The Crypto Market Structure Bill will be considered tomorrow night, providing an in-depth analysis of the four core controversies

Author: Chloe, ChainCatcher

The U.S. Senate Banking Committee will hold a key vote on the Digital Asset Market Structure Act (CLARITY Act) at 23:00 Beijing time on Thursday, January 15, and although the Agriculture Committee postponed the review to the end of January due to DeFi-related definitions and cross-party consensus issues, it is undeniable that this is the most important bill for crypto regulation after the GENIUS Act.

This article will provide an in-depth analysis of the core controversies of the current bill: from the banking industry’s “deposit defense war” against the high yields of stablecoins, to whether DeFi developers should be criminally liable for “code”, to the Trump family’s “ethical clause” political tug-of-war. It can be said that this is not only a legislative vote, but also a head-to-head showdown between traditional financial forces and decentralized mechanisms, the outcome of which may determine the direction of the global crypto market in the next decade.

Regulatory Map Reshaping: The SEC vs. CFTC Jurisdiction Battle

On January 15, the U.S. Senate Banking Committee will hold a review of the CLARITY Act as scheduled. Although the market had expected the two committees (banking and agriculture) to move forward in tandem, the current situation is clearly more complicated.

The “one advance and one retreat” of the double committee?

Senate Banking Committee: Led by Tim Scott, the core task is to define the legal framework for digital assets under the Securities Act. The bill is expected to end the SEC’s regulatory status quo of treating tokens as securities indefinitely based on “investment expectations” alone, and instead establish a clear exit mechanism and legal process for “changing from securities to commodities.” The commission will move forward as scheduled, aiming to draw clear boundaries for the SEC’s jurisdiction.

Senate Agriculture Committee: Led by John Boozman, leads the division of commodity law amendments with CFTC jurisdiction. Since the two parties are still at odds on core details such as DeFi technical definitions and stablecoin interest income, it has been decided to postpone the deliberation until the end of January. The goal is to buy more buffer time to reach a cross-party consensus, ensure that the key votes of the Democratic Party can be locked in the final vote, and avoid the bill being deadlocked in the Senate due to polarization.

The SEC’s attitude has shifted, seeking to take the crypto market out of the regulatory gray area

SEC Chairman Paul Atkins posted on X on January 13 that this week is a milestone for the cryptocurrency industry and publicly supports Congress to clearly delineate the jurisdictional boundaries between the SEC and the CFTC.

At the same time, he pointed out that enhancing market certainty is highly consistent with Trump’s vision of building the “cryptocurrency capital of the world.” Atkins is optimistic that the bill will be approved and signed within the year, and expects it to significantly promote the long-term development of the crypto market while strengthening investor rights protection.

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Deposit Defense War: Should Stablecoin “Yield” Be Completely Banned?

One of the current controversies stems from the patched amendments to the GENIUS Act. Although the bill explicitly stipulates that stablecoin issuers are not allowed to pay interest, it does not impose restrictions on “distributors”, which has sparked strong dissatisfaction among traditional financial institutions.

In the case of Coinbase, the platform currently offers around 3.5% rewards for users who hold USDC. Since Coinbase’s role is a distributor rather than an issuer (Circle), it is legal under the current GENIUS Act. However, the American Bankers Association (ABA) is lobbying vigorously to ask lawmakers to extend the interest ban to affiliates and partners of stablecoin issuers.

The three core concerns of the banking industry

**1. Deposit Loss:**The banking industry is concerned that if stablecoin yields continue to be higher than traditional savings rates, it will trigger large-scale capital movements. The American Bankers Association (ABA) cited data from the Treasury Department as saying that if strict interest bans are not enforced, up to $6.6 trillion in bank deposits in the United States may be at risk of outflows.

**2. Weakening Lending Capacity:**The loss of deposits will directly impact the core business model of traditional banks, especially the lending capacity of community banks. Banks use deposits to provide key loans to local businesses, farmers, students and home buyers; Once the pool shrinks due to stablecoin competition, it will seriously disrupt local lending business.

**3. Unfair Competition:**In the market, stablecoins are often packaged as products with similar bank deposit functions, but they lack the substantial underwriting protection of the Federal Deposit Insurance Corporation (FDIC). The ABA criticized cryptocurrency exchanges for deliberately downplaying risk differences through overwhelming advertising, creating unfair competition and exposing consumers to financial risks.

The crypto industry fights back

Coinbase Chief Policy Officer Faryar Shirzad has pushed back against allegations from the banking industry. He pointed out that U.S. banks make more than $360 billion in profits from payments and deposits each year, and the banking industry’s rush to ban stablecoin rewards is essentially to defend vested interests rather than prudent regulation.

In addition, Shirzad also cited independent research by Charles River Advisors (CRA) and Cornell University, which confirmed that there is no significant correlation between the growth of stablecoins and bank deposit outflows, and that rewards need to be as high as 6% to have a substantial impact. and warned that China has announced interest payments for the digital yuan amid ongoing debates within the United States; If the United States weakens the competitiveness of stablecoins due to bank lobbying, it is tantamount to giving up dominance in the global race for digital currencies and threatening the hegemony of the US dollar.

