U.S. Senate Banking Committee Passes the CLARITY Act: Is Crypto Regulation Entering a Clear Era?

Crypto Zhu, Golden Finance

Summary: On May 14, 2026, the U.S. Senate Banking Committee approved the CLARITY Act (Digital Asset Market Clarity Act) with 15 votes in favor and 9 against, and the bill has been officially submitted to the full Senate for a vote. If ultimately passed, this will mean clearer regulatory protections for cryptocurrency holders.

1. U.S. Senate Banking Committee passes the CLARITY Act

On Thursday, the U.S. Senate Banking Committee voted to advance the CLARITY Act.

According to publicly available information, the bill passed with 15 votes supporting and 9 votes opposing, and has been submitted for a full Senate vote. Bipartisan support, including two Democratic senators, has led markets to believe the bill has a high chance of passage.

Senator Tim Scott, Chair of the Senate Banking Committee, said: “This bill does not side with traditional finance or new technology, but stands with ordinary Americans.”

Influenced by this positive news, Bitcoin rose 2% over 24 hours, currently trading at $80,914.04; Ethereum increased 0.7% over 24 hours, trading at $2,267.64; other cryptocurrencies also mostly gained.

Coinbase’s stock price once surged over 7%, currently at $212.01.

2. Five key provisions of the CLARITY Act

Stablecoin Rewards

The most controversial clause in the bill involves how cryptocurrency exchanges and other crypto participants can pay rewards on stablecoins.

The bill prohibits paying rewards on idle stablecoin balances similar to bank deposits but allows rewards for activity-based transactions (e.g., payments made via stablecoins).

The SEC, CFTC, and Treasury Department will be required to jointly issue rules to implement this clause.

Banks oppose this clause, claiming it could lead to outflows from regulated banking systems. Crypto companies argue that banning third-party payments of interest on stablecoins by exchanges would be anti-competitive.

Anti-Money Laundering (AML)

The bill will require all digital commodity exchanges, brokers, and traders to be considered financial institutions under the Bank Secrecy Act, subjecting them to AML, customer identification, and due diligence requirements. This would align crypto companies closely with banks in AML regulation, whereas some previously claimed they were not subject to the same rules.

SEC Funding Exemption

Crypto companies can raise up to $50 million annually, with a total cap of $200 million, without registering with the SEC like other companies.

Tokens linked to investment contracts can still be sold under this scheme, with reduced regulatory burdens compared to securities.

This exemption will limit the SEC’s ability to deem most token sales as illegal securities offerings. The agency has previously taken this stance during the Biden administration, and many courts have supported it.

Decentralized Finance (DeFi)

Many mainstream crypto platforms are “decentralized,” meaning users can interact directly, unlike traditional exchanges.

DeFi platforms argue they cannot comply with bank-like rules because such rules assume the existence of a legal entity holding customer funds in the middle of transactions.

The CLARITY bill will define when a platform is sufficiently decentralized. If it does not meet this standard, it will be considered a financial institution and required to report suspicious activity and monitor transactions like banks.

Platforms capable of banning users or possessing private permissions or hardcoded privileges not available to other users will not be considered “decentralized.”

Tokenization

Tokenization generally refers to converting financial assets (stocks, bonds, real estate, etc.) into crypto assets. Before the SEC is expected to allow companies to experiment with blockchain-based stock trading, crypto firms have been investing in tokenized stock trading.

The bill clarifies that placing securities on a blockchain does not exempt them from securities laws. It also requires the SEC to further study the regulation of tokenized securities.

Furthermore, it mandates that, for regulatory purposes, tokenized securities should generally be treated the same as the underlying securities they represent.

3. Major controversies remaining in the CLARITY Act

1. Stablecoin interest payments

There is a significant divide between Wall Street banks and stablecoin-related businesses regarding stablecoin interest payments.

The revised bill allows crypto firms to offer stablecoin rewards and yields to users while strictly protecting traditional bank deposits from competition. Under the new provisions, issuers like Circle can integrate stablecoins into lending, payments, and DeFi protocols without entering the regulated banking sector. Interest-bearing accounts at banks remain protected.

