Clarity Act Markup: Why crypto needs the bill signed into law

The United States (US) Senate Banking Committee released the full text of the Digital Asset Market Clarity Act, commonly known as the Clarity Act, ahead of the scheduled markup vote on Thursday.

Chairman Tim Scott, Subcommittee on Digital Assets Chair Cynthia Lummis, and Senator Thom Tillis, in releasing the market structure bill text to the public, said it will serve as the basis for the Committee’s markup of the Clarity Act.

Clarity Act text released ahead of Senate Committee’s markup

The Clarity Act’s advance to the Senate Banking Committee comes after months of stalling, pitting crypto stakeholders against aggressive bank lobbyists. While the predecessor, the GENIUS Act, signed into law by US President Donald Trump in July, addressed stablecoin issuance, the Clarity Act takes into account the larger US crypto market regulation.

Despite the Clarity Act creating a framework to regulate the broader US crypto industry, it has faced opposition from key banking stakeholders, including the American Bankers Association (ABA)  and the Bank Policy Institute (BPI).

Banking representatives raised concerns about stablecoin rewards, competition from crypto players accepting deposits, and jurisdictional overlap, particularly between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Their opposition centers on two main threats to the traditional banking model, including deposit flight and structural disadvantage. The ABA argues that allowing stablecoin issuers and exchanges to offer “platform rewards” for users holding digital assets would create a “loophole” that could drain billions from the US banking system.

As for structural advantages, the Clarity Act allows crypto-native firms to operate like banks. The ABA argues that crypto-native firms are not subject to the same rigorous “fractional reserve” and capital requirements as traditional banks, creating an unequal playing field.

Clarity Act compromise text builds optimism

The Clarity Act has entered the critical markup phase following a failed vote in January. Thursday’s markup vote was made possible through vigorous negotiations with bipartisan lawmakers, regulators, law enforcement, financial institutions, innovators and consumer advocates.

The outcome of the negotiations is a compromise bill text that could determine how the US crypto market is regulated going forward.

After months of painstaking negotiations with stakeholders, the updated Clarity Act language "is a bipartisan compromise that will provide regulatory certainty needed to foster innovation in the United States,” Senator Tillis said.

The Clarity Act compromise text allows activity-based rewards to be paid in stablecoin assets for transactions such as gas fees or platform utility, while banning passive yield. In the new text, platforms are prohibited from paying customers simply holding stablecoins.

Furthermore, stablecoin issuers will be allowed to operate under state oversight until they hit a $10 billion issuance cap, after which they will transition to federal supervision.

Why is the Clarity Act important to the crypto industry’s future?

The Clarity Act will serve as a bridge to help crypto become a mature industry, supporting the implementation of the GENIUS Act while addressing oversight overlap between the SEC and the CFTC.

Under the Clarity Act, CFTC has been given authority over the spot market, expanding its oversight beyond crypto derivatives. Market participants see this move as a win for the industry, as the CFTC is said to take a more principle-based approach than the SEC’s disclosure-based framework.

The Clarity Act includes the right to self-custody, barring federal agencies from restricting the use of self-hosted wallets. This is critical for the decentralized finance (DeFi) ecosystem.

Early-stage startups will have a legal safe space, like a sandbox, where they can issue tokens and build networks without mandatory registration with a regulator, such as the SEC, provided they meet basic transparency and consumer protection requirements.

Overall, the Clarity Act is a conduit to a transparent, innovative, consumer-focused and regulated crypto industry in the US. The provision allows the SEC and the CFTC to issue joint rules, removing the ambiguity that has plagued the industry in the past.

However, the bill is still far from becoming law, as it needs more than a simple majority in the Senate Banking Committee to gain momentum. Overwhelming support at Thursday’s markup hearing would show that the Clarity Act can survive the more vigorous Senate vote expected this summer.