Banks Reject CLARITY Stablecoin Deal as Voters Sour on Crypto

Five of America’s biggest bank lobbies told the U.S. Senate on Monday to redo the math. Their joint statement called the new stablecoin compromise inside the CLARITY Act a “shortfall.” The crypto sector is celebrating it anyway.

The deal from Senators Thom Tillis and Angela Alsobrooks, released May 1, lets crypto platforms pay “activity-based” rewards on stablecoins while blocking deposit-style yield. Polymarket odds of CLARITY passing in 2026 jumped from 42% on April 25 to roughly 69% nine days later. Voter polls released the same week say the public still doesn’t trust crypto firms with a dollar.

Inside the Tillis-Alsobrooks Stablecoin Deal

The compromise text, first reported by Punchbowl News on May 1, redraws the line between forbidden yield and permitted rewards. Passive holding of a stablecoin can’t earn anything that looks “economically or functionally equivalent” to interest on a bank deposit. Activities tied to actual usage can.

Federal agencies and the Treasury secretary will get one year after enactment to spell out the boundaries. Regulators also gain discretion to chase what the draft calls “circumvention or evasion” of the prohibition.

Examples of permitted reward triggers under the draft language:

• Transaction, payment, transfer, conversion, remittance, or settlement activity
• Liquidity provision for market-making
• Participation in governance, validation, or staking
• Loyalty, promotional, subscription, or incentive programs

Coinbase chief policy officer Faryar Shirzad called the deal protection of “the ability for Americans to earn rewards, based on real usage of crypto platforms and networks.” CEO Brian Armstrong replied “Mark it up.” Senate Banking chair Tim Scott told Fox Business’ Mornings with Maria his panel was “nearing consensus” and pushing for a bipartisan markup as soon as the week of May 11. Polymarket’s 2026 CLARITY signing market reflects the optimism. Wells Fargo equity research this week called Circle the most underappreciated winner of the new stablecoin order, a sign not every bank is on the lobby’s side.

Why Five Bank Lobbies Walked Out

The American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum and Independent Community Bankers of America took 72 hours to respond. Their May 4 joint banking trades statement praised Tillis and Alsobrooks for the policy goal. Then it tore into the language.

The lobbies said the draft lets third-party platforms reward “membership” participation as long as the payout doesn’t resemble bank interest, calling that “a significant loophole.” They argued that pegging rewards to “duration, balance, and tenure” would directly incentivize idle holding, the exact behavior the prohibition is meant to deter. Their estimate: yield-bearing stablecoins could shrink consumer, small-business and farm lending by a fifth or more. Crypto in America reporter Eleanor Terrett added another twist on May 5, writing that larger banks, not the community lenders originally flagged as ringleaders, are now driving the harder pushback.

Tillis posted the same day that the compromise was “a substantially improved, consensus-based product” and said he would “respectfully agree to disagree.” White House crypto adviser Patrick Witt was blunter. “Banks sure have a funny way of defining ‘compromise,'” he wrote on X.

The DeFi and Ethics Walls Still Standing

Stablecoin yield isn’t the only fight inside CLARITY. The Blockchain Regulatory Certainty Act of 2026 from Senators Cynthia Lummis and Ron Wyden would shield non-custodial DeFi developers from money-transmitter liability under Section 1960 of the federal criminal code. Crypto operators love it. Senate Judiciary Chair Chuck Grassley, Senator Dick Durbin and several federal law enforcement bodies do not. Witt and Lummis are now negotiating language meant to satisfy Grassley’s prosecution concerns, with Witt publicly predicting a fix “very soon.”

Then there’s the ethics fight. Banking Democrats and Tillis want CLARITY to bar elected officials and their families from profiting on crypto ventures they can clear regulatory paths for. A Bloomberg analysis of $TRUMP memecoin top holders found wallets likely controlled by non-U.S. residents accounted for 76% of $TRUMP purchases and 72% of WLFI sales, exactly the profile of conflict Democrats are unlikely to swallow with the midterm map shaping in their favor.

Justin Sun’s Florida Counter-Punch

World Liberty Financial answered Justin Sun’s California fraud suit with a Florida defamation suit of its own. WLF announced the filing on May 4 in Miami-Dade County’s Eleventh Judicial Circuit Court, accusing the TRON network founder of running “a coordinated smear campaign” against the Trump-affiliated DeFi project.

The dispute traces back to last September, when WLF blacklisted wallets containing most of the $75 million in WLFI Sun acquired starting October 2024. Sun went public with his anger in April, calling the freeze function a “backdoor blacklisting” weapon. He sued WLF in California federal court on April 21.

WLF’s countersuit goes after the substance of Sun’s claims. The complaint alleges Sun made “straw purchases” of WLFI for undisclosed third parties, attempted short-selling before the freeze and ran a campaign of fake social-media bots to amplify what WLF calls his lies. CEO Zach Witkoff publicly described Sun’s California suit as “a desperate attempt to deflect attention from Sun’s own misconduct.”

Sun’s complaint was less restrained. Sections were redacted before public filing, but the visible portions allege WLF is on the brink of “collapse and potential insolvency” and that the project is using his frozen tokens as a “bargaining chip to extort Mr. Sun into providing additional capital.” His lawyers also targeted WLF co-founder Chase Herro, citing what they called Herro’s “lifelong pattern of fraud” and disputing residency claims relevant to federal income tax.

