CLARITY Act Three Major System Disputes: Reconstructing the Crypto Regulatory Framework Amidst 130+ Amendments Battles

On May 14, 2026, the U.S. Senate Banking Committee formally passed the Digital Asset Market CLARITY Act (hereinafter referred to as the “CLARITY Act”) by a vote of 15 to 9, and submitted it to the full Senate for a vote. All 13 Republican committee members voted in favor, and two Democrats—Ruben Gallego (Arizona) and Angela Alsobrooks (Maryland)—crossed party lines to support it. This is the most critical step in U.S. crypto legislation since the House of Representatives passed the bill by a wide margin of 294 to 134 in July 2025.

However, the power struggle behind this vote is far from over. According to publicly available information, before the markup review, senators submitted more than 130 amendments, and Elizabeth Warren alone proposed 44. These amendments target three major core controversies: stablecoin yield rules, DeFi liability exemptions, and ethics provisions for public officials holding crypto assets.

As of May 18, 2026, the price of Bitcoin (BTC) was $77,014.8, down slightly by 1.07% over the prior 24 hours. After the market had “priced in” expectations for the bill, it entered a phase of sentiment digesting. XRP surged by about 5% on the day after the bill was passed, reflecting differentiated pricing by the market for certain assets under the bill’s framework—particularly their distinct legal status as commodities.

The Moment of 15 to 9

On the morning of May 14, 2026, Eastern Time, the U.S. Senate Banking Committee held the much-watched markup session. After intense partisan clashes and a series of procedural battles, the bill ultimately cleared the hurdle with a bipartisan vote of 15 to 9.

Notably, both Gallego and Alsobrooks stated clearly during the vote that their support at the committee level “should not be interpreted as a commitment to final passage of the bill.” They emphasized that if the ethics provisions for public officials regarding digital assets were not strengthened before the full Senate vote, they could reverse their positions in the full Senate vote.

In the meeting, the Democratic leader of the committee, Elizabeth Warren, proposed 44 amendments covering multiple areas including national security, DeFi liability, and retirement account restrictions. All of them were rejected along party lines, with an 11 to 13 vote. She sharply criticized the bill on the spot, saying it would “blow up the economy,” and claiming, “It will push more economic activity into the cryptocurrency space.”

A Four-Year Legislative March

The CLARITY Act was not an attempt that appeared out of nowhere. Its legislative path spans four years, passing through multiple versions and iterations, reflecting the complete trajectory of U.S. crypto regulation shifting from an “enforcement-driven” approach to a “legislative framework.”

Early Exploration Phase (2022–2024)

In June 2022, Senators Cynthia Lummis and Kirsten Gillibrand jointly introduced the Responsible Financial Innovation Act (the Lummis-Gillibrand Act) for the first time, becoming the first bipartisan proposal in the U.S. Congress aimed at establishing a comprehensive regulatory framework for crypto assets. The bill first attempted to clarify the boundaries of SEC versus CFTC jurisdiction over digital assets at the federal level, laying conceptual groundwork for later legislation.

In 2024, the House introduced the 21st Century Financial Innovation and Technology Act (FIT21). It passed with a strong bipartisan vote of 279 to 136, with 71 Democratic members crossing party lines in support. FIT21 systematically constructed in the legislative text the classification of digital assets and their regulatory pathways, providing a core framework for the later CLARITY Act.

House Breakthrough (2025)

In July 2025, the House version of the CLARITY Act passed by a vote of 294 to 134. Bipartisan support expanded further to 78 Democratic members. The result sent a strong signal of bipartisan consensus to the Senate, pushing it to accelerate its legislative process.

Senate Bargaining (2025–2026)

In July 2025, the Senate Banking Committee released a draft bill for discussion within its jurisdiction, combining the Lummis-Gillibrand and House CLARITY Act legislative paths. It also issued an information request and sought feedback from the industry on how to strike a balance between promoting innovation and maintaining financial stability.

In September 2025, based on feedback received, the committee released a second version of the discussion draft. In January 2026, after months of bipartisan negotiation, the third version of the draft was released. In the same month, the Senate Agriculture Committee also released and advanced its own legislative draft on market structure within its jurisdiction.

The first scheduled markup in January 2026 by the Banking Committee was indefinitely postponed. The core obstacle was the fundamental disagreement between the banking industry and the crypto industry over stablecoin yield payments: banks argued for a total ban, while the crypto industry demanded that yield rights be retained. On the eve of the markup, Coinbase CEO Brian Armstrong publicly announced that it was withdrawing its support for the bill, directly leading to the cancellation of the markup.

