and consumer protection
Jesse Shrader, CEO of Amboss, a data analytics firm for the Bitcoin Lightning Network, highlights a real consumer protection issue with rewards offered simply for holding tokens. Past collapses like Celsius and BlockFi showed how opaque yield models can mask dilution or rehypothecation risk.
Shrader draws a clear line between platform-defined yields and activity-derived rewards that emerge from network usage. His message to lawmakers is straightforward: require regulated tokens to clearly disclose the sources of their yield so users can properly assess risk.
Can CLARITY protect users without killing innovation?
The central question facing lawmakers is whether the CLARITY Act can genuinely protect users without choking compliant onchain dollar markets or entrenching a system only large custodians can afford.
Industry voices largely agree on one point: light-touch, clarity-focused regulation that preserves transparency and innovation is preferable to restrictive rules that push onchain finance offshore. The outcome of the CLARITY Act debate will likely determine where US dollar yield, stablecoin innovation, and institutional DeFi credit develop in the years ahead.
