Who Supports and Opposes the CLARITY Act? The Banking–Crypto Dispute Explained

The argument over the CLARITY Act looks like a fight between banks and crypto only if you stand far enough away.

Move closer and the alliances become less tidy. Crypto businesses wanted legal certainty but did not agree on every DeFi or compliance provision. Banking groups supported digital-asset regulation while objecting to stablecoin rewards. Consumer advocates focused on securities law and conflicts. Senators from both parties broke with parts of their usual coalition.

The real dispute was not whether blockchain should exist. It was where to draw the regulatory perimeter and whether products doing similar economic jobs should bear similar obligations.

Who supported the legislation

The House passed H.R. 3633 in July 2025 with a bipartisan 294–134 vote. Senate Banking Chairman Tim Scott, Digital Assets Subcommittee Chair Cynthia Lummis and Senate Agriculture Chairman John Boozman later led work on a Senate version. The Banking Committee advanced it 15–9 in May 2026, before the full Senate failed to invoke cloture on 15 September.

Republican sponsors described the measure as a rules-of-the-road bill. They argued that allocating SEC and CFTC authority, registering intermediaries, segregating customer assets and setting disclosure requirements would move activity into supervised US markets.

Industry supporters made a similar case from a commercial direction. The Crypto Council for Innovation said the House legislation addressed customer-fund segregation, bankruptcy treatment, conflicts and risk disclosure. The Blockchain Association, Digital Chamber and major crypto businesses argued that predictable rules would make it easier to build products, raise capital and serve customers in the United States rather than through offshore entities.

Venture and fintech supporters also stressed the cost of uncertainty. If a token’s legal treatment becomes clear only after years of litigation, a compliant firm cannot price legal risk or design a reliable registration plan. That uncertainty can protect neither customers nor honest competitors.

These arguments came from bill sponsors and industry advocates with an interest in passage. Their claims should be evaluated as positions, not treated as proof that the bill would have produced every promised benefit.

Who opposed advancement

Democratic opposition centred on ethics, securities law, financial stability, investor protection and illicit finance. Senator Elizabeth Warren said the final text still left major conflicts involving President Trump’s crypto interests and would weaken safeguards. Other Democrats who support crypto legislation declined to advance this version.

Four Republicans also voted no: Susan Collins, Josh Hawley, Jerry Moran and Thom Tillis. Public debate before the vote shows different concerns among them. Hawley and Moran had pressed the stablecoin-rewards and community-bank issue. Tillis had worked on bipartisan ethics language and then entered a motion allowing reconsideration after voting no. Their votes cannot fairly be collapsed into one anti-crypto position.

Consumer and investor groups argued the bill shifted too much activity away from SEC protections and offered broad exemption pathways. State-enforcement advocates worried about limits on state authority. A coalition of civil-rights and consumer organisations separately objected to an AI regulatory sandbox attached to the package.

National-security and AML advocates focused on mixers, offshore services and decentralised structures. The majority said its text imposed Bank Secrecy Act and sanctions duties on registered intermediaries and allowed temporary law-enforcement holds, while protecting non-custodial developers. Critics questioned whether the boundaries would leave gaps. Software advocates warned that an overbroad definition could impose financial-institution duties on people who neither hold funds nor control transactions.

Why stablecoin rewards became a banking issue

A bank deposit is not just a number on a customer’s app. On the bank’s balance sheet it is a liability and, in aggregate, a major source of funding.

Banks use that funding, within capital, liquidity and supervisory constraints, to support mortgages, business loans and other assets. They earn a spread between returns on assets and the cost of funding. Deposits, particularly stable retail and small-business balances, can be less expensive and more dependable than wholesale borrowing.

Payment stablecoins create another place for customers to keep dollar-linked value. The customer exchanges cash for tokens. The issuer holds reserve assets, which may include bank deposits, Treasury bills, repurchase agreements or money-market instruments depending on the legal framework and the issuer’s policy.

If a crypto platform pays rewards that look economically like interest on an idle stablecoin balance, the product can compete directly with a bank account. Banking associations argue that money could leave community-bank deposits and move into stablecoin structures whose reserves do not return to the same banks.

The Federal Reserve’s research presents a more balanced mechanism. Stablecoin growth does not make every dollar disappear from banking: reserve cash or the proceeds received by counterparties may return as deposits elsewhere. But if reserves shift toward Treasury bills or money-market instruments, or deposits concentrate at a few large custodians, individual banks can still lose funding. Smaller banks with fewer alternatives may respond by paying more for deposits, using more volatile wholesale funding, raising loan prices or reducing lending.

A $5 billion regional-bank example

Consider a hypothetical regional bank with $5 billion in deposits. Suppose customers move 10 per cent, or $500 million, into stablecoin platforms because the platforms offer attractive rewards.

The bank has options. It could raise deposit rates, borrow in wholesale markets, sell liquid assets or allow its loan book to contract. Each choice has a cost. Paying more compresses net interest margin. Wholesale funding may be more expensive or less stable. Asset sales can crystallise losses or reduce liquidity buffers. Slower lending can affect borrowers.