The turning point came on May 1, 2026. Republican Senator Thom Tillis and Democratic Senator Angela Alsobrooks jointly released a stablecoin yield compromise proposal: banning crypto companies from offering stablecoin yields “economically or functionally equivalent to bank deposit interest,” but allowing rewards based on “real activity or real transactions.” The proposal quickly gained public support from crypto giants such as Coinbase and Circle. After the bill’s advancement, Armstrong publicly said he was grateful that “over the past few months, bipartisan senators and staff have worked to make this a strong piece of legislation.”

On May 12, the Senate Banking Committee released a fully revised 309-page alternative amendment text, expanding further than the previous 278-page draft. Two days later, the committee formally completed the markup and voting.

From a timeline perspective, the fate of the CLARITY Act is tightly linked to the midterm election window in 2026. Galaxy Research estimated that before the mid-October recess, Congress would have only about 18 effective working weeks remaining. The White House has set the target signing date for July 4, 2026, and analysts generally consider fall to be more realistic.

The Core Framework of the 309-Page Text

Three-Tier Asset Classification Framework

The core logic of the CLARITY Act’s alternative amendment is not to overturn the cornerstone of U.S. securities law (the Howey test established in 1946), but to “carve out” a brand-new regulatory category alongside it. The bill divides digital assets into three major categories:

The bill creates a new legal concept—“Subsidiary Assets.” If a token’s value depends on the issuer or the core team’s “entrepreneurial or managerial efforts,” it falls under Subsidiary Assets. The bill acknowledges that such assets meet the Howey test’s definition of “securities,” but stipulates that once the tokens are issued, they are no longer treated as securities; instead, they are governed by disclosure rules rather than registration rules.

The bill also requires the SEC and CFTC to establish a joint advisory committee to coordinate jurisdictional disagreements between them.

Changes in Bill Volume

The expansion from 278 pages to 309 pages mainly comes from three areas: refined legislative language for stablecoin yield provisions; more specific provisions detailing AML and compliance obligations for DeFi protocols; and newly added research-oriented provisions such as cybersecurity and quantum computing. The anti-money laundering (AML) and sanctions compliance framework is placed in Chapter 2, requiring digital commodity brokers, dealers, and exchanges to establish a formal compliance system under the Bank Secrecy Act for the first time.

The Camp-by-Camp Showdown of the Three Major Controversies

Controversy 1: Yield-Generating Stablecoins—Ban or Compromise?

Whether stablecoins can provide yields to holders is the issue with the longest history and the sharpest opposition within the CLARITY Act legislative process.

Bill Text Position

Section 404 of the alternative amendment provides: no covered party may directly or indirectly, solely due to holding a payment stablecoin, pay any form of interest or yield; nor may they pay yield on stablecoin balances in a way that is “economically or functionally equivalent to bank deposit interest.” However, the bill also sets out exception provisions, explicitly allowing rewards based on the following “real activities or real transactions”: trading, payment, transfer, and settlement activities; liquidity provision and market-making activities; staking, validation, and governance participation; and loyalty programs and promotional incentives.

The bill further clarifies that the rewards for the above activities “may be calculated by reference to balances, the duration, or a combination of both”—a clause that consumer protection organizations view as a de facto legalization of yield.

Opposition from the Banking Industry

Six major industry organizations, including the American Bankers Association, the Bank Policy Institute, and the Consumer Bankers Association, sent a joint letter to the committee leadership immediately after the bill was released. They pointed out that the current language “still opens the door to reward plans similar to yields.” The core argument of traditional financial institutions is that allowing crypto platforms to pay rewards functionally equivalent to deposit interest amounts to allowing them to provide banking account services, yet without the level of regulatory oversight comparable to banks. They warned that if interest-equivalent reward schemes were not restricted more strictly, deposits could move from the banking system to the digital asset space, weakening community banks’ lending capacity and local economic vitality.

Crypto Industry’s Response

Coinbase Chief Legal Officer Paul Grewal made a sharp comment, directly targeting the banking industry: “They already removed ‘idle yield’—because I was there, and you weren’t. Accept this ‘yes,’ keep moving forward, and stop wasting the Senate and the American people’s time.” Armstrong said, “No one got everything they wanted, but everyone got what they needed.”

Circle’s Chief Strategy Officer Dante Disparte fully supported the compromise, saying, “The U.S. faces a clear choice in the digital asset space—lead or be led.” Ji Hun Kim, CEO of the Crypto Innovation Council, also urged the committee to move the bill forward, while expressing concern that the scope of the ban “goes far beyond” last year’s GENIUS Act. The GENIUS Act only prohibited issuers from paying yields, whereas the CLARITY Act extends the prohibition to all digital asset market participants.

