The push to create a regulatory framework for the use of cryptos in the US is back on, and it's facing industry criticism. Coinbase has renewed its warning that it could withdraw from the process if the Senate doesn't address its concerns.
The dispute centers on provisions regarding stablecoin yield. It has quickly become the biggest challenge of the new regulation. With midterm pressure, the window to resolve the issue is closing, and Coinbase's passion for the US market makes its position one lawmakers should consider.
What the Senate Crypto Bill Is Trying to Do
The Senate's version of the CLARITY Act is made to provide structure for the US crypto market. It will define the regulatory responsibilities of all parties involved, including the SEC and the CFTC. That way, the years of uncertainty that marked the crypto trade would finally be over, and trading crypto would be similar to trading any other digital goods.
The House has already passed a version of this bill. It signaled broad agreement among both parties and all industry actors. However, the Senate version should go into even more detail.
Why Coinbase Is Threatening to Walk Away
Coinbase's opposition is rooted in how the Senate draft treats stablecoin yield. That's the feature that's now a central part of its business model. By using products such as USDC, exchanges earn a significant share of the revenue.
The proposal currently in front of the legislators limits the ability to earn this way. It also limits access to the data needed to calculate rewards, which would make the program difficult to operate at scale.
From Coinbase's perspective, this changes the very nature of the law and limits how the company and its users can operate and earn. The passive-earning feature has given stablecoins an advantage in the crypto market, attracting new users, and the company refuses to lose this important edge.
The Changing Crypto Landscape
The new regulations come at a time when the crypto landscape has already largely changed. Just a few years ago, cryptos were used in some industries, where their features were especially useful. For instance, crash crypto gambling was common, and fast crypto transfers worked well with the quick gameplay. These games of luck require players to choose when to cash out carefully.
However, over the last couple of years, crypto has become widely used by traditional businesses and industries, and it's now widely accepted as a payment method and investment strategy. That's what has caused the need for more regulations in the first place.
The Bigger Battle: Banks vs. Crypto Over Stablecoins
Behind this technical dispute is a bigger battle. Yield-bearing stablecoins have gained the ability to operate like banks, and for a long time, such features were reserved for traditional financial institutions. The tension between the new and established finance is therefore showing.
Crypto advocates claim that such concerns are largely overstated and that yield-bearing stablecoins aren't that different from other stablecoin products. They claim they wouldn't be able to replace or outperform banks. According to an industry insider, it just shows that established businesses are trying to prevent competitors from pushing them out.
Both sides are applying political pressure and lobbying for their cause. Banks are pushing for greater control, while cryptos argue for a more open approach. As is the case within the political process, the solution will be a compromise, but the administration is known for its pro-crypto stance.
A Fragmented Crypto Industry Adds Complexity
The crypto industry itself isn't unified on these issues. Many in the industry are skeptical of stablecoins, as their value is tied to fiat currencies, so they aren't really crypto, according to skeptics. However, stablecoins have become one of the fastest-growing parts of the industry and have found a user base.
There is a division between large, established cryptos and altcoins. The former ones already work with traditional markets via ETFs, while the latter are the underdogs in the new crypto regulatory efforts. The industry's lobbying efforts are therefore limited compared to those of the banks.
To Sum Up
Coinbase is threatening to walk away from the negotiations with legislators about the upcoming crypto bill. This legislation is intended to structure the industry further and regulate the use of cryptos and stablecoins. The exchange believes the solution is unfair to users who hold yield-bearing stablecoins. It would limit their use, and such features have proven lucrative.
The renewed efforts to regulate the industry come at a time when cryptos are widely accepted and used by businesses of all kinds, and new, innovative features are still emerging. Many feel that the regulations are an effort by traditional finance to limit such growth somewhat.