The Clarity Act Passes Senate Committee, Market Begins to Price in Positive Effects

Original by Odaily (OdailyChina)

Author: jk

The U.S. Senate Banking Committee voted 15-9 on May 14 local time to advance the "Digital Asset Market Clarity Act" (CLARITY Act) out of committee, sending the bill to a full Senate vote.

The vote largely fell along party lines, with all Republican committee members voting in favor. However, two Democratic senators broke ranks to vote yes: Ruben Gallego of Arizona and Angela Alsobrooks of Maryland.

Notably, Alsobrooks stated after the vote that her affirmative vote was a "vote to continue working in good faith," but made it clear she would not support the bill in a full Senate vote until several core issues are resolved.

Committee Chairman, Republican Senator Tim Scott, secured this bipartisan vote outcome through procedural maneuvering near the end of the hearing. The hearing itself lasted several hours, featuring intense debate between the parties over numerous amendments, with several proposed by Democrats being voted down or procedurally blocked.

What is the CLARITY Act? A simple breakdown:

In simple terms, the CLARITY Act attempts to answer a core question that has plagued the U.S. crypto industry for years: Who should regulate digital assets like Bitcoin and Ethereum?

Currently, there is a long-standing blurring of boundaries and jurisdictional tug-of-war between the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over crypto asset regulation. This uncertainty has left businesses struggling to comply and investors lacking protection.

The core logic of the CLARITY Act is to clearly classify digital assets as either "securities" or "commodities," placing them under the jurisdiction of the SEC or CFTC respectively, thereby establishing a clear federal regulatory framework. This is the first comprehensive legislative attempt targeting the crypto industry in U.S. history, spanning 309 pages.

Additionally, the bill addresses several other important issues:

• Stablecoin Yield Rules: In the past, some platforms allowed users to earn returns similar to bank deposit interest just by holding stablecoins, sparking significant pushback from the traditional banking industry. The latest version of the bill handles this by: prohibiting interest payments on stablecoins held "passively," but allowing yields generated through active activities like trading, transferring, or staking without restriction. The logic behind this distinction is that the former directly competes with bank deposits, while the latter represents legitimate returns for users actively participating in the market.
• Regulatory Standards for DeFi Platforms: Because DeFi lacks traditional "companies" and "managers," regulators have long struggled to identify enforcement targets. The CLARITY Act attempts to establish rules for this: requiring relevant platforms to fulfill anti-money laundering obligations, monitor suspicious transactions, conduct user identity verification, and comply with sanctions regulations from the U.S. Treasury Department's Office of Foreign Assets Control (OFAC).
• Legal Protections for Software Developers: This clause addresses a real-world dilemma: developers have previously faced regulatory repercussions for writing code for an open-source protocol that was later exploited by bad actors. The bill explicitly states that if a malicious actor uses a protocol for illegal activities, legal liability should not automatically fall on the protocol's software developers, as long as the developers themselves were not involved in the illegal conduct. This protection is seen by the industry as a crucial provision to encourage compliant innovation and prevent "guilt-by-association enforcement."

What is the disagreement between traditional banking and the crypto industry?

This has been one of the core conflicts stalling the bill over the past few months.

The banking industry fears: If stablecoins are allowed to pay holders interest like savings accounts, they will directly compete with bank deposits, leading to significant capital outflows and weakening banks' ability to lend to the real economy. Six major banking groups, including the American Bankers Association, issued a joint statement explicitly calling for stricter limits on stablecoin yields.

The crypto industry argues that excessive restrictions on stablecoin yields will stifle innovation and cause the U.S. to fall behind in the global digital finance race.

The final compromise is that the latest version of the bill (draft dated May 11) prohibits paying deposit-like interest on "passively held" stablecoins but permits yields generated from active behaviors like trading, transferring, and staking. This distinction is viewed as a compromise balancing the interests of both sides, though the banking industry indicates it will continue pushing for further restrictions.

What happens next?

Clearing the committee is just one step in the legislative marathon. Several hurdles remain before it becomes law:

Hurdle 1: Merging Committee Versions. The Senate Banking Committee and the Senate Agriculture Committee each have their own draft versions. These must first be merged into a single unified text.

Hurdle 2: Full Senate Vote. The merged bill needs to clear a 60-vote procedural hurdle (cloture motion) in the full Senate before passing by a simple majority. This means Republicans must secure support from at least nine Democratic senators, with the key bargaining chips being the unresolved ethical conduct and enforcement issues.

Hurdle 3: House-Senate Reconciliation. The House of Representatives already passed its version in July 2025 by a vote of 294 to 134, but it differs from the Senate version. Both chambers must agree on a single unified text, which then must be voted on and passed by each chamber again.

Hurdle 4: Presidential Signature. President Trump is widely expected to sign the bill into law. White House advisor Patrick Witt previously stated publicly that signing could happen around Independence Day on July 4, but this timeline is extremely tight.

The crypto industry aims to complete the entire legislative process before the November midterm elections; otherwise, Congress's attention will shift entirely to campaigning, potentially closing the legislative window.

Two Core Outstanding Issues

1. Government Officials Ethical Conduct Clause

The bill includes provisions limiting government officials' ability to hold or benefit from crypto assets, an implicit reference to President Trump himself, who has held and promoted multiple crypto projects while in office. Democrats view this as a necessary prerequisite for supporting the bill, while Republicans are more ambiguous on the topic. Cody Carbone, head of the Digital Chamber of Commerce, indicated this transaction is likely to be resolved before the bill reaches a full Senate vote.

2. Enforcement and Anti-Money Laundering

Senator Elizabeth Warren and other Democrats insist the bill does not do enough to combat illicit financial activities involving DeFi platforms. A related amendment was voted down 11 to 13 during the committee vote today, ensuring this issue will remain a focal point of negotiations.

Market Reaction

Following the announcement of the bill's advancement, the crypto market saw a noticeable rebound. Coinbase (COIN) surged over 10% intraday, while Bitcoin (BTC) rose approximately 2.4%.

Industry institutions generally responded positively. Ripple CEO Brad Garlinghouse stated: "If the world's largest economy is to lead in crypto – and it must be – this is that moment." Circle Chief Strategy Officer Dante Disparte called the vote "a meaningful bipartisan step toward comprehensive digital asset regulation."

For the entire crypto industry, the CLARITY Act represents something akin to a "legitimacy coronation." For years, vague classifications and inconsistent enforcement by U.S. regulators towards crypto assets have kept a significant amount of institutional capital on the sidelines. Once the bill becomes law, the SEC and CFTC regulatory boundaries will be clear, compliance costs will be predictable, and the biggest barrier to institutional entry will be removed.

This is also a clear statement from the U.S. in the global competition for digital asset regulation – the EU passed the MiCA regulation in 2023, while Hong Kong, Singapore, Dubai, and others have also established regulatory frameworks. The U.S.'s long-standing absence was being exploited by competitors.

Of course, the bill still has a long way to go. Today's committee vote is an important beginning.