CLARITY versus CONFUSION

I've recently written quite a bit about the GENIUS Act, the GRANITE Act and the CLARITY Act in the United States.

Well, yesterday was the crucial day as the CLARITY Act moved through the Senate or, rather, it didn't.

The USA has spent years arguing that cryptocurrency needs regulatory clarity and the Digital Asset Market Clarity Act failed to clear the procedural hurdle needed to move forward in the US Senate, falling well short of the 60 votes required.

Depending upon how the procedural manoeuvring is counted, reports put the division at 49-50 or 50-49, but the important number was 60 and CLARITY did not get close enough. The legislation that was supposed to settle America's long-running argument over who regulates crypto has therefore become another chapter in that argument.

That is quite a turnaround for legislation that once appeared to have substantial bipartisan momentum.

What was CLARITY supposed to do?

At heart, the CLARITY Act was an attempt to answer a deceptively straightforward question: what is a cryptoasset and who regulates it?

For years, American crypto companies have complained that they have been expected to operate within rules that were never designed for digital assets, with the Securities and Exchange Commission (SEC) often treating tokens through securities law while the Commodity Futures Trading Commission (CFTC) oversees commodities and derivatives. The resulting argument over whether a particular token is a security, commodity or something else has generated enforcement actions, lawsuits and uncertainty.

CLARITY was designed to create a federal market structure around digital assets, defining categories of assets and giving the CFTC a substantially greater role in overseeing digital commodity spot markets while preserving a role for the SEC where tokens fall within securities law.

The House of Representatives approved H.R. 3633 in July 2025 by 294 votes to 134, including 78 Democrats joining Republicans. That looked significant because crypto regulation appeared to be moving away from a largely partisan fight towards legislation capable of surviving changes of administration.

The Senate then did what the Senate does: it started rewriting it.

During 2026 the legislation went through months of negotiation covering consumer protection, anti-money-laundering requirements, decentralised finance, developer liability, stablecoins, banking, regulatory jurisdiction and the treatment of government officials with crypto interests.

There was progress. In May, the Senate Banking Committee advanced its version by 15 votes to nine, with supporters arguing that America needed rules that protected consumers while allowing digital-asset businesses to operate within a defined regulatory framework.

For a while, CLARITY looked as though it might get there.

Then three increasingly difficult arguments collided.

The first fight: crypto versus the banks

One of the most interesting aspects of CLARITY is that the battle stopped being banks versus regulators or crypto versus regulators and increasingly became banks versus crypto.

The issue is stablecoins and, specifically, rewards or yield.

The GENIUS Act had already created a federal framework for payment stablecoins in 2025, but the banking industry remained concerned that crypto platforms could construct products that looked increasingly like interest-bearing deposits without being regulated and capitalised like banks.

That matters because a stablecoin account paying an attractive return starts competing directly with a bank deposit. Move enough money from deposits into stablecoins and banks lose a cheap source of funding for mortgages and business loans, with community banks arguing that they would feel the impact most heavily. Reuters reported that banking groups and crypto organisations spent the summer lobbying senators in their home states over precisely these issues.

The final Senate text therefore included new powers allowing the Treasury Secretary to intervene against deposit flight associated with payment stablecoins, described by the bill's sponsors as a circuit breaker intended to protect community banks.

Think about what has happened here. Crypto started life as an alternative to banking and has now become important enough that American banks are lobbying Congress over the possibility that digital money might take their deposits.

That tells us almost as much about the maturity of crypto as the legislation itself.

The second fight: how decentralised is DeFi?

CLARITY also ran into the philosophical problem sitting at the heart of decentralised finance.

If nobody controls a protocol, who exactly should regulators regulate?

The updated September text attempted to distinguish genuinely decentralised systems from operators exercising sufficient control to fall within regulatory requirements. Non-decentralised DeFi protocols handling relevant digital commodity transactions could be required to register with the CFTC and comply with Bank Secrecy Act obligations. The text was also adjusted to address concerns that these provisions could unintentionally reach areas such as prediction markets.

Developer protection became another battlefield. The final proposal included changes to the Blockchain Regulatory Certainty Act intended to protect software developers from being treated automatically as money transmitters and provide a civil safe harbour. Supporters saw that as essential protection for people who write code without controlling the financial activity conducted through it, while critics continued to question where software development ends and responsibility for financial infrastructure begins.

Those arguments were difficult, but they were negotiable.

The political argument was harder.

Then Donald Trump entered the room

The CLARITY debate became entangled with President Trump's own involvement in cryptocurrency.

Democratic senators argued that comprehensive crypto legislation could not proceed without stronger rules governing senior public officials' financial interests in digital assets, pointing specifically to crypto ventures associated with Trump and his family. Republican sponsors responded by adding ethics provisions to the final legislation, including elements of a proposal developed by Senators Thom Tillis and Ruben Gallego and a role for state attorneys general in enforcement.