Criticism from Consumer Protection Organizations

The Consumer Federation said the exception provisions in the bill effectively have already “fully legalized” stablecoin yield payments. Its analysis shows that crypto platforms can conduct activities such as lending, investing in traditional securities, staking, and market making using customer stablecoin deposits, and distribute yields “by reference to balances” to users—highly similar to how bank deposits operate. The organization believes that “the crypto industry is the undisputed winner.”

Controversy 2: DeFi Exemption Provisions—Protect Innovation or Weaken Enforcement?

Bill Text Position

The CLARITY Act’s alternative amendment incorporates provisions from the Blockchain Regulatory Certainty Act, protecting non-custodial software developers—when they do not directly control users’ funds—from being considered money transmitters. In addition, the bill excludes staking, airdrops, and decentralized physical infrastructure networks from the application of securities law.

On anti-money laundering, the bill imposes compliance requirements on digital asset intermediaries using DeFi protocols, requiring “distributed ledger analysis tools,” thereby elevating blockchain analytics from industry best practices to a legally required compliance obligation.

Reductions in Provisions During Negotiations

Although the bill generally preserves the DeFi protection framework, in last-minute bipartisan negotiations, a senator Lummis amendment was forced to be modified, deleting part of the text of the Blockchain Regulatory Certainty Act from Section 301. DeFi advocates noted that this change may weaken legal protections for DeFi developers—something the industry had hoped this provision would clarify, namely that developers should not bear legal liability for the unlawful use of their program code.

Democratic Party Internal Concerns About Enforcement

Some Democratic senators attempted to further narrow the scope of DeFi liability protections. Catherine Cortez Masto proposed an amendment to limit DeFi developer liability, arguing that the current provisions could hinder law enforcement agencies from combating illegal financial activities. The amendment was also rejected along party lines.

Controversy 3: Ethics Provisions—Why Were Senators Still Hesitating Before the Vote?

The current 309-page CLARITY Act text contains no conflict-of-interest provisions for public officials holding crypto assets. Tim Scott, Chair of the Senate Banking Committee, said the ethics provisions are outside the committee’s jurisdiction and need to be added either by other committees or during the full Senate vote stage.

Democratic Stance

During the markup, Elizabeth Warren directly pointed out that after taking office, President Trump and his family had accumulated profits of about $1.4 billion through crypto transactions, arguing that “no president or member of Congress should profit from regulating crypto assets.”

After the vote, Gallego and Alsobrooks also issued clear warnings that if the ethics provisions were not strengthened before the full Senate vote, they might reverse their positions in the full Senate vote.

Republican Party and White House Response

White House crypto adviser Patrick Witt said the executive branch supports rules applicable to all government personnel, but opposes any provisions “targeted at specific incumbents.” Senator Lummis warned that if the bill were seen as targeted at Trump, the president would exercise a veto.

Structural Jurisdictional Dilemma

Part of the reason the ethics provisions are missing is that the Senate Banking Committee’s jurisdiction is limited to areas such as banking and financial market regulation. Ethics rules for public officials are typically overseen by the Senate Ethics Committee or the Judiciary Committee. This means the ethics provisions may need to be added in the full Senate vote through amendments by other committees or by other senators.

Fact-Checking the Key Claims

The Banking Sector “Deposit Exodus” Narrative

The banking industry claims that stablecoin yields will cause large-scale migration of bank deposits. In response, Galaxy Research’s analysis reaches an opposite conclusion: most stablecoin growth will come from offshore capital inflows into U.S. banking infrastructure, rather than domestic deposit migration. The logic behind this judgment is that current demand for stablecoins mainly arises from scenarios involving cross-border payments and obtaining U.S. dollars, and these funds were not originally within the U.S. banking system.

The Crypto Industry “Complete Victory” Narrative

The Consumer Federation points out that although the bill appears to ban passive stablecoin yields on the surface, the exception provisions effectively allow crypto platforms to generate yields through multiple activities and distribute them “by reference to balances” to users. This means the so-called “compromise” in practice provides a legal basis for stablecoin yield payments, giving the crypto industry benefits far beyond what the banking industry expected.

Elizabeth Warren “Economic Threat” Narrative

Warren claims the CLARITY Act will “blow up the economy.” Her supporting arguments include that the bill allows companies to evade SEC oversight through on-chain activities, creates loopholes in securities law, and “opens the door” for consumer fraud. Supporters counter that the bill’s decentralization test is not a “blanket exemption.” Companies must meet clear, verifiable standards before regulatory jurisdiction could shift from the SEC to the CFTC.

Industry Impact Analysis: Who Wins? Who Loses?

Market Perspective

As of May 18, 2026, market sentiment about the bill has gone through a complete cycle—from euphoria to returning to rationality. On the day the bill was passed, BTC briefly surged to about $81,965 before falling back to around $77,014.8. Analyst Michaël van de Poppe noted that the bill is unlikely to trigger an “instant vertical rally,” but could bring “significant structural changes”—with institutional capital deployed gradually within a regulated framework rather than entering all at once.

