Compromise on market structure legislation elicits diverse responses from divided cryptocurrency community

The yield agreement, regarded as a move towards finally progressing the stalled market structure bill, has yet to gain complete backing from the industry.

Coinbase CEO Brian Armstrong, recognized as a favored figure in the White House, may not be satisfied with the latest iteration of the Clarity Act. (Jesse Hamilton/CoinDesk)

What to know:

• According to sources, Coinbase and several other entities within the crypto sector are uneasy with the terminology proposed by lawmakers this week regarding the stablecoin yield portion of the Clarity Act, although no clear opposition has been voiced.
• An industry call reportedly highlighted significant differences in opinion on how to advance discussions surrounding the crypto market structure bill.
• The banking representatives, who oppose the stablecoin yield debate, have not disclosed their stance on the recent compromise language.

Coinbase is navigating a challenging position in the negotiations concerning the Clarity Act, informing U.S. senators’ staffs that the company is dissatisfied with the outcome of the latest compromise, as per individuals familiar with the matter, yet it has not publicly opposed it.

The proposed agreement was presented to stakeholders in the crypto sector on Monday and to the banking sector on Tuesday. Feedback from the crypto side was mixed, according to individuals acquainted with the meeting on Monday. Some stakeholders expressed dissatisfaction—most notably Coinbase—while others were “pleasantly surprised,” as noted by one participant. No one was allowed to retain a copy of the text, which has not been made available for distribution.

Those familiar with the Monday meeting indicated that unresolved issues remained and suggested that the proposal might hinder stablecoin-related products and services more than anticipated.

The new proposal would require certain regulatory agencies to draft rules detailing how aspects such as rewards should be monitored. Concerns have been raised regarding regulators establishing subjective criteria for permissible activities, with the possibility of various types of rewards programs emerging. Any rulemaking would need to remain impartial, they stated.

Additionally, the language was reported to potentially limit firms’ capacity to link rewards to the volume of stablecoin transactions within an account, which could pose a challenge for a program similar to credit card rewards.

Throughout the negotiation process, Coinbase CEO Brian Armstrong has been a prominent figure, and his opposition to an earlier stablecoin yield compromise contributed to the cancellation of a planned Senate hearing. A well-regarded figure within the crypto community, Armstrong heads the company that may face the most significant repercussions from a reduction in its stablecoin rewards programs.

During an industry call this week, it was noted that Coinbase had disagreements with others regarding the bill, indicating a division of opinions within the crypto sector on how to move forward. Sacrificing certain stablecoin rewards could be detrimental for some, yet the potential loss of the Clarity Act’s comprehensive establishment of crypto within the U.S. financial system is perceived as a more substantial risk by others.

The updated text expected to be released—anticipated either late this week or early next week—will likely reflect changes from the text shared on Monday and Tuesday, although lawmakers may be reluctant to alter much of the long-discussed text.

As of now, bankers have not made their views on the proposal public.

The crypto sector’s potential apprehensions regarding the approach introduced this week, first reported by CoinDesk, have already triggered turmoil in the market for leading U.S. stablecoin issuer Circle and Coinbase’s stock. Circle’s shares fell 20% on Tuesday, although they slightly recovered on Wednesday. However, news from its primary competitor, Tether, regarding a submitted audit may have also influenced the decline in Circle’s stock, as noted by observers.

Despite the negative reactions to the revisions of the Clarity Act, Patrick Witt, the White House’s crypto advisor, criticized those he deemed “uninformed” for speculating on the Clarity Act’s status. “It’s all going to work out,” he stated on social media site X (formerly Twitter). “Bullish.”

One individual advocating for a more cautious approach remarked:

“Everyone should take a chill pill and stay off Twitter,” the individual stated.