CLARITY was supposed to give crypto a clean market structure bill. Instead, the Senate is staring at a pileup of ethics, banking, DeFi, and prediction-market fights that could sink the whole thing before a vote even happens.
- Ethics is the flashpoint: Democrats say the latest draft still leaves Donald Trump able to profit from crypto while regulating it.
- Law enforcement is split: major-city police leaders back the revised illicit-finance language, while sheriffs say the bill opens dangerous loopholes.
- Banks want tweaks: the ABA is pushing back on stablecoin reward language that could pull deposits out of the traditional system.
- Prediction markets complicate everything: tribal gaming groups want the bill to rein in Kalshi and Polymarket, but Senate leaders are resisting that detour.
The Senate’s digital asset market structure push is jammed up on a blunt question: can Congress write rules for crypto while the president stands to make a fortune from the same industry?
That ethics fight is now the biggest load-bearing issue in the CLARITY debate. Sen. Angela Alsobrooks (D-MD) told the Wall Street Journal she was “not going to support a bill in its current form unless ethics is addressed …” and that captures the Democratic position pretty cleanly.
According to Senate Banking Committee Minority Staff and Sen. Elizabeth Warren’s office, the latest text still does “nothing to prevent Trump from making his next $1.4 billion in crypto profits.” That is a partisan analysis, not a neutral audit, but it is the core accusation driving the fight. The claim is that the bill’s ethics structure would still let a sitting president profit from crypto ventures while helping shape the rules around them.
The same minority analysis says the bill would bar state attorneys general from enforcing the ethics provisions and leave enforcement largely to the DOJ. If that sounds like letting the fox guard the henhouse, that is because the complaint is basically about conflicts of interest being policed by the executive branch that would have every reason not to make a scene.
A bipartisan rewrite of the ethics language was reportedly sent to Trump on Friday, July 31, but the details have yet to be confirmed. That uncertainty matters. If the White House does not bless a fix, the Senate can keep polishing language all it wants. The bill still hits a wall.
There is also the clock. Tuesday came and went without the Senate scheduling a cloture vote on CLARITY. A cloture vote is the procedural step used to end debate and move legislation forward in the Senate, so skipping it is not exactly a sign of momentum. Senators are due to leave town this weekend for a month-long summer recess, and the chamber will have only about four weeks of business when it returns in September.
President Donald Trump has demanded that the Senate not leave until his priorities are done deals, and Senate Majority Leader John Thune has suggested he could keep senators around. Washington loves deadlines the way gamblers love “one more hand” right up until the house closes.
Even if the ethics problem vanished overnight, CLARITY would still be carrying a backpack full of other unresolved fights.
One of the biggest is DeFi. For readers who do not live and breathe crypto jargon, decentralized finance refers to financial software built on blockchains without traditional intermediaries like banks. Supporters see it as open, permissionless infrastructure. Regulators and law enforcement see something else, a system that can make it harder to identify who is actually controlling what, which is a problem when criminals use the same rails as everyone else.
The National Sheriffs’ Association took that concern straight to Senate leadership in a July 31 letter, warning that CLARITY’s “significant law enforcement and public safety risks must be addressed before the Senate votes.” The sheriffs say the bill would create broad exemptions from registration, know-your-customer, anti-money-laundering, and sanctions-law requirements for certain DeFi participants.
They also argue the legislation contains a “blanket exemption” for platforms built by developers who do not like the public nature of most blockchains, including mixers, tumblers, cross-chain bridges, and similar services. That is a serious accusation. Mixers and tumblers can obscure transaction trails; cross-chain bridges can move assets between networks. Both are exactly the kind of plumbing bad actors love when they want more cover than the open ledger naturally gives them.
The crypto industry’s response was predictable and sharp. The Blockchain Association said the sheriffs were describing “a bill that Congress did not write.” It also said CLARITY’s illicit finance language “protects developers, not criminals.” White House crypto adviser Patrick Witt chimed in by tweeting that “it is not clear why NSA is so radically out of step with the broader law enforcement community.”