However, major U.S. banks oppose the new stablecoin rules in the CLARITY bill, warning that the latest proposal does not sufficiently protect bank deposits. On May 4, five major banking associations (American Bankers Association, Bank Policy Institute, Independent Community Bankers of America, Financial Services Forum, and the Consumer Bankers Association) issued a joint statement criticizing the reward mechanisms based on “maturity, balance, and holding period,” citing loopholes.

Banks argue that if stablecoins start offering yields similar to savings accounts, customers might withdraw deposits from traditional banks, potentially impacting overall credit activity. “Research shows that yield-bearing stablecoins could reduce consumer loans, small business loans, and agricultural loans by 20% or more. Congress must get this right.”

2. DeFi definition controversy

The CLARITY bill attempts to define which protocols qualify as true DeFi. However, there is no unified standard for defining decentralization.

Some Democratic lawmakers believe many so-called DeFi projects are actually “financial institutions disguised as decentralized.” The bill could lead to issues like money laundering, sanctions evasion, and hacking fund transfers. Democrats worry that unregulated DeFi could become a tool for North Korean hackers, terrorist financing, and sanctions circumvention. However, Republicans ultimately rejected this amendment. There are clear partisan divides on DeFi.

3. Ethical clauses issue

Senator Kirsten Gillibrand (Democrat from New York) has stated that the CLARITY bill is unlikely to pass the Senate without an ethical clause prohibiting senior government officials from having conflicts of interest related to cryptocurrencies.

“We must never allow members of Congress, senior officials, the President, or Vice President to profit from their insider relationships in these industries. This is the worst form of quid pro quo; the worst campaign finance violation; a violation of the Constitution.”

This reflects Democrats’ concern that Trump is deepening ties with crypto for personal gain.

White House advisor Patrick Witte emphasized that ethical clauses should apply to all public officials, not selectively, and that fairness must be a primary principle in negotiations.

Despite ongoing disputes over ethics clauses, Republican committee members ultimately decided not to include such language in this version of the bill, believing ethics considerations are beyond the committee’s jurisdiction and can be added later via Senate amendments.

This is also a key reason why bipartisan support for the bill remains unstable.

4. How far is the CLARITY bill from becoming law?

The bill faces several hurdles before becoming law:

First, a full Senate vote requires broader bipartisan support. The bill needs at least 60 senators (out of 100) to support it, meaning at least 7 Democratic senators must join all Republican senators.

However, Democratic Senator Kirsten Gillibrand and others have stated they will not support the bill unless it includes a “conflict of interest” clause restricting government officials, including Trump family members, from profiting from the crypto industry. The latest version does not include this clause, as it is outside the jurisdiction of the Banking Committee and will be added later. White House officials have publicly stated they will not accept legislation targeting the President, which could lead to conflicts before a full Senate vote. Industry advocates hope to see a Senate vote before the August recess.

Second, the House and Senate must reconcile the final version. The bill’s framework largely inherits from FIT21: FIT21 is the House version; CLARITY is the Senate version. The U.S. Constitution requires that the final bill signed by the President be an “identical text.” If the House passes FIT21 and the Senate passes CLARITY with differences, a conference committee must reconcile the texts.

Finally, after presidential signature, the CLARITY bill will become law.

5. Industry opinions on the passage of the CLARITY bill

• Tim Scott, Chairman of the Senate Banking Committee: “Advancing this bill is crucial for providing guidance and standards for the crypto industry.” “For years, the digital frontier has been in a regulatory gray area. Developers, entrepreneurs, and investors have been confused and faced enforcement actions, while the government should set clear rules.”

• Elizabeth Warren, Democratic Senator on the Senate Banking Committee, expressed concern during hearings, believing the bill is too friendly to crypto: “Our duty is to serve the American people, not to promote legislation that benefits the crypto industry, which could endanger consumers, investors, our national security, and the financial system.”

• Pete Ricketts, Republican Senator from Nebraska and member of the Senate Banking Committee, said: “As a senator, I am proud to support the CLARITY bill. It establishes a clear and enforceable regulatory framework for digital assets, combats illegal financial activities and threats to national security, and promotes innovation.”

• Michael Selig, Chair of the CFTC, celebrated the bill’s passage, calling it “an important step toward making the U.S. the global crypto capital, ensuring the U.S. remains a leader in digital asset innovation for years to come.” He emphasized that the bill establishes clear standards for distinguishing securities and commodities, creates transparent rules for digital asset trading, and marks the end of the long-standing “enforcement-based” regulatory approach.

