The Senate’s CLARITY Act is getting squeezed from every side: a brutal floor calendar, a Trump-linked ethics fight, pushback from law enforcement over DeFi carveouts, and a separate battle over whether prediction markets are financial contracts or just gambling with a slicker interface.
- CLARITY is up against the clock
- Trump-linked crypto is complicating ethics language
- Law enforcement wants tighter DeFi rules
- Crypto PACs keep punching above their weight
- Prediction markets are booming, but the legal fight is ugly
Senate GOP leaders still want CLARITY, the digital asset market structure bill, to move. But “want” and “can actually pass a major crypto bill through the Senate” are very different animals. The bill is now stuck in a messy political triangle: ethics concerns tied to Trump-family crypto ventures, a growing law-enforcement revolt against DeFi exemptions, and a ticking legislative calendar that leaves almost no room for mistakes.
The biggest political headache is the ethics language. According to Semafor’s Eleanor Mueller, a “still-evolving bipartisan deal” was taking shape on June 24, but it is “expected not to cover the president’s adult children.” A Democratic staffer put the practical problem bluntly:
“there’s no way to ban an adult child from conducting legal business.”
That may be true in the narrow legal sense. It does not solve the bigger problem Congress is trying to deal with: how to write a rule that keeps officials and their families from profiting off public office without turning into a hollow gesture that stops at the edge of the family tree.
Sen. Cynthia Lummis (R-WY), one of the bill’s loudest backers, said on June 24 that the teams working on CLARITY will:
“put out a text over July 4th, and give people one last really thorough look of the bill, and then we’re moving in July.”
That sounds neat. Capitol Hill usually isn’t. The Senate voted late Wednesday to start its July 4 holiday break immediately, and lawmakers won’t be back until July 13. After that, there are only four weeks, roughly 20 sitting days, until August 7, when the Senate heads into its traditional month-long summer break. There are a few more weeks in September, but by October the floor calendar is expected to go quiet again until after the November elections.
Translation: if CLARITY does not get traction fast, it may get buried under the usual congressional pile-up of recesses, campaign season, and performative outrage.
Lummis also pointed to a revised enforcement idea that would allow a state attorney general to sue a digital asset exchange if it lists, for example, a memecoin issued by an elected official covered by the ethics language. That is the kind of compromise lawmakers reach when they are trying to look serious without blowing up the bill entirely.
The Trump factor is what makes all of this politically radioactive. Trump issued his $TRUMP memecoin on January 17, 2025, three days before his second inauguration. Sen. Richard Blumenthal (D-CT) went on CNN Thursday and demanded that executives from World Liberty Financial come to Capitol Hill
“under oath, in a hearing.”
Blumenthal pointed to the reported $500 million sale of a 49% stake in World Liberty Financial to UAE officials. All three Trump sons are WLF co-founders. Whatever one thinks of the family’s business activities, this is exactly why Congress keeps stumbling over “ethics” language that sounds strong but may not touch the people actually doing the business.
If the final carveout excludes adult children, then the rule may look tough on paper while leaving the family ecosystem mostly intact. That is not a small detail. It is the difference between a real conflict-of-interest guardrail and a political smoke machine.
The other major fault line is DeFi. In April, a coalition of prosecutors and law-enforcement agencies opposed CLARITY’s DeFi language. On June 23, Eleanor Terrett surfaced a new letter from those agencies objecting to Section 604, the provision previously known as the Blockchain Regulatory Certainty Act.
The letter says the bill could create gaps in oversight and accountability. It warns:
“Several provisions throughout the bill will reduce transparency, limit accountability, and create gaps in the anti-money laundering and countering the financing of terrorism (AML/CFT) framework...”
It also says:
“no class of market participant should receive a blanket exemption from registration, know-your-customer (KYC), Bank Secrecy Act (BSA), or AML/CFT requirements.”
That is the law-enforcement case in plain English: don’t build a giant compliance blind spot and call it innovation.
For crypto developers, the counterargument is just as simple. Noncustodial DeFi means users keep control of their own assets instead of handing them to a centralized intermediary. That setup makes censorship resistance and self-custody possible, which is the whole point for many builders and users. But the same design also makes enforcement harder, because the people who write the code are often not the ones holding customer funds, operating accounts, or running a traditional compliance department.
