Crypto’s Big Senate Win Leaves Banks With Bigger Worries

Regulations can create winners and losers, as well as kick off unpredictable second-order effects.

Most industries already know this. The digital asset sector, however, could be about to find out. On Thursday (May 14), the Senate Banking Committee advanced the long-debated CLARITY Act in a 15-9 vote. The move marks the most significant congressional step yet toward a comprehensive federal framework for digital assets.

Two Democrats — Sens. Ruben Gallego of Arizona and Angela Alsobrooks of Maryland — joined Republicans to move the bill forward. The vote gave the crypto industry its clearest signal yet that a bipartisan path to a clear policy framework may still exist.

The committee markup, however, revealed something deeper than a legislative victory. It exposed emerging fault lines that could define the next era of U.S. crypto policy: decentralization versus accountability, innovation versus financial surveillance, and whether digital assets should integrate into the traditional banking system or evolve alongside it.

See also: CLARITY Act Watch: Washington’s 72-Hour Crunch Before Thursday’s Crypto Markup

How the CLARITY Act Amendment Battle Revealed Congress’s Real Crypto Priorities

Thursday’s hearing unfolded less like a technical markup than a referendum on the future of financial oversight. Democrats repeatedly proposed amendments targeting anti-money laundering enforcement, sanctions authority, political ethics and DeFi accountability. Most failed on party-line votes.

Sen. Elizabeth Warren, D-Mass., emerged as the committee’s most persistent critic. She argued the legislation creates openings for sanctions evasion, illicit finance and regulatory arbitrage. Her amendment to close what she called a “tokenization loophole” failed 11-13 after Republicans argued existing protections were sufficient. A second Warren amendment expanding Treasury sanctions authority over DeFi platforms tied to terror financing also failed after Sen. Cynthia Lummis, R-Wyo., countered that the bill already covered those risks.

The exchanges exposed the legislation’s central tension. Supporters see the bill as integrating crypto into the regulated financial system. Critics, however, argue Congress is legitimizing decentralized infrastructure before establishing clear enforcement mechanisms. That divide surfaced repeatedly throughout the markup.

Sen. Chris Van Hollen, D-Md., proposed explicitly banning DeFi protocols that facilitate money laundering or sanctions evasion. Republicans rejected the amendment, arguing existing law already prohibits such conduct. Another ethics-driven amendment targeting self-dealing by federal officials and family members also failed along partisan lines.

Meanwhile, Sen. Catherine Cortez Masto, D-Nev., warned that portions of the bill could make it “more difficult for law enforcement to capture criminals,” particularly because of liability protections for DeFi developers. Her amendment failed 11-13.

Read more: Crypto’s Defining Week Arrives as Senate Pushes CLARITY Act Forward

How the CLARITY Act Would Transform Crypto From Rebellion to Regulated Infrastructure

The PYMNTS Intelligence and Citi report “Chain Reaction: Regulatory Clarity as the Catalyst for Blockchain Adoption” found that regulation will shape blockchain’s next leap. The CLARITY Act could be one of the biggest drivers of that shift.

At its core, the CLARITY Act attempts to resolve one of crypto’s most consequential open questions: when a digital asset qualifies as a security and when it falls under commodities law. Specifically, the bill would establish clearer jurisdictional boundaries between the SEC and the CFTC. It would also create disclosure requirements and compliance obligations for digital asset firms, and introduce standards around DeFi, tokenization, anti-money laundering and stablecoins.

Even as crypto firms celebrated the committee vote, traditional banks remain among the bill’s most powerful opponents. The American Bankers Association and community banking groups have pushed back against provisions involving stablecoin rewards and tokenized financial products. Banks fear digital asset platforms could pull deposits away from federally insured institutions, eroding a foundational source of lending liquidity.

Indeed, the stablecoin debate nearly derailed the legislation earlier this year before lawmakers reached a compromise restricting interest-like payments while still allowing transaction-based rewards.

“The banking industry continues to believe that the CLARITY Act should be strengthened further by tightening the prohibition on interest-like rewards for holding stablecoin while also allowing certain payment stablecoin transactions and activities to generate rewards. Without the necessary guardrails, stablecoin offerings are expected to draw away bank deposits and threaten local lending and economic activity across the country. In that spirit, we will continue to work with senators in good faith to address this issue and improve the bill and its chances on the Senate floor,” a coalition of banking industry groups said in a statement shared with PYMNTS following the Senate Banking Committee vote.

Still, committee approval is only the start. Final Senate passage will likely require at least seven Democratic votes. Meanwhile, House negotiators are still expected to push for substantial revisions.