Newsletter · · Ashutosh Agarwal

Clarity Act Fails in the Senate and Takes the Stablecoin Yield Ban With It - Stablecoins Eat Banking - Week of September 21, 2026

Stablecoins Eat Banking podcast synthesis for the week of September 15 to September 21, 2026. The Clarity Act dies 49-50 in the Senate and leaves the GENIUS Act's stablecoin rewards language intact, the Fed's surprise 25bp hike lifts issuer reserve income, the SEC's tokenized-stock innovation exemption routes around Congress, and Circle's ARC chain goes live with BlackRock and Visa as validators.

Stablecoins Eat Banking

Week of September 21, 2026: Clarity Act Fails in the Senate and Takes the Stablecoin Yield Ban With It

We spent all summer circling one Tuesday on the calendar. It came. And it turned out to be the least important thing that happened all week. The CLARITY Act died on the Senate floor on September 15, but in dying, it left the one clause that actually matters to this newsletter, the rule that would have banned interest on stablecoins, sitting exactly where it was: not passed. The banks fought to close that door and lost. Then, forty-eight hours later, the two things that will actually decide who wins this fight showed up: the SEC quietly did most of CLARITY's job by regulation, and the Fed, expected to cut, raised rates instead. For an industry that earns its keep on the yield of its reserves, that last one is the story to focus on.

TL;DR

  • CLARITY failed, and the banks are the biggest losers. The Senate blocked the bill 49-50 on Tuesday (it needed 60), every Democrat voting no alongside three Republicans. But the whole point of the bank lobby's fight was to reopen the GENIUS Act and kill stablecoin yield. That didn't happen. As Dragonfly's Haseeb Qureshi put it on Unchained, "the banks lost... the rewards language in the Genius Act stands." The yield loophole our thesis rides on is untouched (Unchained, The Chopping Block, Sep 17).
  • The Fed raised rates, the opposite of what everyone expected, and it's a gift to the issuers. The FOMC hiked 25bps to 3.75-4.00% on September 16, the first hike in three years, forced by an oil-driven inflation spike (The Journal, Sep 17). Higher-for-longer means more money on every dollar of reserve float that Circle and Tether are sitting on. Last week we worried a cut would squeeze issuer income; this week the tap opened wider.
  • Regulation didn't stall, it just moved buildings. Two days after CLARITY died, the SEC issued a five-year "innovation exemption" letting real US stocks trade on public blockchains, and Circle's ARC chain went live with 100-plus institutional applicants, USDC as its gas token, and BlackRock and Visa as validators (Paul Barron, Sep 17; Markets Outlook, Sep 16).

What's new

1. The vote failed, and the yield ban failed with it

Here is the plain-English version. On Tuesday at 2:15pm, the Senate held a "cloture" vote (a vote on whether to allow a vote) on the CLARITY Act, the big crypto market-structure bill. It needed 60 of 100 senators. It got 49. Every single Democrat voted no. Three Republicans joined them: Susan Collins of Maine, Josh Hawley of Missouri, and Jerry Moran of Kansas. Independents Angus King and Bernie Sanders piled on. It's dead for now (Thinking Crypto, Sep 16).

One footnote that only came out because a reporter asked: Republican Tom Tillis, who supports the bill, deliberately switched his own vote from yes to no. Not because he flipped, but because under Senate rules, only someone on the prevailing (losing) side can later file a "motion to reconsider" and bring the bill back. So he voted no to keep it alive. Without that move, as he told an interviewer, "it would be dead and it would be an unregulated industry until some other Congress actually picks it up again" (On The Chain, Sep 17).

Why did it fail? The best-informed voice was Cody Carbone, CEO of the Digital Chamber (operator/insider, policy), who was in the room for the negotiations. His account: this was a 630-page bill, and "ethics is about four pages of this. And it was four pages that determined the fate, ultimately, of this bill." Republicans had already conceded roughly 120 changes and, on the ethics language the Democrats demanded, came back with about 80% of the ask. "I'm shocked that they decided to take zero over 80," Carbone said. His read is that Democrats never intended to hand Trump a win before the midterms. The staff worked "100-hour weeks," but "whether their bosses were [committed] or this was always a political effort, I don't know" (Thinking Crypto, Cody Carbone, Sep 18).