That tension is real. If lawmakers are too loose, they can hand bad actors a clean escape hatch. If they are too aggressive, they can strangle open-source finance before it has a chance to mature. Both sides have a case. Neither side gets to pretend the risks are imaginary.
The letter specifically cites coin-mixing platforms, including Tornado Cash, as examples of tools that can help move or conceal illicit funds. Privacy tools are not automatically criminal. Neither are they automatically noble. They can protect legitimate financial privacy, and they can just as easily become a favorite toy for thieves and sanctions evaders. That uncomfortable truth is why this debate will not be settled by slogans about “freedom” or “safety” alone.
Patrick Witt, the White House crypto adviser, held meetings in June with some of the prosecutors and law-enforcement officials raising those objections. So yes, the pushback is being heard. No, that does not mean everyone is about to hug it out and move on.
Crypto’s political influence is also still very much alive. In Tuesday primaries, crypto-backed candidates won in Maryland, New York, and Utah.
In Maryland’s 5th District, Adrian Boafo won the Democratic primary with $5.3 million in support from Protect Progress, the Democratic-oriented offshoot of Fairshake. In Maryland’s 6th District, Rep. April McClain Delaney won with $516, 368 in Fairshake-related support. In Utah’s 2nd District, Rep. Blake Moore won the Republican primary with $400, 000 from Defend American Jobs.
New York added another round of expensive interference. Micah Lasher won the Democratic primary for House District 12. Alex Bores drew nearly $25 million in outside funding, with $16.8 million backing him and $8.1 million opposing him. Rep. Ritchie Torres also won his 15th District primary with $1.4 million from Protect Progress and $300, 000 from Fellowship PAC.
Fairshake and its offshoots are now 38-2 in congressional races they have funded this year. They still have $135 million left to spend in the current cycle. That is not normal political giving. That is a machine with a very disciplined target list.
Rep. Brad Sherman, who has spent years bashing crypto, summed up the strategy with unusual clarity:
crypto PACs “like a good batting average. And if you want a good batting average, you limit the number of times that you go to bat against Major League pitching.”
That’s exactly right. These groups do not need to win every fight. They just need to avoid the ones they are likely to lose and keep stacking enough wins to shape the political terrain.
Then there is the other big crypto-policy brawl: prediction markets.
Kalshi sued Illinois Gov. J.B. Pritzker, Attorney General Kwame Raoul, and other state officials on Tuesday to block the July 1 implementation of a new Illinois law. The law requires prediction markets offering contracts on sports events to obtain an Illinois gaming license, creates a Sports Wagering Fund, and imposes a 15% tax on revenue derived from sports wagers.
Kalshi says the law “expressly violates” the Commodity Exchange Act. The company argues that the CFTC has “exclusive jurisdiction” over “sports events contracts traded on federally regulated DCMs, ” meaning designated contract markets. In plain terms, Kalshi says Illinois is trying to regulate a federally governed product as if it were just another sportsbook.
The state side sees something else entirely: gambling dressed up as finance. That legal classification is the whole fight. If prediction markets are swaps or event contracts under federal law, the states have limited room to interfere. If they are gambling products, states get a much bigger say.
The CFTC has already sued Illinois, Arizona, and Connecticut over state attempts to regulate prediction markets, and Illinois is one of nine states caught in this broader clash. The federal-state mess is not going away on its own. Eventually, a higher court may have to sort out whether these platforms are derivatives markets, betting venues, or some awkward hybrid that makes both camps angry.
Trump-world complicates this fight too. Donald Trump Jr.’s 1789 Capital made a double-digit millions investment in Polymarket last year, and Don Jr. sits on Polymarket’s advisory board while also serving as a Kalshi advisor. Trump Media & Technology Group is also planning to launch Truth Predict.
So yes, the same political orbit tied to the ethics fight is also showing up around prediction markets. Washington does love a subplot.
The commercial upside is obvious. Fortune reported that Kalshi’s World Cup trading volume has hit $2.9 billion to date, while Polymarket’s World Cup trading volume reached $2.5 billion. Robinhood said its prediction-market joint venture with Susquehanna International Group has executed 400 million contracts since June 11. Bitget Wallet tracked 857, 377 active Polymarket users, and 59.6% of them had no experience with decentralized exchanges before their first prediction wager.