• Mark Warner, Democratic Senator from Virginia: “I feel like I am in crypto purgatory right now, but I look forward to its eventual success.”

Appendix: Full text of the CLARITY Bill (Digital Asset Market Clarity Act of 2025)

Key Points (TOPLINE)

The proposed “Market Clarity Act” by this committee aims to establish clear protections for participants in the digital asset markets, enabling ordinary Americans to participate safely.

Title I: General Provisions and Disclosure Requirements

Section 101 Short Title

This law may be cited as the “2025 Digital Asset Market Clarity Act,” abbreviated as the “CLARITY Act.”

Section 102 Disclosure Requirements for Specific Related Asset Transactions

• Defines “Related Assets”: refers to network tokens whose value depends on the entrepreneurial or managerial efforts of the issuer.

• Disclosure obligations: related asset transactions require initial and semiannual ongoing disclosures; tokens themselves are still considered commodities.

• Rebuttable presumption: network tokens are presumed to be related assets unless the issuer or digital asset intermediary submits written certification to the SEC with reasonable evidence that the token is not a related asset.

• No material nonpublic information commitment: issuers must confirm they do not hold material nonpublic information (unless the intermediary reasonably determines they cannot provide it).

• Termination of certification: issuer or intermediary can certify that “entrepreneurial/managerial efforts have ceased,” after which SEC disclosure obligations are no longer required.

Section 103 Exemptions and Rules for Related Asset Transactions (Crypto Regulation Rules)

• Exemption from registration (Regulation Crypto): related assets issued/sold as investment contracts may be exempt from SEC registration under crypto regulation rules.

• Fundraising limits:

• Maximum fundraising in a calendar year: $50 million, renewable for 4 years;

• Or 10% of the circulating market cap of related assets (whichever is higher);

• Total fundraising cap per issuer: $200 million (gross revenue).

• Compliance prerequisite: must adhere to initial and semiannual disclosure requirements of Section 102.

Section 104 Internal resale restrictions for related assets

• 12-month lock-up: insiders’ resale of related assets within 12 months is restricted to prevent market manipulation and insider trading, avoiding “dumping” and price suppression.

• Decentralized governance exemption: DAOs and similar decentralized governance systems are not considered single controlling entities; routine management (even if performed by individuals) does not constitute centralized control; pre-set, transparent, limited network security emergency measures (without single controlling entity) are not considered coordinated control.

Section 105 Legal features of network tokens

• Non-securitization determination: SEC must establish rules stating that if the asset’s value mainly derives from distributed ledger systems, the network token does not constitute a disqualifying financial interest (i.e., not a security).

• Judicial precedent exemption: if a U.S. court has issued a final, non-appealable ruling before this law takes effect that a certain digital asset is not a security, the SEC cannot reclassify it as a security.

Section 106 SEC exemption authority retained

SEC retains the authority to grant tailored securities law exemptions for specific entities, securities, or transactions.

Section 107 Modernization of recordkeeping requirements

SEC must revise rules to allow the use of distributed ledger data as legal records, accommodating blockchain technology.

Section 108 Modernization of securities regulation for digital asset activities

• Rule updates: SEC must revise rules to eliminate outdated, unnecessary, or overly burdensome digital asset regulations.

• State law preemption: some state securities laws are replaced by federal law, but anti-fraud provisions remain.

Section 109 Application of insider trading laws

Securities transactions involving related assets continue to be subject to existing federal insider trading laws.

Section 110 Scope of the Securities Investor Protection Corporation (SIPC)

Clarifies that digital commodities are not “securities” and are not subject to the Securities Investor Protection Act (SIPA).

Title II: Anti-Illegal Finance

Section 201 Application of the Bank Secrecy Act and sanctions laws

Digital commodity brokers, traders, and exchanges are defined as financial institutions subject to the Bank Secrecy Act, requiring AML, KYC, and CDD systems.

Section 202 Digital asset review standards

The Treasury Department, in conjunction with federal banking regulators, will develop risk-based review standards to assess the reporting obligations, AML compliance, and CFT (Countering Financing of Terrorism) enforcement related to digital assets.

Section 203 Pilot program for preventing illegal financial cooperation

Establish public-private partnership pilots allowing private sector and federal law enforcement to share illicit financial clues, threat intelligence, and emerging risk data.

