CLARITY Act Stalled: Stablecoin Yield, Ethics, and DeFi Fights

The CLARITY Act, formally the Digital Asset Market Clarity Act, is a bill that would create the first comprehensive federal framework for U.S. cryptocurrency markets by dividing oversight between the Commodity Futures Trading Commission and the Securities and Exchange Commission. The House passed it 294–134 on July 17, 2025, and the Senate Banking Committee advanced it 15–9 on May 14, 2026, but a floor vote has been held up by fights over stablecoin yield, protections for software developers, and Democratic demands for ethics rules tied to the Trump family’s crypto ventures.¹²

As of late June 2026, Banking Committee Chairman Tim Scott has said the Senate should vote in July, and Majority Leader John Thune has signaled he is weighing a floor vote in the coming weeks. The bill needs 60 votes to clear a procedural hurdle, so some Democratic support is essential.³

What the Bill Would Do

The core move is jurisdictional. The CFTC would gain exclusive authority over “digital commodities,” defined as assets intrinsically linked to a blockchain whose value derives from that system’s functionality. Tokens like Bitcoin and Ethereum would fall in that bucket. The SEC would keep authority over “investment contract assets,” meaning tokens sold in capital-raising contexts such as initial coin offerings. A third category, “permitted payment stablecoins,” would sit with banking regulators under the already-enacted GENIUS Act.⁴⁵

Tokens can move between categories over time. Once a blockchain is certified as “mature” — open-source code, transparent rules, and no single person or group controlling 20% or more of the tokens — assets on it would be treated as digital commodities rather than securities.⁴

Exchanges, Brokers, and Custody

Crypto exchanges, brokers, and dealers handling digital commodities would register with the CFTC. A provisional registration system would let firms operate while the agency finalizes rules.¹ Registered exchanges would follow core principles covering listing standards, trade surveillance, capital adequacy, and conflict-of-interest policies. Both exchanges and broker-dealers would have to segregate customer funds and use qualified digital asset custodians subject to federal or state banking supervision.⁴

SEC-registered broker-dealers could trade and custody digital commodities and stablecoins without dual CFTC registration, provided they meet notice and revenue thresholds.⁶

DeFi and Software Developers

Both the CFTC and SEC would be barred from regulating “decentralized finance activities” — blockchain applications where no intermediary executes transactions or holds customer assets — although both agencies would keep anti-fraud enforcement powers. Non-custodial participants such as software developers and validators would be exempt from registration.⁶⁷

Small Offerings and State Law

Issuers could bypass SEC registration for offerings up to $75 million over a 12-month period, subject to disclosure obligations and semi-annual updates.⁴ State blue-sky laws and state registration requirements for digital commodities would be preempted by classifying those assets as “covered securities” under the Securities Act, and the CFTC would hold exclusive jurisdiction over registered digital commodity exchanges. A group of 21 state attorneys general has objected, saying federal preemption could weaken states’ ability to enforce laws against theft, money laundering, and deceptive practices.⁸

How It Got Here

Representative French Hill of Arkansas introduced the bill on May 29, 2025. After clearing the House Agriculture and Financial Services Committees, it passed the full House on July 17, 2025, on a 294–134 vote, with a substitute amendment replacing the original committee text before final passage.¹

The Senate split the work. The Banking Committee took the SEC-facing pieces, and the Agriculture Committee took the CFTC-facing ones.⁹ Agriculture Chairman John Boozman released updated text in January 2026 and scheduled a markup, while acknowledging that “differences remain on fundamental policy issues.”¹⁰

A January 2026 hearing was postponed indefinitely once the stablecoin yield fight erupted, and a March 1, 2026 White House deadline for compromise language passed with no published text.¹¹²¹

The Stablecoin Yield Fight

The biggest single delay came from a fight over whether crypto firms can pay customers something that looks like interest on stablecoin holdings. The GENIUS Act bars stablecoin issuers from paying interest or yield directly to holders, but it does not explicitly stop intermediaries like exchanges from passing along a share of the interest earned on reserves. Banks call that gap a loophole.¹²

The banking industry warned the stakes were large. Standard Chartered analysts estimated that if stablecoin yield were permitted, up to $1 trillion in deposits could migrate from traditional banks to stablecoin products by 2028. A coalition including the American Bankers Association, the Bank Policy Institute, and the Independent Community Bankers of America warned the shift could cut lending to consumers, small businesses, and agriculture by a fifth or more.¹³ The crypto industry countered that bank opposition was incumbents protecting their deposit business.