None of those outcomes is automatic. Some customer cash may return to the banking system as stablecoin reserves. A well-managed bank may replace the funding without reducing credit. Stablecoin competition may also force banks to offer better services and rates.

The example explains why banks care without proving their most severe forecast. Distribution matters: money can remain inside the banking system overall while moving away from the specific institutions that originated local loans.

What the bill tried to do

Section 404 of the Senate text prohibited covered digital-asset service providers and affiliates from paying US customers passive, deposit-like interest or yield on payment-stablecoin balances. It allowed bona fide activity or transaction-based rewards under joint SEC, CFTC and Treasury rules.

The distinction sounds sensible but is difficult to police. A platform could label a payment “reward” even if the customer receives it largely for leaving a balance untouched. Banks wanted Congress to tighten the test before enactment. Crypto firms argued that loyalty, transaction and incentive programmes should not be prohibited merely because their value is calculated using a stablecoin balance.

The final draft also gave Treasury authority described by sponsors as a circuit breaker for deposit flight. Banking groups said waiting for evidence of harm was less effective than setting a clear boundary in advance.

This was not a dispute over whether deposit funding matters. It was a dispute over how broadly Congress should restrict rewards before reliable evidence shows the scale and location of any deposit movement.

Banks are also building with digital assets

“Banks versus blockchain” fails another factual test: banks are already using or preparing to use the technology.

The Office of the Comptroller of the Currency has confirmed that national banks may provide crypto custody, hold certain stablecoin reserves and use distributed ledgers for permissible payments, subject to law and safe risk management. The CLARITY Act itself included provisions confirming bank participation in custody, payments, lending and trading activities involving digital assets.

Banks and market infrastructures are exploring tokenised deposits, tokenised securities, shared ledgers and institutional settlement. Their objection to one stablecoin incentive model is not the same as opposition to every blockchain application.

Crypto firms, meanwhile, increasingly seek licences, bank partners, reserve custodians and access to conventional payment rails. The two sectors compete, supply services to each other and sometimes use the same underlying infrastructure.

What a compromise could look like

The policy options already discussed do not require choosing a winner between banks and crypto.

Congress and regulators could draw a tighter line between passive yield and rewards earned through a real transaction or service. The advantage is clearer competition with deposits; the objection is that detailed rules can freeze legitimate product design.

Stablecoin reserve, disclosure and redemption requirements can reduce run and transparency risk. Capital or liquidity requirements for intermediaries can address losses and operational failure. These protections add cost, which can favour large incumbents if they are not proportionate.

Equivalent regulation can attach to equivalent economic functions. A business taking custody, promising redemption or paying return on an idle balance may face stronger duties than software that simply publishes code. The hard work is defining control and responsibility without leaving a convenient loophole.

Treasury monitoring and temporary intervention thresholds can respond to measured deposit flight. Banks prefer preventative rules; crypto firms may prefer evidence-based triggers. Federal and state enforcement can coexist if Congress clearly allocates authority and avoids contradictory commands.

Finally, regulated crypto firms need workable access to banking, while banks need confidence that customers and counterparties meet AML, sanctions and risk standards. Cutting lawful firms off from payment services can push activity toward less transparent venues. Unlimited access without risk controls creates the opposite problem.

Where XRP fits

XRP is not a stablecoin. Its market price floats, it is not a claim for one US dollar and it does not pay deposit interest by design.

The XRP Ledger can host issued assets, including stablecoins and tokenised financial instruments. RLUSD is a dollar stablecoin associated with Ripple and available on XRPL and Ethereum. Ripple is the company; XRP is XRPL’s native asset; XRPL is the public ledger; RLUSD is a separate issued token.

Stablecoin rules can therefore affect activity on XRPL without directly regulating XRP as a deposit substitute. If clearer rules bring more institutional stablecoin and tokenised-asset activity onto XRPL, XRP may benefit from network use or liquidity routes. An institution can also use RLUSD directly without creating material XRP demand beyond normal network requirements.

The stronger XRP question is whether regulated intermediaries can custody, trade and make markets in the asset, and whether XRP becomes economically useful between different pools of value. Market-structure rules can influence that access. They cannot guarantee usage or price appreciation.

For the economics behind the tokens, read Stablecoins and XRP: Who Owes You the Money?. Our stablecoin primer explains reserves and redemption, while What Does the CLARITY Act Mean for XRP? covers the Ripple case.

More than one dispute

The CLARITY Act coalition was not simply crypto on one side and banks on the other. It included legislators seeking jurisdictional certainty, firms seeking registration paths, banks protecting funding, consumer groups protecting securities rules, developers protecting non-custodial software and ethics advocates focused on public officials’ financial interests.

Those groups sometimes agreed on the diagnosis and disagreed on the treatment. Most accepted that the existing US framework was incomplete. They disagreed over which risks required a statutory prohibition, which could be left to agency rules, and how much discretion regulators should receive.

That is less dramatic than a war between old finance and new finance. It is also a better description of how financial regulation is usually made.