Now the part that matters for our beat. Forget the politics for a second. The bank lobby didn't spend the summer fighting CLARITY because it cared about ethics provisions on Trump tokens. It fought because it wanted to reopen the GENIUS Act, the stablecoin law already on the books, and shut down the ability of stablecoins to pay yield, which pulls deposits out of banks. On that, the incumbents came away with nothing. The Chopping Block crew on Unchained (investors) tallied it up bluntly:

"The banks lost. Because the banks were fighting to get a renegotiation of Genius... the rewards language in Genius Act stands. There is still no prohibition on yield being paid on stablecoins effectively... through rewards. The status quo still holds." (Haseeb Qureshi, Dragonfly, Unchained, Sep 17)

Why it moves the thesis: the single clause that would have protected bank deposit margins, the yield ban, is exactly as un-passed today as it was a month ago, and now there's no active vehicle to pass it before the midterms. The yield-bearing and reward-paying dollars keep scaling into an open field. The market read it as risk-off in the moment (COIN fell about 10%, CRCL about 12% on the news, per Empire), but that's the reflex, not the substance (Empire, Sep 18).

2. The Fed raised rates, and the issuers are the quiet winners

This is the most under-covered story of the week, so read slowly. On September 16 the Federal Reserve raised interest rates by a quarter point, to a range of 3.75-4.00%. It was the first rate hike in three years, and it was the opposite of what the market, and this newsletter last week, expected. Everyone assumed Trump's new Fed chair, Kevin Warsh, would cut.

What changed? An oil shock. As the Wall Street Journal's Fed reporter laid out, the US-Israel strikes on Iran and the closing of the Strait of Hormuz sent oil prices spiking (crude sat around $103), and inflation became "too high and... for too long," in Warsh's words. "We had been cutting. We stopped cutting. That was a change. And now we're actually going to raise interest rates" (The Journal, Sep 17). More hikes are expected this year.

Here's the connection that matters for this beat. Stablecoin issuers make most of their money on the yield of their reserves, the T-bills and cash they hold against every coin in circulation. When rates go up, that income goes up, dollar for dollar, with no extra cost. Last week we flagged the risk that a rate cut would squeeze Circle's and Tether's reserve income. Instead the Fed did the reverse and signaled more to come. For a Circle, whose reserves earn the front-end rate, "higher for longer" is simply more revenue on the same float.

The quiet asymmetry: the government just made it more expensive to hold a checking account that pays you nothing, while a stablecoin sitting on 4% T-bills got more profitable to run, and (thanks to the failed vote) is still legally allowed to share that yield with you. The reserve-income read-through is our own inference from the rate move.

3. The SEC did CLARITY's job by regulation, two days later

The bill died on Tuesday. By Thursday morning the SEC had already routed around it. Chair Paul Atkins announced an "innovation exemption": a five-year, temporary, conditional rule that lets tokenized versions of real US stocks trade on public blockchains. In plain terms, it exempts the trading venues from being regulated as stock "exchanges," and the people providing liquidity from being regulated as "dealers," the two legal walls that had kept real tokenized equities off-chain in the US.

Kristin Smith, head of the Solana Policy Institute (operator/insider), who was in the Senate chamber for the failed vote, called it "fantastic news":

"For the very first time, the SEC said that you can actually trade real U.S. stocks on-chain through AMM pools on public blockchains... these are actual shares. These shares will earn dividends. You will be able to vote with these shares. These aren't wrappers." (Paul Barron, Sep 17)

The exemption comes with real conditions: the venue must be a US person and comply with sanctions, access is permissioned, and the company whose stock gets tokenized must be given notice and a chance to object (though not the right to veto it). It runs alongside an 18-to-24-month formal rulemaking. The CFTC moved the same morning, extending a no-action position so that any self-custody wallet or front-end can plug users into regulated derivatives, not just the one company (Phantom) that had a prior letter.

Smith's strategic point is the one to file away: the industry has now given up on Congress and is racing to finalize agency rules before the summer of 2028, betting those rules will "stick" once the big banks and asset managers are wired in. Her striking aside: the SEC's approach "was actually a lot more restrictive... than what agencies can do," so "the Democrats walked away from the table [and] really lost an opportunity to put their mark on the legislation." The market noticed: tokenization infrastructure firm Securitize rose 16% on the day (Empire, Sep 18).

Why it matters for stablecoins: every tokenized stock trades against, and settles in, a stablecoin. As Circle's own team noted, a rule that grows on-chain assets "is probably good for the stablecoin issuers... the amount of stablecoins and the people using stablecoins will grow." The disintermediation story just got a second front, securities settlement, that doesn't need a single new law.