According to the prediction market Polymarket, the probability of the CLARITY Act being signed into law in 2026 rose to 74% after the committee vote. It previously dropped from 82% earlier in the year to 58%. Notably, within hours of the stablecoin yield compromise being reached on May 1, the probability jumped from 46% to 64%, showing that the market is highly sensitive to negotiation progress.

Impact on Specific Assets

XRP is the most closely watched case among potential beneficiaries of the bill. In March 2026, the SEC and CFTC jointly classified XRP as a digital commodity. However, that decision was an administrative interpretation, and a future administration could overturn it via a memo without going through the legislative process. Once the CLARITY Act codifies XRP’s commodity status into federal statutory law, it will fundamentally eliminate the possibility of any future administrative action reclassifying it as a security. Standard Chartered predicts that once the bill passes, XRP ETFs will record net inflows of $4 billion to $8 billion.

Institutional Side

For banks, the CLARITY Act both sets a “nominal firewall” for stablecoin yields and provides a compliance path for banks to participate in crypto custody and trading services. Armstrong disclosed that Coinbase is working with at least five major global banks to integrate crypto services. Once the bill establishes clear rules, the competitive dynamics between traditional banks and crypto-native platforms will enter a new phase.

Underlying Logic: The Regulatory Separation Between Networks and Companies

From a deeper design philosophy, the CLARITY Act attempts to solve a problem that U.S. current law has never had to face: how to regulate a “decentralized network,” rather than a “company.”

The existing corporate legal framework in the U.S. is based on a core assumption—that there is a centralized management entity with fiduciary duties, exercising ongoing control over company operations. This set of rules provides a complete institutional infrastructure for building companies, but when it is applied to blockchain networks, the institutional logic fundamentally conflicts.

Blockchain networks, in essence, do not rely on centralized control. They coordinate participants through public rules, grow in value through public use, and can allocate value to users at the network edge rather than being captured solely by central actors. However, when corporate legal frameworks are forcibly imposed on networks, control becomes concentrated, intermediaries emerge, and value created in a distributed manner is extracted.

This is precisely the core design intent of the CLARITY Act: to provide a regulatory paradigm different from that used for “companies” for this new form of organization—“networks.” The bill’s decentralization test is not “deregulation,” but differentiated regulation. When a digital asset network meets sufficient decentralization standards, its regulatory logic shifts from “investor protection under securities law” to “preserving market integrity under commodities law.” This is consistent with the bill’s design that excludes staking, airdrops, and DePIN from the application of securities law. In the context of blockchain networks, these activities are network participation rather than traditional investment contract transactions.

From this perspective, Warren’s criticism that the bill “creates loopholes in securities law” may confuse “intentional differentiated design” with “loopholes.” The CLARITY Act is not a safe harbor for fraud—its AML compliance requirements and anti-fraud provisions already address that concern. Instead, it establishes two parallel regulatory logics on the premise that blockchain networks and traditional companies have fundamental differences in their governance structures.

Conclusion

With a 15-to-9 voting result, the CLARITY Act takes a key step forward in the Senate legislative process. More than 130 amendments were submitted and rejected, revealing that U.S. crypto legislation is at the core intersection of political bargaining, industry interests, and consumer protection.

From the initial exploration by Lummis-Gillibrand in 2022, to the successful practice of the GENIUS Act in the stablecoin space in 2025, and to today’s attempt to build a unified framework for the structure of the entire digital asset market—this four-year legislative march of U.S. crypto legislation is essentially a continuous response to one core question: how to design regulatory rules that match an organizational form different from companies.

Each of the three controversies has its own underlying logic. The stablecoin yield dispute is fundamentally a regulatory boundary dispute over “who can legally conduct interest-bearing business.” The DeFi exemption dispute reflects the underlying legal proposition of whether “code is equivalent to a financial institution.” The ethics provisions dispute pulls crypto legislation into a broader U.S. political ecosystem—how to define the regulatory role of public officials when they themselves hold crypto assets.

Senator Lummis describes pushing forward the CLARITY Act as “the most difficult piece of legislation of my nearly 40-year career in public service.” This description precisely captures the complexity of crypto legislation: it is not only about setting technical rules, but also about redistributing industry structure, financial security, and political power.

In the coming weeks, the market will continue to watch the timetable for the full Senate vote, the progress of negotiations on the ethics provisions, and the subsequent actions by the banking industry. For the crypto industry, regardless of the final form in which the CLARITY Act becomes law, it will become a watershed marking the shift of U.S. digital asset regulation from the “enforcement era” to the “legislative era.”