The crypto industry chalked up a win last week when the Senate Banking Committee advanced the CLARITY Act, a broad digital asset market-structure bill intended to bring long-awaited rules to the crypto marketplace. The vote was bipartisan, but only in the most technical sense of the word – two Democrats joined Republicans to move the bill forward. Now, that arguably gives the legislation momentum, but it doesn’t give it inevitability – at least, thankfully, not yet.
Because while the bill may be called the CLARITY Act, the reaction from banks, law enforcement advocates, labor groups, and Senate Banking Committee minority staff has been anything but “clear.” Sure, everyone ultimately wants “clarity” – at least in theory. The trouble is that, in practice, many are worried that Congress is about to make the wrong things clear.
That is to say – for the crypto industry, the bill represents a chance to move digital assets out of what supporters describe as a regulatory gray zone. But for banks and other critics, the concern is that the bill may do more than clarify the law. In fact, it may go so far as to create statutory permission structures for risks that are already causing problems.
For the banking industry, the central concern is stablecoins – and, more specifically, whether the bill leaves room for stablecoin rewards to function like yield. In a joint letter, the American Bankers Association, Independent Community Bankers of America, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and National Bankers Association warned that the current Section 404 language still may not clearly prohibit interest-like payments on payment stablecoins. Their well-documented concern is not just formal “interest.” It is rewards, rebates, incentives, balance-based benefits, staking returns, or other compensation that may function like yield even if – maybe especially if – they are not labeled that way.
Naturally, if stablecoin platforms can offer yield-like rewards, customers may move funds out of insured bank deposits and into digital wallets or exchange accounts. On a fundamental level, that’s not merely a “competitive” issue for (community) banks. Deposits are the funding base for loans to consumers, small businesses, farmers, ranchers, and local communities. Digital wallet providers may be able to attract funds, but they aren’t the ones making the outside-the-box community loans that relationship bankers make every day.
The fix, at least on the banking side, is not especially flashy (which may actually underscore its importance) – remove narrow wording that could be used to structure around the prohibition. Advocates are urging Congress to delete “solely,” remove limiting references to “payment stablecoin balance” and “interest-bearing bank deposit,” replace an “economically or functionally equivalent” test with a broader “substantially similar” standard, and eliminate language that would expressly allow rewards calculated by balance, duration, or tenure.
In essence, a ban on stablecoin yield is just a platitude if the statute also leaves a drafting roadmap for paying it under another name.
But there’s perhaps an even broader issue with the Act as currently written –concerns of national security and illicit finance. Senate Banking Committee minority staff released an advisory warning that digital assets are already being exploited by foreign adversaries, terrorist groups, cartels, ransomware actors, human traffickers, and other criminals. That advisory argues that the current draft fails to adopt a strong enough framework for deciding which crypto platforms must carry basic anti-money-laundering responsibilities, exempts certain DeFi-linked businesses from illicit-finance requirements, fails to close the Tornado Cash sanctions loophole (i.e. the legal gap around whether Treasury can block decentralized mixer smart contracts used to obscure the source and movement of funds), and leaves a stablecoin sanctions loophole that could allow non-U.S. actors to pay sanctioned parties in stablecoins rather than dollars.
It also points to North Korean hackers using DeFi tools, cross-chain bridges, decentralized exchanges, and mixers to launder stolen crypto; terrorist groups using stablecoins; cartels and Chinese money laundering networks using digital assets to move drug proceeds; and stablecoins becoming a preferred tool for sanctions evasion and illicit payments. Not exactly comforting bedtime reading!
Really, this all seems to be sensible skepticism, and not about whether digital assets should have rules; rather, it is logical discomfort and scrutiny about whether these rules are strong enough to prevent “clarity” from becoming regulatory cover for the very risks it was supposed to contain.
Where does the CLARITY Act sit as of publication? Through committee, but, of course, not through controversy. Even if there are the makings of a framework for innovation, there still are very patent unresolved loopholes that could drain deposits, weaken community lending, and leave serious illicit-finance risks intact.
The bill’s next stop is the full Senate. Meaning – the “fight” isn’t over – and unless Congress wants to spend the next few years watching bad actors and “creative” market participants walk through the gaps everyone warned about – the final bill needs to close the loopholes, not just describe them more clearly.
The CLARITY ACT itself can be found here: [Digital Asset Market Clarity Act of 2025]
The Senate Banking, Housing, and Urban Affairs Committee advisory can be found here: [National Security Advisory: Clarity Act Fails to Address Key Vulnerabilities Exploited by Criminals, Terrorists, and Foreign Adversaries]
And, for our Texas Bankers – you can use the TBA’s GRASSROOTS ACTION CENTER to send an email to urge Texas US Senators Cornyn and Cruz to oppose any market structure bill that does not unambiguously close the stablecoin yield and rewards loophole.
Brett Goodnack, JD, CAMS
Compliance Advisor