Coinbase Warns It May Drop Support for CLARITY Act Amid DeFi and Stablecoin Debate

Crypto exchange Coinbase is signaling that it could withdraw its backing of the US CLARITY Act as lawmakers move closer to adding stricter provisions targeting decentralized finance (DeFi) and stablecoin reward programs. The warning comes as tensions rise between the crypto industry and traditional financial institutions over how far regulation should go in reshaping digital asset markets.

According to a recent Bloomberg report, Coinbase has urged US lawmakers to oppose proposed language in the CLARITY Act that would limit DeFi functionality and restrict stablecoin issuers from offering rewards. Sources familiar with the discussions suggest the exchange “may reconsider its support” if the final bill undermines core elements of the DeFi ecosystem or curbs innovation in stablecoin use. Coinbase argues that banning stablecoin rewards could weaken the competitiveness of US-based crypto platforms and slow broader adoption.

The debate has intensified with the emergence of a new advocacy group, Investors For Transparency, which claims that DeFi protocols and stablecoin reward models pose significant risks to the traditional banking system. The group is reportedly campaigning to persuade lawmakers to tighten or remove DeFi-related provisions from the market structure bill, citing concerns that large-scale stablecoin adoption could drain trillions of dollars from banks.

In response, the digital asset community has mobilized to defend the existing framework. Stand With Crypto, a pro-crypto advocacy group, has sent more than 135,000 emails to senators, urging them to preserve stablecoin reward provisions. The group emphasized on X that market structure legislation must move forward without reopening or restricting stablecoin rewards offered by platforms or third parties.

As the January 15 Senate vote on the CLARITY Act approaches, the clash between crypto and banking interests continues to escalate. Banks argue that allowing stablecoin issuers to pay rewards could disrupt traditional deposit models, while crypto firms say such incentives are essential for innovation. Stablecoin issuers like Circle currently enable yields of around 3.5%, a feature that supports user adoption and exchange growth. If these rewards are banned, major platforms such as Coinbase could face reduced competitiveness in the evolving US crypto market.