Senate CLARITY Act Compromise Draft Seeks Middle Ground on Stablecoins, DeFi

The Senate’s latest compromise draft of the Digital Asset Market Clarity (CLARITY) Act attempts to bridge many of the disputes that have stalled comprehensive U.S. digital asset legislation. The revised text pairs expanded regulatory certainty for the cryptocurrency industry with stronger consumer protection, anti-money laundering and ethics provisions, according to a new analysis by Ashurst Perkins Coie.

The revised draft, released July 22, merges previously separate Senate Banking Committee and Agriculture Committee proposals into a single framework governing securities regulation, commodities markets, banking, stablecoins and DeFi. The legislation also adds new provisions addressing fraud, cybersecurity and restrictions on public officials’ involvement in digital asset ventures.

Although Senate leaders had hoped to move the bill before Congress departs for its August recess, Senate Majority Leader John Thune (R-S.D.) confirmed Thursday that no vote will occur until lawmakers return in September. Thune said Senate sponsors intend to bring the measure up “first thing when we come back,” but acknowledged Democratic opposition prevented floor consideration before the recess.

For financial institutions, the latest draft represents another step toward defining how banks, payment companies, exchanges and other intermediaries would operate under a comprehensive federal digital asset framework while preserving significant authority for federal banking regulators.

One of the most closely watched revisions concerns stablecoin rewards programs. The proposal attempts to strike a compromise between banks, which have argued that yield-bearing stablecoins resemble bank deposits, and crypto firms that rely on rewards programs to encourage network participation.

Under the draft, digital asset service providers generally would be prohibited from paying interest or yield merely for holding payment stablecoins. However, activity-based rewards tied to payments, remittances, liquidity provision, staking, loyalty programs or other transactional activity would remain permissible if they are not economically equivalent to bank deposit interest.

The proposal also strengthens enforcement by authorizing the Treasury Department to impose civil penalties of up to $5 million for knowing violations.

Another significant compromise involves decentralized finance. The draft expands protections for software developers, node operators, validators, oracle providers and developers of self-custody wallets, seeking to ensure they are not automatically treated as securities intermediaries or money transmitters. Instead of relying on whether a protocol describes itself as decentralized, regulators would focus on who possesses the practical ability to control, censor or materially alter network operations.

At the same time, the analysis notes that uncertainty remains for interface providers and certain governance participants, who could still face questions about whether their activities constitute brokerage or other regulated functions.

The revised legislation also establishes an extensive CFTC-led market structure for digital commodities, creating registration categories for exchanges, brokers, dealers and advisers while establishing a qualified digital asset custodian framework.

Banks and credit unions receive additional clarity under the proposal. National and state-chartered banks, federal credit unions and other regulated institutions would be expressly permitted to use digital assets and distributed ledger technology for activities they are otherwise authorized to perform. State-chartered custodians also would receive a federal baseline allowing them to provide custody services comparable to national banks.

Beyond market structure, the compromise broadens the legislation’s consumer protection focus. It incorporates provisions designed to combat elder fraud, cryptocurrency scams and cyber-enabled theft. It authorizes hundreds of millions of dollars annually for state and local investigations involving digital assets and establishes a federal task force on cryptocurrency scams.

The most politically sensitive addition involves a new ethics division restricting public officials and their spouses from issuing or sponsoring digital assets for compensation during their terms of office. The proposal would also prohibit intermediaries from listing tokens issued in violation of those restrictions, while allowing officials to continue holding digital assets as investments subject to existing disclosure rules. The restrictions would sunset in January 2029.

The ethics provisions remain the principal obstacle to Senate passage. Democrats continue to seek additional safeguards, while negotiations reportedly continue over separate ethics language involving President Trump’s crypto-related business interests.

With the Senate now postponing consideration until September, lawmakers face a narrow legislative window to assemble the bipartisan support needed to enact what would be the most comprehensive federal framework yet governing digital asset markets, stablecoins and crypto intermediaries.