The disagreement was not over whether ethics provisions should exist, but whether the final provisions went far enough.

Senate Banking Committee Democrats had already published an August analysis claiming that the legislation contained five major loopholes involving securities law, illicit finance, financial stability, consumer protection and Trump's crypto interests. Those were the minority staff's conclusions and were disputed by supporters of the bill, who argued that successive revisions had addressed Democratic concerns and strengthened consumer and national-security protections.

By the weekend before the vote, senators were still negotiating.

Republican sponsors said the final version contained 126 substantive changes requested by Democrats, alongside stronger ethics provisions, stablecoin safeguards, changes covering DeFi and protections for software developers.

It still wasn't enough.

The procedural vote failed on 15 September, with Democrats withholding the support required to reach 60 and several Republicans also opposing advancement. Democratic critics cited ethics safeguards, illicit-finance concerns and questions over whether regulators, particularly the CFTC, had sufficient resources to police the expanded market. Republican supporters argued that the bill had been extensively amended to address those concerns and that delaying legislation would prolong the regulatory uncertainty everyone claimed they wanted to end.

And the market noticed.

Wall Street voted immediately

Coinbase fell almost 9%, Circle around 9%, Galaxy Digital about 8% and Gemini around 7% as investors absorbed the Senate defeat. Bitcoin fell towards $76,000, while XRP subsequently dropped around 10%, with Ether and Solana also falling sharply. The wider market was already nervous ahead of the Federal Reserve's rate decision, so not every movement can be attributed to CLARITY, but crypto-linked equities underperformed sharply as the legislative result arrived.

Ripple described the vote as a "missed opportunity" for consumers, the digital-asset industry and American competitiveness, reflecting the industry's broader argument that legislation is preferable to relying upon regulatory interpretation and enforcement.

The other side of the argument is that clarity is not useful if Congress creates the wrong clarity. Critics maintain that digital assets should not receive weaker investor, anti-money-laundering or ethics standards because the industry wants regulatory certainty, and that moving crypto into the financial mainstream requires stronger safeguards rather than a lighter version of those applied elsewhere in finance.

That is the real divide.

Meanwhile, crypto isn't waiting for Congress

This is where the story becomes more interesting, because CLARITY has stalled but crypto hasn't.

The SEC and CFTC are already developing their own digital-asset rules, meaning the absence of legislation does not mean the absence of regulation. The problem for the industry is durability: agency rules created by one administration can be rewritten by another, whereas an Act of Congress creates a far firmer foundation.

Meanwhile, Europe already has MiCA, stablecoins are becoming part of mainstream payments, tokenised securities are expanding, banks are developing blockchain infrastructure and fintech companies are embedding crypto into products used by millions of customers.

The Revolut story running alongside the CLARITY debate illustrates another dimension of the problem. Revolut disclosed that attackers impersonating a government agency succeeded in obtaining information relating to a limited number of customers, reportedly including identity information and Bitcoin transaction histories. It has nothing directly to do with the CLARITY vote, but it demonstrates why the next stage of crypto regulation is no longer a theoretical argument about whether Bitcoin is legitimate. It concerns custody, privacy, identity, cybersecurity, consumer protection and the responsibilities of the institutions connecting blockchain assets to real people.

In other words, the technology has moved on while Washington is still arguing over the rulebook.

Is CLARITY dead?

Not technically.

The procedural outcome leaves room for Senate leaders to attempt another vote, and the way the vote was handled preserves procedural options for reconsideration. The political calendar, however, is becoming difficult, with the November 2026 midterm elections approaching and a new Congress beginning in January.

That means America's attempt to create comprehensive crypto market structure legislation has travelled an extraordinary road: House approval by 294-134, months of Senate negotiations, bipartisan committee approval, battles between banks and crypto companies, arguments over stablecoin rewards and DeFi, more than a hundred negotiated changes, a last-minute ethics compromise and then a Senate floor vote that could not even get the legislation into full debate.

Which leaves the United States in an odd position.

Almost everyone involved says they want clarity. The crypto industry wants to know which rules apply, banks want to know whether stablecoins are competitors or deposits wearing digital clothing, regulators want authority that will survive the next administration, consumers want protection when things go wrong and politicians want safeguards around money laundering, financial stability and conflicts of interest.

They just cannot agree on what clarity means.

Maybe that is the most revealing thing about the CLARITY Act.

Crypto spent its first decade asking governments to leave it alone. It spent its second asking governments to tell it the rules.

America finally tried to write them and discovered that regulating crypto is no longer a debate about crypto.

It is a debate about who controls the future of money.

Useful primary/background material includes the Senate Banking Committee's May 2026 markup, the final Senate CLARITY text announcement and Ripple's response to the failed vote. Reuters also has a useful account of the banking-versus-crypto lobbying battle and its report on the final Senate vote.