Clarity Act Section 404 Revealed: A Strategic Compromise Between Allowing Stablecoin Rewards and Protecting Traditional Bank Deposits

On Friday, May 1, 2026, the full text of a compromise for the Clarity Act was released to resolve the long-standing conflict over stablecoin yields. This bill takes a strategic middle ground by explicitly prohibiting interest paid in exchange for 'simple holding' of digital assets, while granting broad exceptions for activity-based rewards. This is interpreted as an attempt to prevent large-scale deposit flight from traditional banking without stifling the competitiveness of the virtual asset industry.

No digital asset service provider shall pay any form of interest or yield to a holder solely in connection with the holding of a payment stablecoin. — Draft of Clarity Act Section 404(b)(1).

Section 404, the core of the bill, is a mechanism to prevent stablecoins from being marketed as high-yield alternatives to bank deposits. By restricting stablecoin issuers from paying direct interest to users, legislators aim to protect the economic status of traditional savings accounts. These regulations reflect the demands of bank lobbyists who are wary of stablecoins becoming a 'black hole' that absorbs liquidity from the overall financial system beyond being a mere means of payment.

'Bona Fide' Exceptions: Permissible Reward Structures

However, not all forms of benefits are prohibited. The bill allows for the payment of rewards for certain activities considered 'bona fide' transactions. These rewards must not have 'economic equivalence' to bank deposits and must be defined as marketing tools to encourage user participation on the platform.

• Loyalty programs and point systems
• Promotions linked to specific transactions or payment activities
• Benefits based on platform usage and subscription services
• Rewards combined with network transfers and payment processing

As of early 2026, the average yield on standard savings accounts at traditional U.S. banks remains at approximately 0.45%, creating a clear gap with virtual asset platforms. Rewards between 2% and 5% offered by major platforms such as Coinbase and Kraken have sparked serious fears of deposit flight in the banking sector. This bill clarifies the intention to artificially control this 'yield gap' to ensure the stability of the traditional financial system.

For regulatory enforcement, the SEC, CFTC, and the U.S. Treasury will jointly begin defining the scope of permissible rewards. These agencies must establish strict anti-evasion standards to distinguish between simple marketing promotions and substantive interest payments. In particular, how the vague criterion of 'economic equivalence' is specified is expected to be the core of future legal disputes.

Market reaction was immediate and cold. Shortly after the full text of the bill was released, the corporate value of Circle, a stablecoin issuer, suffered a shock of $5.6 billion evaporating in a single trading session. On the other hand, the White House Council of Economic Advisers (CEA) is trying to strike a political balance by releasing an optimistic report stating that the impact on the banking system will be limited even if stablecoin rewards are allowed.

As the regulatory blade points toward payment stablecoins, investors are rapidly moving to alternative assets such as tokenized Treasuries. Tokenized Treasuries, which offer yields of 3.5% to 4.5% per year, have emerged as a new source of income as they are not subject to the direct restrictions of the Clarity Act. These market changes clearly show how capital finds other channels when regulation suppresses specific assets.

Yields for USDC lending through DeFi platforms like Aave remain highly competitive, recording 4% to 6% per year. Since the Clarity Act primarily targets the actions of centralized service providers, these on-chain activities are expected to continue growing in a regulatory blind spot for the time being. However, the possibility remains that additional regulatory pressure will be applied if authorities consider this 'disguised yield.'

The final completion of the bill depends on the Treasury's enactment of detailed enforcement regulations and the results of the Senate markup. The amendment released on May 1, 2026, is significant in providing an institutional framework for the virtual asset industry, but it is difficult to avoid criticism for limiting the scope of innovation to protect the banking sector. The legislative process over the next few months is expected to be a major turning point in determining the direction of the U.S. virtual asset market.