The White House tried mediation in February 2026, proposing rewards tied to specific activities like peer-to-peer payments while banning yield on “idle holdings.” Banks rejected the deal, and in March President Trump posted on Truth Social that banks were “holding the bill hostage.”¹¹

The Tillis-Alsobrooks compromise broke the impasse in May 2026. Their text bars rewards that are “economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit” or paid “solely in connection with the holding” of a stablecoin, while preserving rewards tied to “bona fide platform activity.” It also directs regulators to develop a catalog of permissible reward activities.¹⁴ Banking trade groups have continued to press for tighter language even after the committee vote.¹³

Law Enforcement Objections to the Developer Carve-Out

The current live blocker is Section 604, the Blockchain Regulatory Certainty Act provision. It specifies that a “non-controlling” developer or provider is not a money transmitter solely for writing software or supporting blockchain infrastructure. The section preserves liability for anyone who knowingly transfers criminal proceeds and keeps existing anti-money-laundering authorities in place.¹⁵

The National Sheriffs’ Association, the National District Attorneys Association, the International Association of Chiefs of Police, and the National Association of Assistant United States Attorneys have argued the protections are dangerously broad. They contend the provision could shield facilitators of trafficking, child exploitation, sanctions evasion, and organized crime by exempting mixers, tumblers, and certain DeFi businesses from regulatory obligations.¹⁵ The White House has been meeting with these groups to address the objections, and whether negotiators can narrow Section 604 enough to secure Democratic votes has become the central open question.³

The Trump-Family Ethics Fight

The Trump family’s own crypto business has been a persistent obstacle to Democratic votes. World Liberty Financial, a firm founded by Donald Trump’s sons and partners, has raised over $550 million and channels 75% of coin sales revenue to the Trump family.¹⁶ The firm launched a stablecoin called USD1, which was reportedly used in a $2 billion investment by Abu Dhabi–backed firm MGX into the exchange Binance. Senators Jeff Merkley and Elizabeth Warren alleged the arrangement could funnel “hundreds of millions of dollars” to the Trump and Witkoff families and potentially violate the Emoluments Clause.¹⁷

During the Banking Committee markup, Senator Chris Van Hollen offered an amendment imposing ethics restrictions on government officials to prevent crypto-related conflicts. The committee voted it down. Republican members said such restrictions fell outside the committee’s jurisdiction and could be handled through floor amendments; Democrats have said the missing provision was a major reason for their committee-level opposition.¹⁸

A separate bill, Senator Merkley’s End Crypto Corruption Act, would prohibit the president, vice president, members of Congress, Senate-confirmed appointees, and their immediate families from issuing, sponsoring, or endorsing cryptocurrencies, meme coins, stablecoins, or comparable digital assets during their terms and for one year afterward. Violations would carry civil penalties equal to 10% of the value of the financial interest or total financial gain, plus disgorgement of profits. Knowing violations causing aggregate losses of $1 million or more would be punishable by up to five years in prison.¹⁹ The bill has 19 Democratic cosponsors, including Senators Schumer, Warren, and Sanders, but has not advanced.²⁰

The White House has maintained there are no conflicts of interest, saying the president’s assets are held in a trust managed by his children.²¹

Consumer Protection Concerns

Consumer Reports, in a statement after House passage, said the bill lacks strong requirements for stablecoin reserve management, redemption rights, and independent audits. The group criticized it for not mandating plain-language risk disclosures, for relying on a “maturity certification” process that is largely self-attested, and for broadly preempting state consumer protection laws covering privacy, contract rights, and remedies for unfair or deceptive practices.²²

House Financial Services Ranking Member Maxine Waters and the AFL-CIO warned the bill could trigger a “2008-style financial crisis” by deregulating digital assets while pulling activity out of the regulated banking system. The AFL-CIO called the approach “creating a casino for crypto billionaires.” A coalition of 24 state securities administrators has pushed to preserve state antifraud enforcement authority, arguing the bill should not limit states’ ability to investigate digital asset fraud.²³

How the CLARITY Act Differs from the GENIUS Act

The two laws are separate. The GENIUS Act, signed on July 18, 2025, covers only payment stablecoins — digital tokens pegged to a national currency and designed for payment or settlement. It requires stablecoin issuers to hold 100% reserve backing in liquid assets such as U.S. dollars or short-term Treasuries, publish monthly disclosures of reserve composition, and comply with anti-money-laundering and sanctions requirements under the Bank Secrecy Act. Issuers must also be technically able to seize, freeze, or burn stablecoins on legal order.²⁴

The CLARITY Act is the broader market structure bill. It uses the GENIUS Act’s definitions for permitted payment stablecoins and assigns their oversight to banking regulators rather than the CFTC or SEC. The Senate stablecoin yield dispute grew directly out of a gap in the GENIUS Act’s ban on yield, which the CLARITY Act’s Senate version attempts to close. Once the Senate passes its version, the two chambers will need to reconcile the Senate’s amendments with the House-passed text before the bill can go to the president.²⁵

What to Watch Next

Two things will determine whether the bill moves this summer. The first is whether the White House can narrow Section 604 enough to bring law enforcement groups on board without losing crypto industry support. The second is whether enough Democrats accept the Tillis-Alsobrooks yield language and the absence of Van Hollen’s ethics amendment to get to 60 votes. Senate Minority Leader Chuck Schumer has told Democratic members not to commit to voting for the bill, keeping leverage for further changes. Senator Cynthia Lummis, one of the bill’s Republican backers, has said, “We did not come this far to quit at the 5-yard line.”²⁶ Competing floor priorities, including active U.S. military operations, are also squeezing the schedule.

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