The Senate's latest CLARITY Act draft turns stablecoin rewards into a live fight over who gets to own the next payment account.
The fight over the CLARITY Act is no longer a broad argument about whether Washington should regulate crypto. It has become a sharper question: can a crypto wallet reward users for keeping and spending digital dollars without becoming a bank account by another name?
That question is now in front of the Senate Banking Committee. On May 12, Chairman Tim Scott, Senator Cynthia Lummis and Senator Thom Tillis released a revised 309-page version of the Digital Asset Market Clarity Act, with a committee markup scheduled for May 14. The text arrives after months of negotiation between senators, crypto firms, banks, regulators and consumer advocates. It also lands with banks still pressing lawmakers to tighten one of the bill's most important product rules.
Section 404 is the center of the fight. The revised text bans covered crypto platforms from paying interest or yield on payment stablecoin balances when those payments are economically or functionally equivalent to interest on a bank deposit. That sounds like a win for banks. But the same section preserves bona fide activity-based or transaction-based rewards, including rebates tied to payments, transfers, settlement activity, platform use, liquidity provision, collateral posting, governance, validation, staking and loyalty programs.
That is the entire market in one paragraph. A passive balance reward looks like a deposit product. A payment rebate looks like a fintech growth tool. The line between them will decide whether stablecoin wallets compete mainly as payment apps or start to look like substitutes for checking accounts.
The banking industry is not treating the revised text as a finished compromise. On May 8, the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, Independent Community Bankers of America and National Bankers Association asked Senate Banking leaders to make further technical refinements to Section 404. Their argument is simple. If crypto firms can dress interest as rewards, deposits may leave regulated banks, and banks will have less capacity to lend to consumers, small businesses and farmers.
As the Senate Banking Committee's May 12 release makes clear, the new bill text was designed to reflect input from financial institutions and innovators alike. That is exactly why the current dispute matters. Banks helped shape the language, then came back to say it still leaves too much room for stablecoin platforms to compete around yield-like economics.
The tension is not hard to understand. Banks fund lending with deposits and operate under capital, liquidity and supervision rules. Crypto exchanges and wallet providers want to build digital-dollar products that feel fast, cheap and useful, but they do not want every customer incentive treated as deposit interest. If the bill blocks too much, wallet products become less competitive. If it permits too much, banks see an opening for lightly regulated deposit migration.
The revised text tries to split that difference. It bans interest-like payments tied to holding stablecoins, yet allows rewards connected to real activity. It also directs the SEC, CFTC and Treasury to write rules within a year and produce a non-exhaustive list of permissible rewards. That rulemaking will matter almost as much as the statute itself, because startups will build to the edges of whatever the agencies define.
Rewards design becomes a compliance problem
For crypto startups, this is not just a Washington story. It is a product design story. A wallet team that once thought about rewards as a growth lever now has to ask whether a benefit is earned through use, transaction, subscription, settlement or loyalty behavior, or whether it is just a balance-based payment with another label.
That distinction changes how products are built. A stablecoin app might offer cash back for merchant payments, lower fees for remittances, rebates for frequent transfers or incentives for using a subscription service. Those designs have a stronger argument under the activity-based language. A reward that rises simply because a customer holds more stablecoins for longer starts to look more exposed, even if the marketing department calls it a bonus.
The unusual twist is that Section 404 still allows some permissible rewards to be calculated by reference to balance, duration or tenure, as long as they are tied to bona fide activity and are not economically equivalent to bank-deposit interest. That gives crypto firms room to design sophisticated incentives, but it also creates the kind of factual test that lawyers, regulators and competitors will fight over for years.
This is why the banking groups are pushing now, before markup. Once the bill leaves committee with bipartisan support, the stablecoin compromise becomes harder to reopen. Crypto platforms know that too. Coinbase and other market participants have spent years arguing that payments, trading, custody and stablecoin infrastructure need clear rules in the United States. They do not want clarity that removes one of the main ways consumer wallets acquire and retain users.
The Senate's calendar adds pressure. The May 14 markup is expected to test whether negotiators can keep Republicans together while pulling in enough Democrats to make the bill viable on the floor. Tillis and Angela Alsobrooks have been central to the stablecoin yield compromise, while Scott and Lummis are trying to move the broader market-structure package forward after earlier delays.
For entrepreneurs, the practical takeaway is clear. Stablecoin rewards are moving from growth-hacking territory into regulated product architecture. The winners will not be the companies that slap the highest advertised return on a wallet balance. They will be the ones that can prove their incentives are tied to payments, usage and real network activity while still feeling valuable to customers.
The next thing to watch is not only whether the CLARITY Act clears committee. It is whether Section 404 survives markup with its current balance intact. If it does, the stablecoin market gets a roadmap. If banks succeed in narrowing it further, a lot of wallet roadmaps will need to be rewritten before the ink is dry.
Also read: LinkedIn is cutting staff while its business is still growing • Tower Semiconductor turns AI demand into capacity commitments • AI is rewriting utility leverage in Lake Tahoe's power fight
