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The Digital Asset Market Clarity (CLARITY) Act, which many have been waiting for, is now much more than just a way to tell the difference between securities and commodities. The law is now basically a high-stakes race to see who can intermediate and make money on U.S. dollar-denominated value when it travels onchain. The lines are drawn between two visions: one that keeps payment rails and finance protocols open and decentralized, and the other that gives benefits to a small group of large, regulated banks and custodians.
The bill missed its January 15 markup date and didn’t get to the end of the month. This delay showed how badly the industry was broken. This week’s sudden removal of support from Coinbase made the situation even worse. Brian Armstrong, the CEO, said in public that “no bill is better than a bad bill.” Jake Chervinsky, the chief legal officer of Variant Fund, warned that CLARITY, as it is now, might become “law that lives for 100 years.” Critics believe that the phrasing favors existing financial institutions too much and makes it hard for DeFi and non-custodial platforms to operate.
Read also: Survey: Institutional Crypto Investors will Focus More on Infrastructure than DeFi in 2026
How the Draft Changes the Onchain Dollar Yield
The most controversial part is how rewards can be given out on stablecoins and other tokens that are linked to the dollar. The most recent draft makes the requirements around what counts as acceptable yield stricter. It makes a clear distinction between passive, deposit-like interest and activity-based incentives. People in the industry say that this difference effectively decides where dollar yield can be found in the United States.
Jakob Kronbichler, the CEO of Clearpool, said the main concern is that regulators would decide where yield goes instead of how risk is handled in onchain markets. He remarked, “Legislation won’t make demand for dollar yield go away.” “If compliant on-chain liquidity structures are limited, activity is likely to move offshore or be concentrated in a small number of existing intermediaries.”
Ron Tarter, the CEO of stablecoin issuer MNEE and a former lawyer, says that the phrase “solely in connection with holding” is meant to set it apart from other types of rewards. From his point of view, the bill tries to find a middle ground between banking groups who are anxious that stablecoin payouts will deplete traditional savings and platforms that see rewards as a main source of income and a way to get users to utilize their services.
For DeFi developers and institutional liquidity providers, the real-world effect is very clear. If rewards for holding are highly limited and activity-based yields are treated more leniently, only large custodians and institutions that can afford expensive compliance infrastructure will be able to pay considerable dividends on dollar amounts onchain. Smaller protocols, platforms that don’t hold funds, and open-source developers may find it hard to stay in business.
The Developer Control Test: A Big Point of Conflict
The so-called “developer control test” is one area that has gotten a lot of criticism. The draft tries to make a difference between software that is really decentralized and situations where a small group has a lot of power over what happens. Kronbichler thinks this could be a good thing: “CLARITY makes a smart distinction by not treating developers of non-custodial software as financial intermediaries.” Many people think that carve-out is important for keeping innovation alive and making institutions comfortable with open protocols.
But both Kronbichler and Tarter think that the actual phrasing of the control test will be one of the most hotly discussed issues during markup. The notion of “material control” will decide if the main contributors to a protocol, multisig holders, or governance token whales may be held responsible as regulated intermediaries. If the border is drawn too broadly, institutional desks will have a hard time figuring out how much legal risk there is, and they might just stay away from onchain credit products that face the U.S.
Tarter sets up the bigger dilemma that politicians have: safeguard users without stopping compliant innovation. He stated, “If stablecoin rewards are sent offshore instead of being made clear and legal in the U.S., the country could lose both innovation and visibility into these markets.” “That choice will affect the growth of institutional on-chain credit over the next ten years.”
Honest Yield vs Rewards for Using the Platform
Amboss CEO Jesse Shrader, whose company provides analytics for the Bitcoin Lightning Network, thinks that rewards that are “simply for holding” are a real problem for consumers. He talks about earlier flops like Celsius and BlockFi, where unclear promises of high yields hid the risks of dilution or rehypothecation. Shrader makes a clear distinction between yields that are set by the platform and those that come from participating in the network.
His first suggestion to lawmakers is simple: make it obvious where regulated tokens get their return so that users can properly evaluate their risk. He says that transparent sourcing lets people in the market tell the difference between sustainable profits and promises that depend on hidden leverage or changing assets.
A rising number of people agree with this notion that the most stable onchain loan markets will be those whose yield is honest, verifiable, and directly linked to economic activity instead of decisions made by a central platform.
The Risk of Going Offshore
The most common fear among those who were interviewed is capital flight. Kronbichler, Tarter, and Shrader all say that policies that are too severe on onshore yield could just move demand to other places. Singapore, Dubai, and certain Caribbean hubs are examples of offshore countries with softer touch rules that already have a lot of stablecoin and credit activity. If U.S. laws make complying onchain dollar yield unprofitable or legally unclear, institutions and advanced users will go to such places.
The irony is strong: a bill meant to make things clearer and safer could wind up sending one of the most promising sectors of digital finance to other countries. Kronbichler put it this way: “Do we want dollar credit markets to grow openly in the U.S., or do we want them to grow in places where there is less oversight?”
A Light Touch That Still Protects Is the Way Forward
The people who were interviewed all agree on a small number of ideas that would lead to a good end. First, keep the difference between custodial intermediaries and people who make non-custodial software. Second, make sure that the people who are responsible for compliance are the ones who really control custody, access, or risk parameters. Third, make it apparent where the yield comes from so that people may assess the risks themselves.
There seems to be a general agreement that a light-touch approach that protects consumers without blocking innovation that follows the rules is the best way to go. It’s still unclear if the markup process for the CLARITY Act can find that balance. The law has been put back until the end of January. In the next several weeks, we will see how much opportunity there is for compromise between DeFi supporters, institutional players, and established banks.
Right now, the law isn’t only about categorization and monitoring. It has turned into a proxy conflict about where and how onchain dollar yield will be in the future. The outcome will affect where institutional onchain credit grows during the next ten years.