4. Circle shipped its own chain, built for banks and powered by USDC

On September 16, the day after the vote, Circle's ARC blockchain went live on mainnet with more than 100 institutional applicants and participants at launch. DeFi lenders Aave (V4), Morpho and Uniswap were all live day one (Daily Crypto News, Sep 17).

Circle's Chief Technology and Product Officer, Nikhil Chandhok (operator/insider), explained the design choices, and they're all aimed squarely at institutions. Three things stand out:

  • USDC is the "gas," the fee token. On most blockchains you pay transaction fees in a separate, volatile token. Chandhok's point: a bank or an AI "agent" running thousands of transactions can't manage a fee token whose price bounces around. With ARC, "you need gas to be as simple as just paying in USDC," and because "USDC is going to be accounted for as cash once Genius is live," the whole thing reconciles like normal money.
  • Opt-in privacy. Institutions don't want rivals seeing their balances and flows on a public ledger. ARC lets a user flip a toggle to send a transaction privately, visible only to the two parties with the "viewing keys."
  • The validator set is the moat. "We went to the most important financial institutions and got them to be partners on ARC... validators on ARK... invested in the economic success of ARK," Chandhok said. BlackRock and Visa are among them. His logic: "when these institutions want to put their traffic on the blockchain, they need to know who the validators are" (Markets Outlook, Sep 16).

Chandhok was explicit that CLARITY's failure doesn't touch the plan. GENIUS is the law Circle is building for, "our guiding light." Those rules take effect in January, and Circle intends to be "the largest distributed stablecoin that is Genius compliant day one." His three-year forecast for institutions: "I don't foresee a world in which... institutions are holding back and they don't have assets on chain... not settling in stablecoins."

Why it moves a number: ARC is Circle trying to own the rails, not just the coin, capturing settlement and fee revenue on top of reserve yield, and locking in Visa and BlackRock as economic partners rather than competitors.

5. The yield-bearing challengers keep compounding: Ethena, Tether, RLUSD

While Washington argued, the coins that actually threaten deposits kept growing.

Ethena launched a neobank, Ethena Pay, on top of its yield-bearing dollar USDe. Founder Guy Young (operator) gave the scale: roughly $30 billion of mint and redemption flows have moved through USDe, which peaked around $15 billion in size, and it came through the Binance deleveraging crash and the "Abe Kelp" incident without ever losing "even the basis point of users' money" (Unchained, Sep 15). A follow-up interview was titled, with characteristic restraint, "The Market Just Got 60x Bigger," promotional framing worth discounting (The Rollup, Sep 20).

Tether's audit finally has a name. Rapha Zagury (operator-adjacent, CIO at Adam Back's Twenty One / 21 Capital, a company closely tied to Tether) confirmed on Coin Stories: "It's KPMG doing the audit," a big-four firm, answering years of criticism that Tether only ever produced attestations. He also gave the clearest articulation of why USDT dominates the Global South: in Brazil, the central-bank payment system PIX means "the government has a view into" nearly every transaction, so people reach for Tether as a less-surveilled dollar. Asked where he'd park dollars for 20 years, a bank or a stablecoin, he didn't hesitate: "I would definitely put in stablecoins," because the ledger is "much more transparent... than what you have with the banks" (Coin Stories, Sep 15). The catch, unchanged: Tether "would need federal approval, lacks qualifying assets... cannot serve the U.S. market" under GENIUS (TraderMerlin, Sep 17).

Ripple's RLUSD keeps climbing. Ashish Birla of Evernorth (operator) said RLUSD went from 20% to 34% of its total supply living on the XRP Ledger, which he framed as 642% growth (an issuer-sourced figure), with institutions now driving the volume. Evernorth's SPAC (ticker XRPN) has a shareholder vote September 30 after the SEC deemed its filing effective (The XRP Podcast, Sep 15).

The debate

Do regulated stablecoins genuinely eat bank deposits, interchange and correspondent rails, or do banks and networks co-opt the tech and keep the value? This week, the debate was settled by omission.

The disintermediation case had a landmark week, and it barely lifted a finger. It didn't need a live transaction or a new deal. It needed one thing not to happen, the yield ban, and it didn't. The banks marshaled their whole lobby to reopen GENIUS and cap stablecoin rewards, and they came away with, in the investors' own tally, nothing. Meanwhile the yield-bearing dollars kept compounding in the open (Ethena's $30B of flows, RLUSD's climb), and the Fed handed issuers a fatter margin on their reserves. The economics of "a dollar that pays you beats a checking account that doesn't" are now more attractive and no more restricted than they were a week ago.

