CLARITY Act stalemate leaves US crypto policy vulnerable to future crackdowns
The CLARITY Act’s continued limbo in the US Senate is creating a potentially dangerous gap for the digital asset industry, leaving core protections for developers and businesses dependent on politics rather than law, warns Peter Van Valkenburgh.
Van Valkenburgh, executive director at Coin Center, argues that the bill represents a rare opportunity to lock key safeguards into statute. Without that, he says, today’s relatively constructive regulatory posture could easily be reversed by a future administration with a more hostile view of crypto.
According to him, the point of the CLARITY Act is not to reward the current regulators, but to constrain their successors. By codifying how developers and certain activities are treated under federal law, Congress would make it much harder for any future White House or agency leadership to suddenly change course through reinterpretation or aggressive enforcement.
If lawmakers fail to act, Van Valkenburgh warns, the environment for crypto builders could turn “grim.” In such a world, innovators would be forced to operate under a cloud of uncertainty, always wondering if a change of political winds might turn ordinary development work into the target of investigations or prosecutions. Instead of clear rules, their fate could hinge on “prosecutorial discretion, political fashion, and fear.”
At the heart of the CLARITY Act is an attempt to answer a question that has dogged the industry for years: when is a crypto token a security, and when is it something else, such as a commodity or a payments instrument? The bill aims to establish uniform federal standards for digital assets, clarifying which regulators are responsible for oversight and what obligations fall on market participants.
This effort is part of a broader legislative push in Washington to sort out overlapping jurisdictions among agencies like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Without a clear framework, companies face the risk of being regulated by enforcement after the fact, instead of by rules written in advance.
Despite its significance, the CLARITY Act has become bogged down in the Senate, where disagreements among banks, crypto companies, and lawmakers have stalled progress. One of the fiercest points of contention revolves around whether crypto platforms and intermediaries should be able to provide yield-like products and rewards tied to stablecoins.
A Senate draft circulated in January would effectively ban firms from paying interest simply for parking stablecoins on a platform. However, it would carve out room for certain reward structures connected to real activity, such as transaction-based incentives, payments, or loyalty schemes for frequent use.
That seemingly technical distinction has become a major political and economic fault line. Banking groups contend that allowing stablecoin interest products could siphon deposits away from the insured banking sector, undermining financial stability and eroding their traditional funding base. Crypto firms counter that overly strict limitations would entrench incumbents, stifle competition, and push innovative financial products offshore.
The House of Representatives managed to pass its own version of the CLARITY Act back in July 2025, signalling substantial bipartisan interest in setting ground rules for digital assets. However, the Senate negotiations lost steam afterward, and the bill has since drifted without a clear path to a final vote or a reconciled text.
For many in the industry, the risk is not only that regulation remains unclear, but that they will be forced to rely on nonbinding guidance, informal assurances, or agency priorities that can change from one administration to the next. A framework that looks workable today could be discarded or reinterpreted tomorrow by new leadership with different political incentives.
Van Valkenburgh links this fragility to the experience around the tenure of former SEC Chair Gary Gensler, whose last day in the role was January 20, 2025. Under Gensler, the SEC leaned heavily on enforcement, arguing that many tokens were unregistered securities. In the aftermath of his departure, the Commission’s stance has shifted, including the creation of a dedicated Crypto Task Force under Commissioner Hester Peirce, generally perceived as more open to tailored rules.
Yet Van Valkenburgh stresses that relying on “friendly” regulators is no substitute for statutory clarity. The current SEC might exercise discretion in ways that accommodate innovation, but nothing stops a future chair from reviving a more aggressive approach. Only Congress, he argues, can provide durable, predictable rules that survive beyond a single political cycle.
This tension highlights a core dilemma for US crypto policy: should the industry navigate a patchwork of guidance, no-action letters, and shifting enforcement priorities, or fight for a comprehensive law that might be harder to shape but ultimately more stable? The CLARITY Act is one of the few attempts to choose the second path.
The implications stretch far beyond large exchanges or token issuers. Developers working on open-source protocols could find themselves caught in the crossfire if the law remains ambiguous. Without explicit legal protections, code contributors and infrastructure providers might be accused of facilitating unregistered securities offerings or illicit financial activity, even when they never take custody of user funds.
This kind of uncertainty can have a chilling effect. Startups may relocate to friendlier jurisdictions, investors may demand higher risk premiums, and talent may gravitate toward sectors with clearer guardrails. Over time, that could erode the United States’ position as a hub for financial and technological innovation, while rival regions move ahead with their own digital asset frameworks.
The debate around stablecoin yields is also a proxy for deeper questions about the future of money and banking. If dollar-pegged tokens become a major medium for payments and savings, policymakers must decide how much of that activity should stay inside the traditional banking perimeter. The CLARITY Act, by setting boundaries on rewards and interest, is effectively drawing lines around what counts as banking-like activity and what remains in the open crypto ecosystem.
Critics of the bill in its current form argue that too much deference to banks could stifle new models of value storage and transfer. They point out that stablecoin platforms, unlike banks, typically do not lend out deposits fractionally and often hold reserves in highly liquid assets, potentially presenting different risk profiles. From this perspective, blanket prohibitions on interest could be a blunt instrument that protects incumbents more than consumers.
On the other side, financial stability advocates warn that once yield-bearing stablecoins become widespread, they could recreate bank-like runs outside the regulatory perimeter. If users rush to redeem tokens during stress events, the pressure on underlying reserves could spill into Treasury markets or other core funding channels. For them, the CLARITY Act’s restrictions on stablecoin returns are a safeguard, not a giveaway to legacy institutions.
Beneath the technical language, what is really at stake is which model of regulation will govern the next phase of crypto’s development: a reactive, enforcement-led approach that treats digital assets as a problem to be contained, or a rules-based system that specifies in advance what is allowed and what is not. The longer the CLARITY Act remains stuck, the more the US defaults to the former.
International competition adds another layer of urgency. While the US debates how to classify tokens and structure stablecoin rewards, other jurisdictions are moving ahead with dedicated digital asset regimes and licensing systems. If domestic rules remain uncertain or are perceived as arbitrary, major players could re-domicile, and new financial infrastructure might be built elsewhere.
For individual developers and entrepreneurs, the path forward in the absence of legislation is fraught. Many will continue to seek legal opinions, register where possible, and design products to minimize regulatory risk. But without a baseline law like the CLARITY Act, each new project becomes a bespoke compliance puzzle, raising costs and creating barriers to entry.
In Van Valkenburgh’s view, this is a squandered opportunity. A well-designed statute could draw a bright line between protected innovation and clearly prohibited conduct, shielding legitimate builders while preserving ample enforcement tools against fraud and abuse. Failing to enact such a law, he cautions, leaves everyone-developers, regulators, and consumers-navigating a landscape where the rules can change with every election.
Until the Senate breaks its deadlock, the crypto industry will remain in this precarious middle ground: too large and consequential to ignore, but still operating without the legal clarity that long-term investment and responsible innovation require. Whether lawmakers can bridge their differences on issues like stablecoin yields may determine not only the future of the CLARITY Act, but also how-and where-the next generation of digital finance takes shape.