On the other hand, Paradigm’s vice president of government affairs, Alexander Grieve, characterized the banking industry’s demands as “false and alarmist” political interference. He believes that if lawmakers are forced to amend the incentive provisions of the GENIUS Act to force distributors to prohibit the payment of proceeds, it is essentially equivalent to imposing a “hidden holding tax” on stablecoin holders, forcing middlemen to withhold profits that should belong to consumers. Grieve warned that this behavior of sacrificing technological innovation to protect traditional financial profits will seriously weaken the international appeal of the U.S. stablecoin ecosystem, causing the United States to lag behind in the competition for Web3 financial infrastructure.

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DeFi Controversy: Is Writing Code Considered “Running a Money Business”?

This is the highest technical threshold in the bill and the main reason for the delay of the Agriculture Committee. The point of contention is: Is the person who wrote the code responsible for the automatic execution of the code?

The U.S. Department of Justice has sued mixer developers (such as Tornado Cash) under the Unlicensed Money Transfer Act, and its legal basis is based on the assumption that “code is intermediary”. Regulators believe that developers writing and deploying code with fund processing functions are essentially creating an auto-running “money transfer business”. In other words, the developer is responsible for the subsequent execution of the code. This legal interpretation of equating “software development” with “financial management” is regarded by the Web3 industry as a fundamental threat to technological innovation.

In response, the DeFi Education Foundation (DEF) and core practitioners countered that this is an unfeasible logical paradox in technical practice. The reason why traditional financial institutions can assume compliance obligations is that they have “substantial control” over transactions; However, once deployed, a truly decentralized protocol is immutable and self-executing, and developers will completely lose the ability to intercept transactions or freeze assets. Asking a “developer” who cannot interfere with software operations to bear the same compliance responsibilities as a bank is tantamount to requiring automakers to bear criminal charges for every speeding violation on the road.

If the bill adopts the current strict definition, developers will face criminal risks for the smart contracts they publish being used by third parties in illegal means. This will not only destroy the technical foundation of DeFi but also trigger a large-scale R&D talent refuge, ultimately leading to the marginalization of the United States in the global competition for next-generation financial infrastructure.

Ethics Clause: The Trump Family and Conflicts of Interest

With the rapid expansion of World Liberty Financial (WLF), a DeFi platform deeply involved in the Trump family, and its stablecoin USD1 (with a market capitalization of $3.4 billion), political ethics have become one of the key variables in whether the CLARITY Act can reach a cross-party consensus.

WLF-owned entities formally applied for a “National Trust Bank License” from the U.S. Office of the Comptroller of the Currency (OCC) last week. The move immediately sparked a political storm, and the core of the controversy was: Does a regulatory head appointed by the president himself have the authority to review applications for commercial banks controlled by the president’s family? Democratic leader Elizabeth Warren immediately issued a statement pointing out the conflict of interest:

"President Trump’s crypto company has just applied for a federal banking license, and the application will be reviewed by a regulator appointed by the president. We have never seen financial conflict or corruption of this magnitude. As the Senate considers the market structure bill in the coming days, it must address this issue head-on, that is, the role of bank regulators is to ensure the fairness and stability of the economic system, not to profit from the private industries of their bosses (presidents). ”

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At the same time, in response to the above-mentioned controversy, Democratic senators such as Elizabeth Warren insisted on adding an “ethics clause” to the CLARITY Act, which aims to prohibit senior federal officials and their immediate family members from obtaining personal benefits from digital asset companies while in office. Although the House of Representatives previously chose to avoid the issue in order to clear customs during deliberations, Senate Democrats have made it clear that if restrictions on conflicts of interest at top government levels are not included, they will be blocked in the final vote. This also gave the vote on January 15 an extra layer of political wrestling beyond technology.

This moment will set the tone for the next decade of the crypto industry

The vote on the CLARITY Act is essentially an attempt by the U.S. government to integrate crypto assets into the existing financial and political system after confirming their strategic status. Regardless of the final outcome, the “gray area” between the crypto industry and traditional finance has gradually faded. The vote will have far-reaching implications on three levels:

First, regulatory certainty will trigger a large-scale “compliance premium”. If the CLARITY Act clarifies the boundaries between the SEC and the CFTC, it will completely end the turmoil of “enforcement-style regulation” and bring certainty to trillions of dollars of institutional funds entering the digital asset market. At that time, cryptocurrencies will officially transform from fringe speculative assets to mainstream financial products and instruments.

Second, it is a geopolitical race about the focus of innovation. Whether it’s limiting stablecoin yields or defining responsibilities for DeFi developers, it’s essentially testing the upper limit of U.S. tolerance for technological innovation. If the bill eventually turns to conservative banking protectionism or imposes harsh criminalization on code, it is likely to lead to a brain drain in R&D; Conversely, if it retains the flexibility of innovation, the United States will likely secure its position as the “cryptocurrency capital of the world” and further consolidate the hegemony of the US dollar in the digital age.

Finally, the bill vote marks the “deep integration” of Web3 with traditional power. From stablecoins competing for interests with bank deposits to moral provisions against the president’s family, cryptocurrencies are no longer a utopia for tech geeks but a hub of real power and capital games.