The co-option case ceded the microphone, but that isn't the same as losing. Last week was wall-to-wall incumbent adoption: US Bank live on Stellar, Citi and DBS settling tokenized deposits on SWIFT's ledger. This week the structural signal held: Deutsche Bank is close to launching crypto custody in Europe, and one host nailed the reason banks lobbied so hard against CLARITY in the first place: "they see how absolutely crazy profitable stablecoins and Bitcoin and custody services are" (Daily Crypto News, Sep 17). The banks aren't retreating from the plumbing; they're just fighting a two-front war, lobbying to slow the disruptors in Washington while building the same rails at home.

The tension in one line: the incumbents lost the one legislative fight that could have protected their deposit margins, and the challengers got a rate hike that made their model more profitable, but the banks are still quietly buying the shovels.

My read: last week I called it "a co-option week on the surface and a disintermediation week underneath." This week the underneath became the surface. The failed vote plus the surprise hike is the most disintermediation-friendly 48 hours we've had all year: the yield loophole survives and got more lucrative. The banks' consolation prize is that the SEC's own approach may end up more permissive than CLARITY would have been, which helps the incumbents building on-chain too. But make no mistake about who won the week: the yield-bearing dollar.

Stocks in play

Operator/insider commentary is flagged; everything else is investor or pundit color.

  • CRCL (Circle): loud week. Stock fell ~12% on the vote, then shipped ARC on mainnet (100+ applicants; USDC gas; BlackRock/Visa validators; Aave/Morpho/Uniswap live). Bull: the yield ban failed (rewards model intact), the Fed hike lifts reserve income, and ARC captures settlement/fee revenue on top of float, with Visa and BlackRock as partners, not rivals. GENIUS rules land in January and Circle plans to be compliant "day one." Bear: the knee-jerk sell-off shows how tied the equity is to the CLARITY headline; ARC has to convert 100 applicants into real volume; uncapped rivals (Ethena) still undercut on yield. Watch: early ARC transaction volume and validator traction; whether reserve-income guidance rises with the new rate path (Markets Outlook, Sep 16; Empire, Sep 18).
  • COIN (Coinbase): loud week. Fell ~10% on the vote. CEO Brian Armstrong (operator) stayed steady: clarity "is coming either way," possibly another vote "within one to two weeks," and warned that ~80% of crypto trading is already offshore without US rules. Bull: the failed vote leaves Coinbase's stablecoin-rewards economics (its Circle revenue share) untouched, and the SEC/CFTC actions expand on-chain markets it can service. Bear: revenue leverage still tied to that Circle split and to trading volume that sold off on the news. Watch: any re-vote timing; Coinbase's share of the tokenized-stock and derivatives flow the SEC/CFTC just unlocked (Money Rehab, Sep 18).
  • V (Visa): covered, indirect. Named as a validator on Circle's ARC, an incumbent embedding itself in the disruptor's rails. Bull: positioning to settle stablecoins rather than be bypassed. Bear: on-network stablecoin settlement still erodes interchange long-term. Watch: whether ARC validator status turns into settlement volume (Markets Outlook, Sep 16).
  • JPM (JPMorgan): referenced, light. Cited as noting the bill "is not fully dead." Watch: any deposit-token update now that GENIUS rewards survived (Empire, Sep 18).
  • Tether (USDT): covered, operator-adjacent. KPMG audit confirmed; deep Global-South demand (Brazil/PIX); still locked out of the US under GENIUS. Bull: unmatched international moat and float; a big-four audit chips away at the transparency bear case. Bear: no US market access; foreign-issuer treatment unresolved. Watch: publication of the KPMG audit (Coin Stories, Sep 15; TraderMerlin, Sep 17).
  • Ethena / USDe (private): loud week, insider. $30B of lifetime mint/redemption flows; launched Ethena Pay neobank on a yield-bearing dollar, the purest disintermediation vector, now with a consumer front end. Watch: USDe supply growth into the failed-yield-ban environment (Unchained, Sep 15; The Rollup, Sep 20).
  • XRP / RLUSD (Ripple, private) & Evernorth (XRPN): covered, insider. RLUSD up to 34% of supply on the XRP Ledger (642% growth); Garlinghouse called the vote loss one that "stings" but said Ripple's "business has never been stronger." Evernorth SPAC vote Sep 30. Watch: the XRPN listing; RLUSD's institutional volume share (On The Chain, Sep 17; The XRP Podcast, Sep 15).
  • HOOD (Robinhood): covered, on tokenized stocks. Vlad Tenev cheered the SEC exemption ("tokenization is coming to America"); Robinhood must now route its tokenized equities through the new process (notice-and-object). Bull: first-mover distribution in on-chain equities, which all settle in stablecoins. Bear: its meme-coin-paired tokenized stocks are exactly what the new rules constrain. Watch: whether Robinhood has to alter or delist current tokenized offerings (Paul Barron, Sep 17).
  • Kraken / Payward (private): new. $550M BitNominal acquisition to offer US perpetual futures via Hyperliquid, aiming to be the first registered US exchange to do so. Watch: CFTC treatment of the structure (Daily Crypto News, Sep 17).
  • Deutsche Bank (DB): light, insider signal. Close to launching institutional BTC/ETH custody in Europe, another money-center bank owning the infrastructure layer (Daily Crypto News, Sep 17).
  • Securitize (private, via peers): covered. Up 16% on the SEC exemption, the clearest single-name winner from tokenized-equity rulemaking (Empire, Sep 18).

