Coinbase Withdraws Support for CLARITY Act as Senate Committee Prepares Markup

Coinbase Objects to Draft Legislation

Coinbase has withdrawn its support for the Senate Banking Committee's latest version of the Digital Asset Market CLARITY Act, dealing a significant blow to the legislation just as it approaches a critical markup session. CEO Brian Armstrong outlined multiple concerns about the bill's provisions, stating the exchange would prefer no legislation over what he characterized as harmful regulations ^[1].

In a post on X, Armstrong identified several problematic elements in the draft, including what he described as an effective prohibition on tokenized equities, new limitations on decentralized finance that could provide government authorities with extensive access to users' financial information, and provisions that diminish the Commodity Futures Trading Commission's role while expanding Securities and Exchange Commission authority ^[1].

"After reviewing the Senate Banking draft text over the last 48hrs, Coinbase unfortunately can't support the bill as written," Armstrong stated ^[1].

Stablecoin Rewards Emerge as Central Issue

The dispute over stablecoin yield programs has become a particularly contentious aspect of the negotiations. Armstrong criticized draft amendments that would eliminate rewards on stablecoins, contending these provisions would enable banks to suppress emerging competitors ^[1].

The issue holds substantial financial implications for Coinbase's business operations. The exchange currently distributes interest income generated from USD Coin reserves and utilizes portions of that revenue to provide incentives to users, including approximately 3.5% rewards for Coinbase One customers. Stablecoin-related revenue potentially reached $1.3 billion in 2025, making this matter fundamental to the company's business model ^[1].

Coinbase had previously warned lawmakers it might retract support for the legislation if restrictions on yield programs tied to stablecoins were included ^[1].

Traditional banking organizations have argued that yield-bearing stablecoins could siphon deposits away from conventional banks, while cryptocurrency firms maintain that prohibiting rewards would constrain innovation and drive users toward offshore platforms ^[1].

Senate Committees Advance Legislative Timeline

The Senate Banking Committee is scheduled to conduct its markup of the CLARITY Act on January 15, with the Senate Agriculture Committee setting its own markup for late January ^[2]. Senate Republicans on the Banking, Housing, and Urban Affairs Committee released detailed fact sheets describing the legislation ahead of the markup ^[2].

According to the materials, the CLARITY Act aims to establish enforceable rules distinguishing which digital assets fall under securities law and which qualify as commodities, formally dividing oversight between the SEC and CFTC ^[2].

The fact sheets emphasize consumer protection provisions, including strengthened disclosure requirements, preservation of existing anti-fraud authorities, and limitations on insider abuse. Digital asset issuers subject to the framework would remain bound by resale restrictions and anti-evasion rules ^[2].

National Security and DeFi Provisions

Lawmakers supporting the bill characterize it as containing the strongest illicit-finance framework Congress has considered for digital assets. The proposal would subject centralized intermediaries to anti-money-laundering and counter-terrorist financing obligations, strengthened sanctions compliance, and enhanced Treasury authority to respond to high-risk foreign activity ^[2].

Regarding decentralized finance, the committee materials state the legislation explicitly protects software developers who publish or maintain code without controlling customer funds and preserves the right to self-custody digital assets. Regulatory obligations would focus on centralized intermediaries that interact with DeFi protocols, requiring tailored risk-management and cybersecurity standards ^[2].

"Code is protected — misconduct is not," the fact sheet states ^[2].

Despite the setback, Armstrong expressed continued optimism about reaching an acceptable outcome. "We'd rather have no bill than a bad bill," he said, adding that Coinbase would continue advocating for a framework that treats cryptocurrency on equal footing with traditional financial services ^[1]. Michael Saylor, executive chairman of Strategy, retweeted Armstrong's post, indicating his support for the decision ^[1].