In brief
- The White House crypto council director warned that rejecting market-structure legislation outright risks tougher regulation later, particularly under a future Democratic Congress.
- Coinbase’s opposition to the CLARITY Act has sharpened divisions within the crypto industry over whether to accept imperfect rules now or wait.
- Disagreement centres on how the bill would treat stablecoin yield and rewards, with critics warning vague definitions could restrict compliant models.
On Tuesday, the executive director of the President’s Council of Advisors on Digital Assets took aim at Coinbase’s decision last week to withdraw support for the Senate’s crypto market structure bill, in the latest sign that lawmakers are growing weary of industry players weighing their near-term commercial exposure.
“‘No bill is better than a bad bill,’” Patrick Witt began in his tweet, referring to Coinbase CEO Brian Armstrong’s comments when his exchange pulled support for the CLARITY Act. “What a privilege it is to be able to say those words thanks to President Trump’s victory, and the pro-crypto administration he has assembled.”
On January 14, Armstrong publicly withdrew the exchange’s backing for the bill alongside other industry participants shortly before a scheduled markup, citing concerns about provisions on stablecoin rewards, tokenized equities, and regulatory scope.
In his tweet, Witt said that delaying legislation is unrealistic and warned that rejecting imperfect rules now risks far harsher regulation under the Democrats down the road.
“Do we take advantage of the opportunity to pass a bill now, with a pro-crypto president, control of Congress, excellent regulators at the SEC and CFTC to write the rules, and a healthy industry? Or do we fumble the ball and allow Dems to write punitive legislation in the wake of a future financial crisis à la Dodd-Frank?” he wrote.
Witt’s comments follow on the heels of venture capital firm Andreessen Horowitz, whose top crypto executive, Miles Jennings, countered Armstrong last week, saying that while the bill “isn’t perfect,” it could “create an open and decentralized future,” that is “more resilient to corporate extraction, government censorship, and algorithmic distortions.”
Coinbase’s opposition to the crypto market structure bill in its current form centers on Democratic-backed and bank industry-led changes that could restrict stablecoin yield by potentially classifying customer rewards and balance-related earnings as regulated interest or lending activity.
Yielding results
Industry observers say risk stems from ambiguity in how different forms of yield would be defined under the bill.
“The key changes are those that make it difficult to distinguish between issuer-paid interest and activity-based rewards, particularly where liquidity provision or transaction-driven incentives risk being treated as prohibited yield,” Jakob Kronbichler, CEO of on-chain credit marketplace Clearpool, told Decrypt.
Such an ambiguity “creates uncertainty for platforms offering compliant reward models and for institutions relying on on-chain liquidity,” Kronbichler added.
Asked about timing, Kronbichler said a compromised bill “is more risky than waiting.”
“Certainty only works if the rules clearly support supervised, market-based activity, he said. “Locking in restrictive definitions now creates permanent structural flaws that are much harder to unwind than the current regulatory ambiguity.”
Adding to those pressures on Tuesday, the Office of Inspector General warned that the bill would place exceptional strain on the CFTC’s operations—the main agency tasked with overseeing crypto spot markets—should the bill pass.
Still, regulators are expected to “focus on the storefront, not the code,” Chris Loeffler, CEO of Nasdaq-listed digital asset management platform Caliber, told Decrypt. This affects “frontends, custodians, and any U.S.-facing operator that lists or promotes contracts,” he added.
The likely outcome could see “registration, clear disclosures, basic limits, and strong anti-fraud enforcement” on the CFTC’s part, instead of just “trying to regulate open-source software directly,” Loeffler said.
How officials in Washington intend to compromise on key parts of the bill remains unclear. Witt, however, remained upbeat on Tuesday.
“There will be a crypto market structure bill—it’s a question of when, not if,” he tweeted. “Assuming a multi-trillion dollar industry will continue to operate indefinitely without a comprehensive regulatory framework is pure fantasy.”
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