Senate to Debate CLARITY After Party-Line Banking Vote

The Senate Banking Committee advanced the CLARITY Act on May 14, approving the crypto regulatory framework and sending the bill to the full Senate. All 13 Republican committee members voted to move the measure forward, joined by two Democrats, Senators Ruben Gallego and Angela Alsobrooks. Lawmakers proposed more than 100 amendments on topics including ethics, AI sandboxes and stablecoin yields; most of those amendments were not adopted.

Sen. Tim Scott, the committee chairman, described the markup as ‘a successful bipartisan markup’ as the bill cleared committee. Democrats on the panel pushed back. Sen. Jack Reed criticized Republicans for dismissing Democratic concerns about the bill’s potential to enable illicit finance and other risks. Committee Democrats released a brief stating the draft does not meet global anti-money-laundering standards, exempts many decentralized finance protocols from traditional financial rules, and leaves gaps that could be used by crypto mixing services.

The bill faces a full Senate debate where procedural rules make passage more difficult than the committee vote. Republicans hold 53 seats in the 100-seat Senate but need 60 votes to overcome filibuster-like hurdles, so at least seven Democrats would have to vote with Republicans for CLARITY to pass. Sen. Scott has previously suggested some Democrats were open to the legislation, but some Democratic opposition has solidified. The Congressional Progressive Caucus expressed opposition to any bill it viewed as permitting corruption or self-enrichment tied to cryptocurrency. A coalition of advocacy groups wrote to lawmakers on May 8 saying a bill without strong ethics provisions ‘elevates the dangers of cheating consumers and investors, distorting and destabilizing financial markets, hindering competition, eroding longstanding investor protection laws, and making a mockery of regulatory enforcement.’

Stablecoin rules were a central issue during negotiations. Banks warned that allowing stablecoins to pay interest simply for being held could trigger runs on deposits. Crypto platforms sought to preserve yield options. The committee-approved version bars stablecoins from paying interest merely for custody but permits activity-based rewards tied to spending, lending, liquidity provision or participation in specific programs. A pseudonymous trader known as 10 Delta described that restriction as cosmetic, noting the bill allows rewards that function similarly to yield when tied to user activity.

Industry executives and trade groups framed the committee vote as progress toward regulatory clarity. Javier Martinez, chief executive of trading platform sFOX, called the action ‘a major step toward resolving crypto’s regulatory identity crisis in the United States.’ Other market participants said clearer rules could affect U.S. competitiveness in digital assets and market development.

With CLARITY on the Senate floor, lawmakers and lobbyists are expected to continue negotiating language on anti-money-laundering measures, the treatment of decentralized finance, ethics provisions and the stablecoin rules. Passage before the next election cycle is uncertain given the 60-vote threshold required in the full Senate.