The Wall Street Journal: Why did the CLARITY Act fail to pass?

Author: The Wall Street Journal

Compiled by: Jiahua, ChainCatcher

In January 2026, Maryland Democratic Senator Angela Alsobrooks was preparing to end her holiday when she found a voicemail on her phone.

It was a voice message from Coinbase CEO Brian Armstrong, lasting about 3 minutes.

Alsobrooks was a key legislator negotiating a landmark bill aimed at promoting the broader application of digital assets. The two had been in communication for months.

However, as negotiations between Alsobrooks and other lawmakers became tense, some participants in the bill negotiations felt that Brian's tone during conversations with U.S. senators was inappropriate.

As the most influential advocate for the crypto industry on Capitol Hill, Brian criticized some amendments pushed by Alsobrooks that could limit Coinbase's ability to continue offering interest-like rewards to digital token holders. Banks were concerned that such practices would siphon off customer deposits and were vigorously pushing to ban such arrangements.

According to insiders, Brian told Alsobrooks in the voicemail, "You give banks an inch, they will take a mile."

Less than two weeks later, just as the early version of the bill was about to advance, Brian suddenly withdrew his support, shocking the entire industry. He stated before the critical Senate vote on January 15, "We would rather not have a bill than have a bad bill."

The legislation, known as the "CLARITY Act," failed to secure the votes needed to advance in a procedural vote this week, bringing months of negotiations to a standstill.

For an industry that had just begun to exert influence in Washington with new lobbying power and had the support of President Trump, this was a stunning misstep.

Blame quickly began to circulate. Some crypto executives and lawmakers attributed the failure to Democratic resistance. Trump's disclosure of massive crypto income in June also intensified ethical concerns about his family business.

As 2026 progressed, the Iran war, inflation, and the backlash surrounding data centers and uncontrolled AI agents became higher priority issues for lawmakers. Others believed that the crypto industry missed the opportunity to reach an agreement early in the year, failing to complete legislation before these factors began to gain momentum.

Brian is the CEO of Coinbase, the largest crypto exchange in the U.S., and a central figure in the entire debate. In the lobbying battle over the bill in Washington, he effectively became the leader of the crypto industry, fully leveraging the industry's influence over the legislation.

According to those involved in the negotiations, few, aside from Trump, wielded as much influence as Brian. From the 2024 election to the September voting period, he traveled to Washington 13 times. For months, his lobbying team spoke multiple times a week with industry members to discuss legislative negotiation strategies. This level of involvement is extremely rare for a company and its CEO.

Insiders say the 43-year-old billionaire could almost veto terms he disliked, and he did so. This made an already complex negotiation process even more difficult.

Some industry figures supported Brian's hardline stance.

However, Ripple CEO Brad Garlinghouse believed that the industry's hardline approach ultimately cost the entire sector the opportunity to advance the bill. He stated, "We had significant momentum in January, but then a faction within the industry somewhat cut off our own path."

Coinbase stated that Brian's decision to withdraw support in January was in the best interest of the crypto industry, and the company indeed found multiple issues with the bill.

Coinbase's Chief Policy Officer Faryar Shirzad said in a statement, "To maintain the coalition and push legislation forward, we have repeatedly accepted compromises."

The Rise of Key Lobbyists

Brian co-founded Coinbase in 2012. By 2024, he became a significant political fundraiser and donor for the Republican Party, helping to form a political support force for the crypto industry that could not be ignored.

After Trump's inauguration, Brian quickly secured a place for himself in crypto legislative lobbying.

His first test was to promote the "GENIUS Act." This bill aimed to regulate stablecoins, which are digital assets pegged to real-world currencies like the dollar.

When Brian went to Capitol Hill to promote this bill, his bald head and navy blue suit made a striking impression. Ultimately, the bill garnered support from several Democratic lawmakers and was signed into law by Trump in the summer of 2025.

This was a significant victory for the crypto industry and highlighted Brian's new status as a key lobbyist for the sector.

Subsequently, the "CLARITY Act" was brought to the agenda. This bill was seen as a companion to the "GENIUS Act," but with a broader scope, attempting to address multiple segments of the crypto industry.

After facing regulatory crackdowns and lawsuits during the Biden administration, crypto companies hoped to enshrine a long-term stable regulatory framework into law. This way, they could launch new products without worrying that regulatory agencies would take a hardline stance again after political winds shifted.

The new law would also push the crypto industry deeper into the mainstream financial system.

For the banking sector, this bill represented an opportunity to limit yield-bearing rewards in the crypto ecosystem. Banks believed that such practices were akin to paying interest on deposits and posed a competitive threat to traditional banks.

Stablecoin issuers had already been prohibited from paying yields to stablecoin holders, but banks also sought to prevent arrangements they viewed as circumventing this ban.

Coinbase provided the most notable case. The company reached a lucrative revenue-sharing agreement with Circle, the issuer of USDC, with the share amount tied to the USDC balance on its platform.

Additionally, Coinbase recently promoted a 3.75% annual reward for USDC.

Bank representatives argued that such arrangements could lead to massive outflows of customer deposits, jeopardizing banks' ability to lend and maintain economic operations.

As negotiations over the "CLARITY Act" heated up, Brian began to strongly oppose any restrictions that might prevent Coinbase from continuing its reward programs.