Section 204 FinTech for combating terrorism and illegal finance

Create an independent task force including Treasury, DOJ, FBI senior officials, and private sector representatives to study patterns of digital asset use in terror financing and illegal activities, and propose AML and illegal finance improvements.

Section 205 Regulatory framework for digital asset ATMs (kiosks)

Establish a federal baseline for crypto ATMs, including:

• Fraud prevention measures;

• New user transaction limits;

• Mandatory customer support hotlines;

• Customer fund protection and transaction transparency requirements.

Section 206 Annual report on illegal uses of digital assets

The Treasury Department, in cooperation with DOJ, will submit an annual report to Congress analyzing how foreign terrorist organizations and transnational crime groups use digital assets for illegal activities, and recommend enhanced compliance and enforcement by SEC and CFTC.

Title III: Responsible Innovation in Decentralized Finance (DeFi)

Section 301 Rules for regulating DeFi trading protocols

• Non-decentralized protocol definition: focus on control, discretion, protocol modification/ review capabilities; protocols with such powers are deemed “non-decentralized.”

• Decentralized governance exemption: reliance solely on decentralized governance does not constitute a single controlling entity; core infrastructure (nodes, validators, relayers, security committees) are not considered protocol controllers (no single entity with actual control).

• Rulemaking: SEC and Treasury jointly develop rules clarifying how non-decentralized protocols must comply with securities intermediary requirements.

• Bank Secrecy Act applicability: registered non-decentralized protocols (financial institutions) must comply with AML and CFT obligations based on activity type.

Section 302: Illegal financial obligations of distributed ledger messaging systems

• Definition: web front-end providing access to blockchain applications/DeFi protocols (excluding core infrastructure like protocols, nodes, wallets).

• Regulatory guidance: Treasury will issue sanctions, AML, and CFT guidelines to regulate all front-end systems operated by U.S. entities.

Section 303: Special measures for certain cross-border fund transfers

Authorize the Treasury to establish new “special measures”: if foreign jurisdictions, institutions, or transaction types are deemed high-risk for money laundering, the Treasury can prohibit or restrict U.S. financial institutions from engaging in related fund transfers.

Section 304: Annual report on foreign stablecoins

The Treasury will annually assess whether foreign stablecoins relying on U.S. debt or large-scale circulation pose significant illegal financial threats, including:

• Risk ratings of foreign stablecoins;

• Effectiveness of issuer internal controls;

• Scale of illegal transactions and their relation to U.S. financial system;

• Other key risk analyses.

Section 305: Suspicious transaction temporary freeze safe harbor

• Voluntary freeze authority: licensed stablecoin issuers and digital asset service providers can, upon written request from law enforcement, implement short-term freezes on suspicious transactions.

• Immunity: good-faith compliance with freezing and notification/recordkeeping obligations shields from civil liability under federal/state law.

• Procedures: freeze records must be kept for 3 years; notify customers and law enforcement (or FTC); freezing is voluntary and does not exempt other legal obligations; existing SARs, asset seizures, and sanctions powers remain fully intact.

Section 306: Voluntary cybersecurity program for DeFi protocols

• NIST certification program: operated by NIST, protocols can voluntarily participate, undergo assessments for cybersecurity, audit, and code transparency standards.

• Standards development: NIST will solicit public input to develop DeFi-specific standards and best practices (periodically updated).

• Compliance certification: compliant protocols can display NIST-issued certification marks; federal agencies will consider certification as evidence of good-faith compliance (not a substitute for state law).

Section 307: Revision of financial instrument definitions under the Bank Secrecy Act

Include digital assets in the “financial instruments” definition; Treasury can issue guidelines for self-custody wallet regulation but cannot require collection of PII from non-customer counterparties, nor weaken federal enforcement powers.

Section 308: Risk management standards for digital asset intermediaries

• Risk control obligations: intermediaries routing/executing transactions via DeFi protocols must establish comprehensive risk management systems covering:

• AML, sanctions evasion, fraud;

• Market manipulation prevention;

• Operational and cybersecurity risks;

• Plain-language risk disclosures to users;

• Deployment of blockchain analysis tools and risk response mechanisms.

