Why CLARITY Act's failure is beneficial for crypto — Bitwise

Bitwise CIO Matt Hougan stated Wednesday that the crypto market has rallied since the US Senate failed to advance the CLARITY Act, arguing that the legislation’s collapse allowed regulators to move faster on industry rules.

Crypto gains momentum despite legislative setback

Hougan noted that Bitcoin (BTC) has gained 8% and Ethereum (ETH) 7% since the vote, while several altcoins posted larger gains. NEAR rose 104%, Uniswap (UNI) gained 49% and Avalanche (AVAX) advanced 43%.

Although the crypto industry backed the legislation for the regulatory certainty it promised, Hougan stated that the final negotiations required compromises that could have restricted parts of the sector.

Stablecoins were among the biggest areas affected by the legislation’s failure. One key dispute during negotiations involved whether exchanges could pass stablecoin-related interest or rewards to customers. Banks opposed provisions that would have allowed platforms to offer such benefits.

The final version of the CLARITY Act would have prohibited platforms from paying stablecoin interest or yield to customers “in any form,” with penalties of up to $5 million per violation.

Although the bill failed, the Genius Act remains in effect. The law prohibits stablecoin issuers from paying interest but does not impose the same restriction on exchanges.

“The great irony for banks is that their refusal to compromise will likely end up helping every stablecoin take market share from the traditional system,” Hougan wrote.

SEC actions open new opportunities for crypto

Tokenization has also benefited from developments after the Senate vote. Two days after the CLARITY Act failed, the SEC issued an order allowing tokenized US stocks to trade through permissioned automated market makers and liquidity pools. The order exempts participating venues from registering as exchanges and liquidity providers from registering as dealers.

The measure is limited to five years, covers listed US stocks and includes volume restrictions, but Hougan highlighted that the approach lets the industry experiment rather than wait years for regulatory studies.

Hougan identified Securitize as a major beneficiary. The company provides tokenization infrastructure for funds from BlackRock, Apollo and KKR and serves as the transfer agent for BlackRock’s BUIDL fund.

The report also pointed to tokens that use protocol revenue for buybacks, including NEAR and Uniswap.

"One reason for their success is that, oddly, revenue-generating tokens have clearer rules without Clarity than they would have had with it," Hougan added.

Under the proposed CLARITY framework, uncertainty remained over whether buybacks could affect a token’s regulatory classification. After the bill failed, the SEC wrote in an FAQ that once a network is functional, announcing a buyback program does not make its token a security.

Hougan acknowledged that the main risk is regulators taking a different approach in the future.

However, he argued that continued blockchain adoption by major financial institutions could make a significant regulatory reversal more difficult.