Sun on Monday dismissed WLF’s defamation suit as “a meritless PR stunt” and said he stands by his actions. Both sides now have powerful incentives to expose information neither side particularly wants exposed. That’s how courthouse fights tend to go.

The 5.9 Billion Token Question

Bloomberg reporter Olga Kharif broke last week that WLF authorized sales of an additional 5.9 billion WLFI tokens to undisclosed private buyers, on top of more than $550 million already raised through two public rounds. The transactions were not disclosed to existing investors. The Trump family receives 75% of the proceeds under the project’s token structure.

Kharif’s framing of the structural problem was the cleanest yet:

“What is unfolding has no precedent in American financial life. A sitting president’s family holds financial stakes in a live token project, one setting governance rules, directing treasury sales, collecting proceeds, while the people who signed up find themselves with limited options to exit.”

The exit problem is by design. On April 15, WLF passed a governance proposal locking 62 billion WLFI for two years with three-year vesting on top. Roughly 4.5 billion insider tokens will be burned. Holders who voted no were told their tokens would be “locked indefinitely under existing terms.” WLFI now trades below $0.07, down 54% year-to-date and roughly one-fifth of last September’s all-time high.

Voters Don’t Want What the PACs Are Selling

The Politico Numbers

The crypto sector’s policy push collides with public sentiment ranging from indifferent to hostile. A Politico/Public First survey of 2,035 U.S. adults released this past weekend found just 3% of respondents had heard of Fairshake, the dominant pro-crypto PAC backed by Coinbase, Ripple Labs and Andreessen Horowitz. The same survey explained why most crypto-funded ads avoid mentioning crypto.

The numbers are blunt:

• 53% wouldn’t go near buying or trading tokens, higher than the 40% who avoid the stock market.
• 47% trust banks more than crypto platforms; only 9% trust a crypto platform more than a bank.
• 45% say the risk of crypto investing isn’t worth the reward, against 25% who think it is.
• 61% say billionaires hold too much political influence in U.S. politics today.

Fairshake has spent $13.2 million this cycle and still holds over $193 million for the midterm stretch. Defend American Jobs, its GOP-focused offshoot, just reported nearly $514,000 backing Indiana Republican James Baird. Ripple co-founder Chris Larsen kicked $3.5 million to You Can Push Back, a new super PAC backing Alex Bores’ Democratic bid for Jerry Nadler’s House seat.

CoinDesk’s Trust Gap

A separate CoinDesk-commissioned survey of 1,000 registered voters delivered worse news for the industry. Sixty-five percent trust banks over crypto platforms for safekeeping. Sixty percent see crypto as a mostly negative force in the economy. Only 1% rank crypto as their top midterm concern, putting it at the bottom of the list.

62% have no faith in the Trump administration’s ability to oversee the sector, and 73% disapprove of senior officials having personal crypto business. Disapproval reaches 80% among Democrats and independents but still hits 59% inside the Republican base. Around 55% of respondents say they have little or no awareness of the Trump family’s actual commercial crypto stake, suggesting overall disapproval would climb if more details broke through.

Frequently Asked Questions

When Could the Senate Vote on the CLARITY Act?

Senate Banking Chair Tim Scott is targeting a markup the week of May 11, 2026, with a full floor vote possible in June or July. Polymarket users currently price the odds of CLARITY becoming law in 2026 around 69%. The schedule still depends on resolving the Section 1960 DeFi liability fight and unresolved ethics rules. Watch the Banking Committee’s markup notice for confirmation.

Will My Coinbase USDC Rewards Still Pay Out If CLARITY Passes?

Probably yes. The Tillis-Alsobrooks compromise specifically allows rewards for activity-based stablecoin use such as transactions, transfers and staking participation. Existing usage-tied rewards programs would survive. Rewards calculated as straight interest on idle balances would not. Federal regulators get one year after enactment to draw the final boundaries, so check your platform’s rewards terms for changes during that window.

What Is the Dispute Between World Liberty Financial and Justin Sun About?

WLF froze most of Sun’s $75 million in WLFI tokens in September 2024 after blacklisting wallets it now says were used for straw purchases and pre-freeze short selling. Sun sued in California federal court on April 21. WLF countersued in Florida state court on May 4 alleging defamation. Sun calls WLF’s filing a “meritless PR stunt.” Court dockets in both jurisdictions will publish updates.

How Big Is the Trump Family’s Crypto Stake?

The Trump family entity owns 60% of World Liberty Financial and is entitled to 75% of all token proceeds. The position was estimated above $5 billion at the WLFI launch, though much remains locked under vesting. A separate Bloomberg analysis found 76% of top $TRUMP memecoin holdings sit in foreign-controlled wallets. Senate Democrats want CLARITY to bar this profile of conflict, so watch the markup language.

The CLARITY Act will probably pass this year. Most of Washington wants it done, and crypto money has bought enough goodwill to make finishing it easier than killing it. Whether the law fixes the trust gap with voters is a different question, and this week’s polling says the answer is no.