• Joint enforcement: SEC, CFTC, Treasury, FinCEN, OFAC will jointly develop and enforce standards; Treasury handles AML and sanctions; other regulators oversee compliance; existing enforcement powers are preserved.

Section 309: Research report on digital asset mixers/tumblers

Treasury will submit a detailed report to Congress covering:

• Mixer technology principles;

• Illegal/legal usage ratios and scale;

• Risks to exchanges and banks;

• International regulatory comparisons;

• Legislative and regulatory recommendations.

Section 310: Foreign jurisdiction intermediary risk study (GAO)

GAO, in cooperation with Treasury, will produce a report within one year assessing risks of foreign digital asset intermediaries serving U.S. users in low-regulation jurisdictions, and propose regulatory and legislative responses.

Section 311: Foreign counterparty activity study (Treasury + GAO)

Treasury and GAO will submit reports to Congress analyzing risks related to foreign counterparties, including:

• Whether foreign governments collect U.S. transaction data;

• Whether they steal intermediary intellectual property;

• Confidential attachments may be included.

Section 312: Research on cybersecurity standards for smart contracts (Treasury)

Treasury, in cooperation with CISA, NSA, NIST, will produce within one year a report on cybersecurity standards for smart contracts, custody, key management, deployment, and will propose legislative recommendations (confidential attachments possible).

Section 313: Joint research on financial stability risks of DeFi protocols

Treasury, Fed, SEC, CFTC will jointly study the functions and risks of DeFi protocols within the financial system, submitting periodic reports to Congress (after four installments, the study ends).

Title IV: Responsible Banking Innovation

Section 401: Digital asset activity licensing

Amend the Bank Holding Company Act, National Bank Act, etc., to clarify that financial holding companies, national banks, state banks, and certain credit unions can use digital assets and blockchain within their existing business scope (payments, lending, custody, trading, etc.).

Section 402: Portfolio margin rules

SEC and CFTC jointly develop rules allowing registered traders, FCMs, or brokers to implement cross-asset portfolio margining for securities, swaps, futures, and digital commodities, enabling unified risk management.

Section 403: Cross-product netting capital requirements

Federal banking regulators will establish capital requirements covering risks of cross-product netting agreements among banks and bank holding companies (allowing offsetting risk exposures in case of counterparty default).

Section 404: Ban on paying interest on stablecoins (core compromise clause)

• Ban: regulated digital asset service providers and affiliates cannot pay passive interest/yields similar to deposits to U.S. users (banning interest-bearing stablecoins).

• Exceptions: rewards based on actual trading activity (e.g., cashbacks, membership benefits, market-making incentives), to be detailed by SEC, CFTC, and Treasury.

Title V: Regulatory Innovation

Section 501: CFTC-SEC Micro-innovation sandbox

Establish a joint sandbox where qualified firms can test innovative financial products under investor protection mechanisms for up to 2 years (renewable).

Section 502: International cooperation

SEC and CFTC to strengthen cooperation with foreign regulators and international organizations:

• Cross-border information sharing;

• Promoting technology-neutral global standards;

• Establishing cross-border digital asset regulatory sandboxes.

Section 503: Automated compliance technology research

Report to Congress analyzing how blockchain and smart contracts can enable regulatory compliance automation.

Section 504: Annual legislative implementation report

Financial regulators will submit annual reports to Congress (including the Senate Banking Committee) on law enforcement and legislative improvements.

Section 505: Securities tokenization

• Qualitative: tokenized securities remain securities and are subject to securities laws.

• Research: SEC to study regulation frameworks for tokenized securities, including custody standards, inter-agency coordination, cross-border compliance, and investor protection.

• Same treatment: tokenized securities generally follow the same rules as traditional securities (SEC retains exclusive jurisdiction).

Section 506: Voluntary adoption of post-quantum cryptography standards

Encourage industry to voluntarily adopt NIST’s post-quantum cryptography standards to enhance digital asset security resilience.

Section 507: Cross-border illegal finance coordination (led by Treasury)

Establish a multi-agency mechanism led by Treasury to coordinate foreign governments and agencies in combating illegal digital asset use, sanctions evasion, and terror financing; develop national strategies and submit annual progress reports to Congress.

Section 508: Annual report on foreign digital asset trading and compliance

Treasury will annually report to Congress:

• Major foreign jurisdictions ranked by trading volume;

• Compliance assessments with AML, sanctions, and CFT standards;

• Diplomatic and enforcement actions in high-risk jurisdictions.

