A bipartisan Senate compromise on stablecoin rewards has cleared the last major hurdle for the digital asset market's most important piece of US legislation.
Back
Circle Stock Jumps 16% as Clarity Act Deal Preserves Stablecoin Rewards
A bipartisan Senate agreement on stablecoin yields has ignited a rally in crypto-related stocks, clearing a path for the CLARITY Act, the most comprehensive piece of US digital asset legislation to date. The deal, unveiled May 1 by Senators Thom Tillis and Angela Alsobrooks, explicitly allows for “activity-based” rewards on stablecoins, resolving a year-long conflict between the banking lobby and the crypto industry and causing shares of USDC-issuer Circle to jump 16 percent.
"In the end, the banks were able to get more restrictions on rewards, but we protected what matters — the ability for Americans to earn rewards based on real usage of crypto platforms and networks,” Faryar Shirzad, Chief Policy Officer at Coinbase, said in a public statement on May 2.
The compromise directly addresses Section 404 of the proposed bill, drawing a line between prohibited savings account-like interest and permitted transaction-based incentives. The breakthrough fueled broad market optimism, with prediction market Polymarket raising the odds of the CLARITY Act's enactment in 2026 to 55 percent, a nine-point jump in a single day. The deal safeguards a critical revenue stream for firms like Coinbase, which generated approximately $1.35 billion from stablecoin activities in 2025.
From a Year-Long Deadlock to a One-Page Compromise
The legislative impasse began with the GENIUS Act, passed in July 2025. That law banned stablecoin issuers like Circle and Tether from paying interest directly to holders, a move designed to prevent stablecoins from becoming unregulated, uninsured bank deposits. However, the GENIUS Act left a loophole for distribution partners like Coinbase, PayPal, and Robinhood, who continued to offer rewards on customer balances.
The American Bankers Association argued this distinction was meaningless, warning that yield-like rewards on stablecoins would pull deposits from community banks. The original CLARITY Act draft sought to close this loophole entirely, but the May 1 compromise found a middle ground. It prohibits rewards "economically or functionally equivalent to the payment of interest," but carves out incentives tied to activities like spending, swapping, or transferring tokens. The text directs the SEC, CFTC, and Treasury to jointly define these permitted activities within one year.
The $320 Billion Question: How Section 404 Reshapes Stablecoin Economics
The deal provides crucial clarity for a stablecoin market that has swelled to nearly $320 billion, according to data from DefiLlama. Tether’s USDT still dominates with a 59 percent market share, but Circle’s USDC has climbed to 25 percent, or roughly $74 billion, with its growth heavily dependent on distribution partners that can now continue to offer rewards.
The clearest winner is Coinbase, whose business model is protected. The exchange’s $1.35 billion in 2025 stablecoin-linked revenue comes largely from revenue-sharing agreements with Circle and activity-based rewards, both of which are preserved under the new text. The framework also offers a path forward for DeFi, as yield generated by non-custodial smart contracts like those on Aave or Morpho falls outside the scope of "covered parties" targeted by the bill. The Blockchain Association, a key industry trade group, immediately backed the deal, with CEO Summer Mersinger stating it “could help push the bill closer to becoming law.”
What Happens Next: Rulemaking and a Race to Market
With the deadlock broken, the CLARITY Act is expected to move quickly. Galaxy Digital’s head of firmwide research, Alex Thorn, noted that a Senate Banking Committee markup is targeted for the week of May 11, with a full vote possible before the August recess.
The focus will then shift from Congress to the regulators. The SEC, CFTC, and Treasury have 12 months to jointly issue rules defining the specifics of "activity-based" rewards. This rulemaking process is expected to be the next battlefield, as bank and crypto lobbies work to influence the final definitions. The outcome will likely face legal challenges, testing the new framework in court. In the interim, crypto firms are expected to accelerate the launch of compliant, activity-based reward programs to establish a market presence before the final rules are written.
This article is for informational purposes only and does not constitute investment advice.
