Crypto

Will the CLARITY Act Pass? Trump Urges Senate to Advance US Crypto Regulatory Framework 

Trump Urges Senate on Crypto Framework

The Digital Asset Market Clarity (CLARITY) Act is a prestigious project of the Trump administration during its second term. The CLARITY Act’s fate is highly uncertain, as it requires a 60-vote supermajority and faces a tight August 7 deadline. While President Donald Trump recently urged the Senate to pass the bill in honor of the late Senator Lindsey Graham, it currently lacks the bipartisan support needed to overcome a filibuster. All crypto enthusiasts and the market at large are waiting to see whether the Clarity Act will pass the Senate.

What is the Clarity Act? 

The Digital Asset Market CLARITY Act is a U.S. federal legislative proposal designed to establish a comprehensive regulatory framework for cryptocurrencies. The primary aim of this act is to clearly divide regulatory oversight between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). 

The Clarity Act achieves its aims by creating specific legal boundaries for the industry.

  • Asset Classification: The Clarity Act dictates when a digital asset functions as an “investment contract” (overseen by the SEC) versus a “digital commodity” (overseen by the CFTC).
  • Mature Blockchain Test: The bill establishes criteria, such as decentralization and open-source code, that allow a token to transition from SEC oversight to CFTC oversight once its underlying network is sufficiently decentralized.
  • Stablecoin and Yield Rules: The Clarity Act contains provisions that seek to define the legalities of stablecoins, explicitly separating permitted payment stablecoins from those that function as yield-generating or interest-bearing securities. 

Current Status of the Clarity Act

The Digital Asset CLARITY Act is in a critical make-or-break phase as it awaits full Senate action. The House has previously passed its version of the bill, and the Senate Banking Committee successfully advanced the legislation in May. The bill will be put to a vote in late July ahead of the August recess. However, the bill has several hurdles to overcome before getting the final confirmation.

  • The 60-Vote Threshold: Legislation requires 60 votes to overcome a Senate filibuster. That means the passage of this bill requires bipartisan support. The Senate Banking Committee vote saw all Republicans and two Democrats vote to advance it, but those two Democratic swing votes are now conditional. There is no surety that these votes will turn out favorably.
  • Ethics and Illicit Finance Provisions: Negotiators are actively resolving outstanding disputes around ethics provisions, including rules addressing government officials’ business ties to the crypto sector. With the passage of the Clarity Act, they intend to resolve such issues that are currently defaming the crypto industry. 
  • Next Steps: Lawmakers are currently finalizing a merged draft of the legislation. If the Senate passes the combined bill, it would then have to go to the House for final approval before being sent to the President for his final approval.

Impediments to Passing the Clarity Act

The impediments to passing the Clarity Act by the US government stem from partisan ethics battles, intense lobbying by traditional banks, and a severe time crunch on the Senate floor. Ethics and conflict of interest provisions are identified as a great impediment. Democrats are pushing for strict language to prevent elected officials and senior government leaders from profiting off the digital assets they are regulating. Several lawmakers, including Senator Thom Tillis, have refused to vote for the bill without these conflict-of-interest safeguards put in place.

Traditional community banks and lenders are lobbying heavily against provisions in the bill that would allow crypto platforms to offer yield or rewards on stablecoins. They argue that this would drain up to $1.3 trillion in liquidity from local banks, while crypto advocates argue that removing the yield strips the utility of the digital assets. If Congress fails to pass the bill now, the next realistic opportunity for crypto legislation could be delayed for years.

The Bottom Line

The deadline for passing the Clarity Act is soon approaching. However, the passage of the act is not very simple to achieve. There are several impediments that are causing the delay. If the act fails to be passed during this session, it will be delayed for a long time, and its passing would be extended indefinitely. Since the Clarity Act has the potential to change the destiny of the crypto industry, its timely passage is important, and any delay would have serious repercussions.