That line of attack matters because law enforcement is not unified. On July 29, the Major Cities Chiefs Association sent Senate Banking Committee leadership a letter supporting CLARITY’s revised illicit finance language. The MCCA represents police executives from the largest cities in the U.S. and Canada, so this is not some random badge-flavored press release from nowhere.
So the picture is messy, not neat. One law-enforcement group says the bill gives investigators better tools. Another says it strips away too many guardrails. That split is exactly why both sides in Washington keep reaching for “law enforcement support” like a prop in a bad courtroom drama.
The banking industry has its own beef, and this one is more straightforward: stablecoin rewards.
Stablecoins are crypto tokens designed to hold a stable value, usually pegged to the dollar. The GENIUS Act, passed by Congress last year, prohibited stablecoin issuers from paying interest to stablecoin holders. Now the bipartisan compromise in CLARITY would ban third-party platforms from paying interest or rewards to stablecoin holders who use the tokens in certain activities.
That sounds technical, but the real issue is simple. If a platform can hand out attractive rewards that function like yield, banks worry it could pull money out of deposits and into tokenized accounts. Retail-focused banks are not wrong to see that as a competitive threat. They just do not want to admit it out loud without the corporate throat-clearing.
The American Banking Association sent Senate leaders a letter on July 28 urging changes. ABA CEO Rob Nichols told CNBC’s Squawk Box on July 29 that there were “only two paragraphs where we’re suggesting tiny surgical edits.” He also said, “we can coexist. I think we can be the crypto capital of the world and I think we can be the banking capital of the world.”
That is a fair theory in the abstract. In practice, the fight is over where the line gets drawn between healthy competition and a backdoor interest product that lets stablecoins act like deposit substitutes without being called deposit substitutes. Banks call it prudence. Crypto advocates call it protectionism. Both labels have some truth in them.
Punchbowl News reported on July 30 that GOP Sens. James Lankford (R-OK) and Mike Rounds (R-SD) had concerns about the stablecoin language. White House crypto adviser Witt also retweeted, then apparently deleted, a post by Club for Growth president David McIntosh calling GOP senators opposing CLARITY “uninformed shills for the community bankers!” Subtlety, as always, is dead and buried in Washington.
Then there is prediction markets, which is where things get even more awkward.
Tribal gaming operators want CLARITY revised to ban prediction market operators like Kalshi and Polymarket from offering sports-related bets they say run afoul of state gambling laws. The issue came up during a 90-minute roundtable session of the Senate Indian Affairs Committee on Tuesday. Ranking member Brian Schatz (D-HI) asked witnesses what the Senate should do in the short run to protect tribal revenue, while Sen. Tina Smith (D-MN) suggested the farm bill could be a place to define the scope of prediction markets.
Senate Agriculture Committee chair John Boozman (R-AR) rejected putting prediction market rules in CLARITY or the farm bill. “As far as sticking [prediction market rules] in CLARITY, and sticking it in the farm bill, the problem there is that you’re conflating issues …” he said. Boozman added, “I don’t think those things are going to happen. I think you run into the same problem with CLARITY in the sense that crypto is not prediction markets.”
That is the legislative turf war in plain English. Prediction markets overlap with gambling law, derivatives law, and tribal revenue concerns, but no committee wants to own the whole mess. So the issue keeps getting kicked around like a hot potato with a CFTC logo on it.
If Congress cannot get a bill over the line, federal regulators may not sit still and wait politely for another round of hearings.
Bernstein analysts said that if CLARITY fails, the SEC and CFTC could move quickly to impose their own rules. The agencies could also advance their interagency Project Crypto roadmap, which the source describes as including an “innovation exemption” basically a carveout that would let builders test and launch without immediately getting flattened by the full weight of compliance bureaucracy.
SEC Chair Paul Atkins has been advocating in favor of CLARITY. CFTC Chair Michael Selig said Tuesday that his agency “stands ready to implement rules to ensure America remains the crypto capital of the world.”