That last number matters. Prediction markets are becoming an unexpected on-ramp into crypto rails, often without forcing users to touch a wallet tutorial first. That is real adoption. It is also adoption through a product many people still view as gambling with a fintech accent.
Polymarket’s coin of the realm is pUSD, which is backed 1:1 with Circle’s USDC stablecoin. For U.S. users, Kalshi accepts or issues a variety of tokens through stablecoin intermediary Zero Hash. Meanwhile, Pew Research data from May showed that sports made up 80% of total volume on Kalshi and 39% on Polymarket since July 2024. Political markets accounted for 32% of Polymarket volume but just 4% of Kalshi’s.
That split says a lot. Sports is the mainstream entry point. Politics is the juicy side dish. And election markets, for all the hype, still make a lot of people deeply uneasy.
A Politico poll released this week found that 29% of American voters had a negative view of prediction markets’ popularity, 19% had a positive view, 28% had no firm view, and 24% were not ready to pronounce judgment. Among Democrats, 36% held a negative view and 20% a positive one. Among Republicans, 27% were negative and 25% positive.
Only 6% of respondents said they had placed a prediction wager, while 17% said they would consider it. A majority, 53%, said they had zero interest.
When asked who should regulate prediction markets, 28% chose the federal government, 15% backed the states, 17% said the platforms should regulate themselves, and 8% said they should not be regulated at all. That last answer is easy to love until abuse shows up with a receipt.
The poll also made the moral boundaries pretty clear. Sports were supported by 53% of respondents, weather by 46%, award shows by 45%, and celebrity events by 43%. But 64% opposed betting on acts of terrorism, 57% opposed betting on the outcomes of wars, 44% opposed betting on election outcomes, and 43% opposed betting on who receives presidential pardons.
The biggest negative reaction came from one especially ugly idea: 65% opposed elected officials, candidates, and their staff betting on their own election results. That’s the public spotting self-dealing without needing a graduate seminar in ethics. Miracles do happen.
Key questions and takeaways
-
Will CLARITY clear the Senate?
It’s possible, but the path is narrow. Senate Republicans need every GOP vote they can get plus at least seven Democrats to reach the 60-vote threshold, and the bill still has unresolved fights over ethics and DeFi language. -
Does the ethics deal fully fix the Trump problem?
Not if the reported compromise excludes adult children. That could keep the bill moving politically, but it may still leave the most obvious family-linked crypto questions unresolved. -
Why are prosecutors objecting so hard to Section 604?
They believe the language could create transparency gaps and weaken AML/CFT, KYC, and BSA enforcement. Their core message is that broad exemptions could make illicit finance easier, not harder. -
Are crypto PACs still effective?
Very. Fairshake and its affiliates are 38-2 in congressional races they have funded this year, and they still have $135 million left to spend. -
Are prediction markets becoming a crypto onboarding funnel?
Yes, especially through sports. But that growth comes with baggage: many voters still see these products as gambling, and the legal fight over federal versus state authority is far from settled. -
Why does the Illinois lawsuit matter?
Because it could help determine whether prediction markets are treated like federally regulated financial contracts or state-regulated gambling products. That distinction will shape whether the industry can scale nationally or gets trapped in a patchwork of state laws.
Crypto is no longer just fighting for legitimacy. It is fighting over what kind of legitimacy it gets, who gets protected, and who gets a free pass to make money while the rules are being written. A market structure bill that leaves obvious loopholes will deserve the backlash it gets. A crackdown that treats every wallet like a crime scene will deserve its own pile of ridicule.
Somewhere between those two bad extremes is a workable rulebook. Washington just has to stop pretending it can write one without anyone noticing who benefits.
Further reading
A few extra filings and background pieces for anyone tracking the CLARITY fight, prediction markets, and the regulatory cleanup around crypto.
- CLARITY ethics deal could let Trumps sons off crypto hook
- Trump's Influence on Crypto Legislation and Ethics in the
- National Sheriffs Association letter to the Senate Banking Committee on the CLARITY Act
- Kalshi sues Illinois over new tax on prediction markets
- Federal banking agencies strip reputation risk from guidance; CFTC moves on prediction markets litigation