According to those involved in the negotiations, when talks became difficult, Brian's attitude would harden, and he became unwilling to compromise, to the point where even the staunchest Senate supporters of the bill felt disrespected.

Brian did not shy away from bypassing congressional staff or speaking sharply with senators, including some who ultimately tried to help him push the "CLARITY Act" through.

The struggle over stablecoin yields became public in January. According to those involved in the negotiations, the drafting process of an early draft was chaotic, leaving Brian and other industry figures dissatisfied with the direction of the "CLARITY Act."

Coinbase's Chief Policy Officer stated in a statement that Brian maintained good relationships with both Democratic and Republican senators and always communicated with them respectfully.

"This is a significant negotiation, and there will certainly be differences, but differences should not be conflated with disrespect," he said in the statement.

A spokesperson for Alsobrooks stated that she does not comment on private conversations but has maintained positive and productive communication with Brian and other leaders in the digital asset and banking industries.

"Senator Alsobrooks's goal remains to regulate this emerging technology worth billions of dollars," the spokesperson said.

A 15-Page Compromise Proposal

Shortly after the Senate committee's vote was postponed, Brian accused banks of using customer deposits for lending without customer consent. This was essentially a critique of banks' long-standing lending practices.

His remarks angered Wall Street executives. Later in January, at the World Economic Forum in Davos, JPMorgan CEO Jamie Dimon reportedly pointed his finger at Brian's face and called him "full of nonsense," as reported by The Wall Street Journal at the time.

The accumulated tensions led to five months of negotiations over stablecoin rewards. Some in the crypto industry began to feel that they were constantly conceding on more core issues.

In May, Alsobrooks announced a compromise proposal with North Carolina Republican Senator Thom Tillis. The proposal would not directly ban stablecoin rewards but would force Coinbase to adjust its reward program.

Brian expressed approval of the proposal, and Coinbase called it a significant concession. However, the banking industry felt it was far from sufficient.

Senate negotiators then turned to address a series of unresolved issues. Securing support from at least a few Democratic senators was crucial for the bill to pass.

In late June, Republicans pushed to re-engage with Democrats and submitted a 15-page list of potential compromise proposals to Democratic members of the Senate Agriculture Committee.

According to insiders, by the next day, Democrats expressed a willingness to accept several of the proposals.

Then, Brian raised objections.

Insiders said that after learning that Brian did not support some of the proposals, Republicans were forced to shelve several options. Democrats were quite confused by this.

Soon after, the political environment surrounding the bill became even more complicated.

Trump disclosed that he earned $1.4 billion from his family's meme coin and crypto business in 2025. This was an unprecedented amount of income for a U.S. president.

Democrats seized on this disclosure, repeatedly using it as a point of attack before the midterm elections.

Democrats also insisted on including ethical provisions in the "CLARITY Act" that would prohibit public officials from holding crypto assets and hoped this provision would apply to Trump and his family. This would force the president and his sons to sell their substantial crypto holdings.

The Trump Factor

By the end of summer 2026, the "CLARITY Act" had ballooned to over 600 pages.

Insiders revealed that both Republicans and Democrats were increasingly dissatisfied with the negotiation process and the number of people involved in the talks.

During this time, the banking industry also worked to continuously weaken the content of the bill. Community banks, which primarily serve local residents and small businesses, sent their leaders to Washington to communicate their views on the bill to their respective congressional representatives. These banks viewed the bill as a matter of life and death.

Meanwhile, staff from both parties in the Senate also grew increasingly frustrated with the crypto industry's lobbying groups, particularly Brian and his team. They continued to exert influence, seeking concessions they believed would benefit Coinbase and the entire industry.

Negotiations became quite intense at one point. Earlier this year, one of the key proponents of the CLARITY Act, an important ally of the crypto industry in Congress, Wyoming Republican Senator Cynthia Lummis's staff began refusing to meet with a member of Brian's lobbying team.

A spokesperson for Lummis stated that she would not comment on private meetings but has maintained a "good relationship" with Coinbase and appreciates Coinbase's continued efforts to push the CLARITY Act across the final hurdle.

When the Senate recessed in August, the bill had not yet been voted on. Subsequently, Trump convened several crypto industry executives, including Brian, for a meeting at the White House, which was also live-streamed online.

Trump made a few jokes at the meeting and then took these executives on a tour of the Oval Office.

Last weekend, Senate Republicans released a version of the bill text that included Trump's new concessions, which contained a provision requiring the president to place his crypto holdings in a blind trust. A blind trust refers to a trust arrangement where assets are managed by an independent trustee, and the asset owner does not directly participate in investment decisions.

Democrats remain unsatisfied.

A White House official stated that the Trump administration has agreed to include "the most comprehensive and far-reaching ethical provisions in history."

On Tuesday, the bill failed to secure the 60 votes needed to advance in a key procedural vote at the final stage, thus failing to move forward.

Coinbase's stock price closed down more than 10%.

Two days later, the U.S. Securities and Exchange Commission (SEC) paved the way for tokenized stocks to trade in the U.S., and industry momentum began to recover, with Coinbase's stock price rising 12% on Friday.

Early Saturday morning, Brian stated that the final version was an improvement over earlier drafts but also acknowledged that the bill did not advance.

"I am proud to have been involved, and if I had to do it again, I would still do it because it helped us form a better bill. This is just one step on a long road, and there are many more steps to take," he wrote on X.