Read-throughs

  • Card networks / interchange: Co-option, still. Visa lending its name as an ARC validator is the template: become the settlement layer rather than the bypassed one. Near-term the franchise is defended; long-term, on-network stablecoin settlement plus yield-bearing dollars keep hollowing the interchange pool, and now tokenized-stock trades (all settling in stablecoins) add volume that never touches a card rail.
  • Money-center & correspondent banks: The banks lost the legislative fight to protect deposit margins and won a consolation prize: the SEC's regime may be more permissive than CLARITY, which helps the incumbents building on-chain (Deutsche Bank custody, JPMorgan's deposit tokens). But the yield ban's death is a direct hit to the deposit franchise, and the correspondent-banking margin remains the clearest casualty of cheaper stablecoin settlement.
  • Payment processors: The most exposed corner, again. The settlement map was redrawn around Fiserv, FIS and Global Payments this week by Circle, Kraken, Deutsche Bank and the SEC.
  • Custody / exchange infrastructure: Picks-and-shovels keep winning no matter who wins. Securitize +16% on the tokenization exemption; Deutsche Bank entering custody; Kraken buying its way into US perps; ARC onboarding 100+ institutions. The infrastructure layer monetizes both the co-option and the disintermediation.
  • Treasury-bill demand: The structural bid is intact and the economics just improved. Every new stablecoin dollar still funnels into short-dated Treasuries, and the Fed's hike means each of those dollars now earns more: better issuer margins on a reserve base that keeps growing. The tension we flagged last week (a cut squeezing income even as balances grow) flipped in the issuers' favor this week.

What changed vs last week

  • The catalyst we circled since July arrived, and it broke the banks' way, not theirs. Last week the vote sat at ~5% odds and we said the disintermediation catalyst was "about to whiff in public." It whiffed: 49-50, dead for now. But the surprise is who lost. The bank lobby's entire objective, reopening GENIUS to kill stablecoin yield, failed with the bill. The yield loophole survives.
  • The macro flipped hard. Last week we expected a rate cut at the Sep 16-17 FOMC and warned it would squeeze issuer income. Instead the Fed hiked 25bps to 3.75-4.00%, the first hike in three years, on an oil-driven inflation spike. That's a direct, under-covered tailwind to Circle's and Tether's reserve economics. Complete reversal from last week's framing.
  • Regulation didn't die, it changed venues. Last week the debate was "will the vote pass?" This week the answer became "it failed, and the SEC did most of the job anyway." The innovation exemption for tokenized stocks (and the CFTC's wallet no-action) is genuinely new, and several operators (Kristin Smith, Rob Hadick) argue the agency route may end up more permissive than CLARITY.
  • ARC went from countdown to live. Last week ARC's Sep 16 launch was the event on the horizon; this week it's on mainnet with 100+ institutional applicants, USDC gas, and BlackRock/Visa validating.
  • The vote consumed the airwaves. Last week: US Bank live on Stellar, Citi/DBS on SWIFT. This week the conversation belonged to the vote, a reminder that the incumbents' plumbing push and the challengers' yield push move on different clocks.

Bottom line vs last week: the vote we dreaded failed, but it took the yield ban down with it, and the banks' one shot at protecting deposit margins is gone for this Congress. Then the Fed, expected to cut, hiked instead, quietly widening the issuers' best profit line. Two months ago the question was "will the yield clause survive the vote?" It did, by killing the whole vote. The new question: with Washington sidelined until the midterms and the Fed paying issuers more to hold reserves, how fast do the yield-bearing dollars scale before anyone can stop them?