That is the real pressure point. If Congress punts, agencies fill the vacuum. The result may be messy, uneven, and probably litigated to death, but it will be regulation all the same. Crypto does not get to opt out of bureaucracy just because the paperwork is ugly.
Meanwhile, political money is already circling the drain. Fairshake’s latest FEC filing shows Fairshake and its affiliates Defend American Jobs and Protect Progress had $127 million in cash on hand as of June 30. That is a monster war chest by any standard, and it is not sitting around for decorative purposes.
Semafor reported that CLARITY’s stalled momentum was frustrating Fairshake’s backers, including Coinbase and Ripple Labs. Punchbowl also reported that if Fairshake spends in August after a failed or absent cloture vote, reviving CLARITY in September would be pointless, according to an unnamed senior Democratic aide. That may be a bit dramatic, but the broader point is obvious: big money is already shaping how each side thinks the fight will end.
The polling helps explain why this is such an uphill climb in some corners of the Democratic coalition. Semafor published internal Democratic polling of 800 primary voters showing just 9% held a favorable impression of crypto. Crypto’s 57% “very unfavorable” ranking was third from the bottom among the groups tested, and the top association with crypto was “scam/crime.”
Only 10% of those voters currently hold any crypto, another 5% held some in the past, and just 16% said they would view a crypto-supported candidate favorably. Those are ugly numbers. You can spend a lot of PAC money in a hostile environment, but you cannot bludgeon public opinion into liking a sector it already thinks is a scam with a price chart.
That hostile mood has helped create space for new anti-crypto groups. The notes mention Crypto Watchdog and Investors for Transparency, neither of which discloses who funds them on their websites. IFT ran ads in the D.C. area urging senators to “reject this crypto scam, ” and its executive director, Jason Huntsberry, wrote on July 22 that CLARITY is “a dangerous step in the wrong direction...” He also said the Senate “must reject this bill” because it fails to stop crypto from being exploited by America’s enemies and deprives cops and prosecutors of needed financial tools.
Whether those groups are genuine grassroots pressure or just polished astroturf with a fresh coat of outrage is a fair question. In Washington, transparency is often treated like an optional upgrade.
Key questions and takeaways
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Why is CLARITY stalled?
Because the Senate is dealing with several unresolved fights at once: ethics, DeFi enforcement, stablecoin rewards, and prediction markets. Any one of them is enough to jam the gears; all four together make a near-perfect bottleneck. -
What is the biggest political obstacle?
The ethics fight tied to Trump’s crypto profits. Democrats say the bill still leaves room for a president to profit from the sector while shaping the rules around it. -
Is law enforcement unified?
No. The Major Cities Chiefs Association supported the revised illicit-finance language, while the National Sheriffs’ Association warned the bill creates serious public safety risks. Both sides are cherry-picking which cops they want to quote. -
Why are banks pushing back?
They fear stablecoin rewards could function like interest and pull deposits away from traditional accounts. The ABA says it only wants “tiny surgical edits, ” but the real concern is competition for customer balances. -
Why do prediction markets matter here?
Because they overlap with gambling law, derivatives oversight, and tribal gaming revenue. Tribal operators want restrictions on platforms like Kalshi and Polymarket, but Senate leaders do not want to wedge that issue into CLARITY or the farm bill. -
What happens if Congress fails?
Bernstein analysts say the SEC and CFTC could move ahead with their own rules, including Project Crypto and a possible innovation exemption. That would not settle everything neatly, but it would keep the regulatory machine moving.
The bigger lesson is simple: crypto market structure is not getting held up by one obscure clause. It is getting stuck because Congress is trying to legislate across ethics, enforcement, banking, gambling, and agency turf all at once, while the White House and lobbyists are circling the room like sharks in tailored suits.
Crypto can coexist with banking. DeFi can coexist with compliance. Prediction markets can coexist with tribal gaming, if lawmakers are willing to do the hard work. What they cannot do is pretend that a market structure bill is clean while leaving the ugliest conflicts untouched.
Further reading
A few closely related angles worth keeping on the radar:
