The crossroads of U.S. cryptocurrency legislation: Why has the probability of the CLARITY Act passing dropped from 82% to 46%?

On July 17, 2025, the U.S. House of Representatives passed the “Digital Asset Market Clarity Act” with an overwhelming vote of 294 to 134. The market was once optimistic about the legislative prospects of this being the United States’ first federal-level crypto market structure law. However, after nearly ten months, the bill has yet to be scheduled for review in the Senate Banking Committee, and its probability of passage has declined from a peak of 82% in early 2026 to a downward oscillation. As of May 6, 2026, several institutions have estimated the likelihood of passage within the year has dropped to about 46%, with some assessments even more cautious.

How can a seemingly bipartisan consensus bill fall into an irreconcilable ethical deadlock near the legislative finish line?

The answer is not limited to a single controversy. From the twists and turns over stablecoin yield provisions, to the trust rift between senators and the president’s family crypto industry, to the tug-of-war between law enforcement and DeFi developers over responsibilities, the legislative dilemma of the “CLARITY Act” reflects not only technical regulatory disputes but also systemic conflicts within Washington’s power structure and interest landscape.

From Rapid Advancement to Difficulties: How has the bill’s passage probability experienced a rollercoaster ride?

Using data from the prediction market Polymarket as a “legislative sentiment thermometer,” the probability of the “CLARITY Act” passing in 2026 has gone through three stages: In February 2026, driven by the Trump administration’s strong push and high industry expectations, the probability surged to a peak of 82%; then it entered a decline phase, with the probability dropping below the 38%-50% range in late April. Galaxy Digital research head Alex Thorn warned, “If deliberations are delayed past mid-May, the chances of passing in 2026 will sharply decrease.” By late April to early May, as senators Tillis and Alsobrooks announced a compromise on stablecoin yields, Polymarket’s probability rebounded quickly to 67%-70%. However, almost simultaneously, Tillis’s latest statement caused the situation to turn sharply again: he explicitly stated that if the bill does not include ethical provisions targeting the president’s family crypto industry, he would switch from a participant in negotiations to a voting against the bill. This condition rapidly narrowed the remaining negotiation space—by May 6, the estimated probability of passage had fallen back to around 46%.

Polymarket’s data curve vividly depicts this path from “within reach” to “pending” to “uncertain.” Market sentiment swings wildly with each round of negotiations and each ethical tug-of-war, each swing eating into the already limited legislative time window.

How has the ethical dilemma become the most challenging “second battlefield” for the bill?

The stablecoin yield clause played a major obstacle role during months of negotiations, but this controversy saw a turning point from late April to early May 2026. The core of the compromise reached by Tillis and Alsobrooks is: banning “passive holding yields”—meaning crypto platforms cannot pay interest or similar returns on stablecoin balances simply because users hold them; at the same time, rewards based on actual activity, such as staking, trading, or genuine platform use, are permitted.

However, the banking industry remains dissatisfied with this compromise. The American Bankers Association and the Bank Policy Research Institute, among five major banking groups, issued a joint statement pointing out that the current wording has loopholes, and crypto platforms could still circumvent the ban through member programs or balance-linked incentives. Tillis and Alsobrooks responded quite directly—“Both sides respectfully maintain their differences,” implying that, without jeopardizing the overall legislative process, the banking sector’s voice might have to be “set aside.”

But just as the stablecoin controversy seemed poised to be “pressed down,” another more thorny issue surfaced: the ethical provisions. Senator Tillis became the first Republican senator on the Senate Banking Committee to publicly demand the inclusion of ethical restrictions on the president’s family crypto activities, especially targeting the president’s family crypto industry.

According to public reports, crypto projects related to the Trump family are valued at over $1 billion, including World Liberty Financial, the stablecoin USD1, and the TRUMP meme coin. The Democratic stance is more direct—Senators Gallego and Schiff explicitly stated, “Without bipartisan consensus on ethical provisions, there will be no final bill.” If this clause is included, it risks a presidential veto. But excluding it would lead Senator Tillis, a core Republican figure, to vote against the bill. Without Democratic support, the GOP cannot push the bill forward, and Tillis’s attitude indicates internal party divisions that cannot be ignored. Thus, ethical provisions have become a structural dilemma for the bill: it is no longer just a tug-of-war over technical details but a prerequisite for the bill’s continuation.

Only two weeks remain before the window closes before 2030? How does the political schedule lock in the bill’s fate?

If ethical provisions are the fundamental structural disagreement, then the midterm election clock is a time constraint on whether the disagreement can be resolved.

Senator Lummis—who has announced she will not seek re-election—repeatedly emphasized the urgency in April: if the bill fails to pass by 2026, the next legislative window might not reopen until 2030. This conclusion is based on a cautious analysis of the legislative cycle: the November midterm elections will elect 33 senators and all 435 House members, and a change in party control could dismantle the current political coalition supporting the “CLARITY Act.” The new Congress will need time to form committees and prioritize issues, and such complex financial legislation often struggles to get scheduled amid traditional priorities like mergers and budgets.

Ripple CEO Brad Garlinghouse issued a more urgent warning at Consensus on May 5: if the Senate Banking Committee does not initiate review within the next two weeks, the likelihood of the bill passing will sharply decline. Once legislative processes are caught in election season, lawmakers will find it nearly impossible to reach consensus on complex crypto issues.

Tillis himself has given the earliest legislative timeline commitment: he will push for the Senate Banking Committee to hold hearings after it reconvenes on May 11. But this also means that from late April to mid-May, the bill has only a few weeks to complete the markup stage in the banking committee. Subsequent steps include passing the full Senate with a 60-vote threshold, integrating the version from the Agriculture Committee, and reconciling with the House version—each step could be delayed by months.

What is the core issue the bill aims to resolve regarding SEC and CFTC jurisdiction disputes?

Underlying these disputes is the core question the bill attempts to answer about U.S. crypto regulation: who should regulate, and what?

The “Clarity Act” seeks to establish a dual-agency framework, using whether an asset is “sufficiently decentralized” as a classification criterion, to determine whether a digital asset falls under CFTC’s “digital commodity” jurisdiction or SEC’s “investment contract” jurisdiction. It would create a registration system led by the CFTC for digital commodity exchanges, brokers, and traders, aiming to end years of “regulatory jurisdiction ambiguity,” allowing crypto firms to operate under a clear federal framework rather than navigating the fragmented regulation of 50 states.

However, the distribution of power between SEC and CFTC has never been just a technical classification issue but also a political power struggle. Currently, Republicans hold three of the five SEC seats, while Democrats demand a balanced partisan representation on the commission; the tenure of some current SEC commissioners is nearing expiration, and the uncertainty over their successors further complicates the bill’s prospects.

Additionally, the bill does not make substantive changes to taxation. The IRS still classifies crypto assets as “property” for tax purposes, and crypto transactions are not subject to wash sale rules applicable to securities—meaning investors can flexibly realize losses for tax purposes but cannot enjoy preferential tax treatment available to some securities or commodities, nor choose to be taxed under Section 475 or claim the 20% qualified business income deduction.

Why are law enforcement agencies also dissatisfied with the bill? The responsibility clause for DeFi developers becomes a “hidden minefield”

Beyond the three major controversies—ethics, jurisdiction, and stablecoin yields—a fourth, less noticed by the general market, is quietly heating up between law enforcement and the crypto industry: the responsibility delineation for DeFi developers.

The bill includes a clause that protects decentralized protocol developers from liability, based on the widely accepted principle in tech that “infrastructure providers should not be responsible for third-party user conduct”: coders are not liable for illegal activities conducted by third-party users utilizing their code. But law enforcement and prosecutors strongly oppose this, arguing that such protection could become a major obstacle in fighting money laundering, scams, or illegal financing, turning DeFi into an environment where “no one is truly responsible.”

This clause fundamentally pits law enforcement’s stance against that of the Web3 industry on responsibility attribution. From law enforcement’s perspective, the bill should not create “responsibility gaps” between decentralized and traditional finance; from the industry’s view, lacking this protection would cause a “freezing effect” on innovation, as open-source protocol developers face unquantifiable legal risks, ultimately stifling DeFi innovation. Tillis has explicitly instructed that law enforcement objections must be addressed before the bill can proceed.

If legislation is delayed until 2027 or even 2030, what costs will the U.S. crypto market bear?

All disputes and tug-of-wars ultimately point to the same question: what are the consequences if the bill fails to pass in 2026?

First, the long-term absence of regulatory certainty. U.S. crypto firms are still operating under a “regulatory high-pressure” environment dominated by SEC enforcement actions and fragmented state compliance requirements. Although SEC and CFTC have signed a memorandum of understanding to coordinate at the agency level, they still need Congress to pass formal legislation before major rule changes can be enacted. Without the federal framework provided by the “Clarity Act,” regulatory uncertainty will persist for the industry at least until 2030.

Second, the risk of capital and talent outflow. In April 2026, over 100 crypto companies jointly wrote to the Senate Banking Committee warning that if the U.S. continues to lack a clear federal regulatory framework, related jobs and operations will accelerate moving to jurisdictions with established stable regulation. The EU’s Markets in Crypto-Assets Regulation (MiCA) has entered full implementation, and Singapore, Hong Kong, and the UAE are continuously optimizing their digital asset-friendly frameworks—forming a stark contrast to the ongoing political gridlock in the U.S.

Third, the window for systemic reform closes. Lummis’s “2030” estimate is not rhetoric but a systemic judgment based on legislative procedures. If the bill “dies” in this Congress, the process must restart from scratch: rewriting drafts, recruiting sponsoring legislators, and going through the committee review process in both chambers—each step could be delayed by months or years, and changes in Congress’s political priorities could make crypto legislation lose momentum altogether.

FAQ

Q: What is the current procedural progress of the “Clarity Act” in the Senate?

A: The bill passed the U.S. House of Representatives on July 17, 2025, and is currently pending in the Senate Banking Committee. No markup hearings have been scheduled yet. The Senate Agriculture Committee advanced its version in January 2026. Senate Banking Committee Chair Tim Scott has not announced an official review date.

Q: What are the core controversies of this bill?

A: The most core controversy has shifted to the ethical provisions—Senator Tillis demands that the bill include ethical restrictions on the president’s family crypto activities; otherwise, he will vote against it. Additionally, the stablecoin yield clause, DeFi developer protections, jurisdictional allocations between SEC and CFTC, and law enforcement anti-money laundering rules remain unresolved key disagreements.

Q: Why does Polymarket’s predicted passage probability differ from institutional assessments?

A: Polymarket is a crypto-native prediction market, reflecting mainly the sentiment and expectations of crypto-native traders. Institutional assessments are more based on legislative processes, political timing, and systemic projections. The two methodologies are fundamentally different. As of May 6, 2026, Polymarket’s data has rebounded to 67%-70%, while many institutions still estimate about 46%. Notably, the recent rise in Polymarket’s data is driven by market optimism over the stablecoin yield compromise, which has been quickly offset by the ethical deadlock.

Q: If the bill passes, what impact will it have on crypto taxation?

A: The bill does not alter the IRS’s current stance of taxing crypto assets as “property.” Crypto transactions currently do not need to comply with securities wash sale rules, allowing investors to realize losses more flexibly, but they cannot enjoy certain preferential tax treatments available to securities or commodities, nor opt for Section 475 or the 20% qualified business income deduction. Tax treatment will remain as is unless Congress amends tax laws or the IRS updates guidelines.

Q: How much will the 2026 midterm elections affect the bill’s prospects?

A: The midterms will elect 33 senators and all 435 House members in November. If Democrats regain control of either chamber, the current political coalition supporting the bill could collapse. Analysts believe that if the committee does not push the bill before mid-May, legislative progress will be difficult amid partisan politics during the campaign season. May is widely seen as the “last window” for the bill’s current momentum.