Title VI: Developer Protection

Section 601: Developer safe harbor

• Exemption from securities laws: DeFi developers and network participants engaged only in transaction packaging, distributed ledger mining, or pure software development are exempt from federal/state securities laws.

• Rulemaking: SEC to clarify the boundaries of securities law applicability when DeFi protocols involve securities activities.

Section 602: NFT safe harbor

NFTs are presumed exempt from securities laws unless they exhibit characteristics of investment contracts (i.e., securities attributes).

Section 603: Comprehensive NFT study (GAO)

GAO will submit a report to Congress analyzing NFT market size, uses, technical features, risks, and rewards.

Section 604: Blockchain regulatory certainty act

• Exemptions from money transfer licensing: blockchain developers and infrastructure providers are not classified as money transmitters and do not need to apply for licenses.

• Criminal liability: knowingly assisting in transferring criminal proceeds or illegal activities remains subject to federal criminal penalties.

Section 605: Private key self-custody rights (“Keep Your Coins” Act)

• Core rights: federal agencies cannot prohibit, restrict, or impair users’ rights to control digital assets via self-custody wallets.

• Law enforcement: Treasury, SEC, CFTC, banking regulators retain existing enforcement powers against illegal finance, AML, terror financing, sanctions.

Title VII: Customer Asset Protection (Bankruptcy Mechanism)

Section 701: Customer asset classification in bankruptcy

Related assets and digital commodities are recognized as customer property under Chapter 7 (liquidation) of the Bankruptcy Code, protected equally with other commodities and securities (kept separate from platform’s bankruptcy assets).

Section 702: Bankruptcy safe harbor

Digital commodity transactions are protected under commodity contract bankruptcy safe harbor rules: counterparties can close positions or seize collateral outside bankruptcy proceedings (consistent with protections for derivatives and securities).

Title VIII: Customer Protection

Section 801: Investor education materials

SEC and CFTC require digital asset intermediaries to provide clear, accessible educational materials covering:

• How distributed ledgers work;

• Core risks of digital assets;

• Differences from traditional markets;

• Disclosure rules for trading/securities;

• Fraud detection and reporting channels.

Section 802: Consumer protection retention clause

Clarifies that this law does not weaken the FTC’s authority over unfair/fraudulent practices, industry guidelines, consumer education, or antitrust enforcement in NFT and digital consumer token markets.

Section 803: Digital asset financial literacy research

SEC and CFTC will jointly study retail users’ digital asset financial literacy, evaluate educational effectiveness, and develop measurable improvement strategies; a joint report is due within one year.

Section 804: Broker bankruptcy risk disclosure rules

• Rulemaking deadline: SEC must issue rules within 270 days requiring brokers to disclose in writing how digital commodities, stablecoins, and securities will be handled in bankruptcy, liquidation, or receivership.

• Consultation: Rules must be developed in coordination with CFTC and SIPC.

• Disclosure timing: Brokers must disclose before accepting, purchasing, or holding digital assets, and update continuously.

• Disclosure content: Explain legal status and priority under Dodd-Frank, SIPC, and Bankruptcy laws.

Title IX: Other provisions

Section 901: Digital Asset Joint Advisory Committee

Establish a joint SEC-CFTC advisory committee with regulators, industry, academia, and user representatives; study digital asset issues and provide non-binding advice; SEC and CFTC must formally review and respond.

Section 902: Regulatory agencies’ MOU

SEC and CFTC sign an MOU to coordinate joint regulation, enforcement, and information sharing; clarifying:

• SEC retains jurisdiction over fraud, market manipulation, insider trading;

• CFTC retains exclusive jurisdiction over market integrity.

Section 903: FinCEN appropriations

Post-enactment, annually allocate $30 million to FinCEN for five years; authorize the Director to provide a 20% salary premium to attract top talent.

Section 904: Housing incentive pilot (Build Now Act)

Develop housing development incentives in designated CDBG areas (non-core provision).

Section 905: Rulemaking deadline

Regulators must issue implementing rules within 1 year of enactment via formal notice and comment.

Section 906: Effective date

• General: Law takes effect 360 days after enactment.

• For rules: Effective 360 days or 60 days after final rules are published in the Federal Register, whichever is later.