The CLARITY Act is intended to end years of regulatory ambiguity by formally splitting oversight between the SEC and CFTC, but internal industry disagreements — particularly over stablecoin rewards and supervisory authority — have slowed its progress in the Senate.

Washington’s long-running effort to establish a coherent federal framework for digital assets has entered a critical phase, with negotiations over the Digital Asset Market Clarity Act (CLARITY Act) revealing fractures not just between regulators and lawmakers, but within the crypto industry itself.

The legislation was widely viewed as the most consequential attempt yet to resolve overlapping jurisdiction between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Yet momentum has faltered after Coinbase withdrew support for the Senate draft in January, prompting lawmakers to delay a scheduled committee markup.

Recent comments from Treasury Secretary Scott Bessent suggest the administration sees a narrowing legislative window, particularly as market volatility and global regulatory competition intensify pressure for action.

Ending the SEC-CFTC Turf Battle

For more than a decade, U.S. digital asset markets have operated in a regulatory gray zone. The SEC has argued that many tokens constitute securities under existing law, while the CFTC has asserted jurisdiction over digital commodities such as Bitcoin and certain derivatives markets.

The CLARITY Act seeks to codify a division of authority:

• The CFTC would oversee spot-market trading of digital commodities, including Bitcoin and potentially Ethereum.
• The SEC would retain authority over securities-like tokens, investment contracts, and tokenized assets that meet the Howey test for securities classification.

By formalizing this split, lawmakers aim to reduce enforcement-by-litigation, provide clearer compliance pathways, and enable regulated exchanges and custodians to operate with greater legal certainty.

The bill also addresses registration requirements for digital asset trading platforms, disclosure obligations for token issuers, and operational standards for intermediaries — areas that have been sources of repeated enforcement actions.

Stablecoins: The Central Flashpoint

A major point of contention centers on stablecoins — digital tokens typically pegged to the U.S. dollar and used for trading, payments, and decentralized finance applications.

Building on last year’s GENIUS Act, the CLARITY Act includes guardrails for stablecoin issuers, such as:

• Reserve composition requirements
• Redemption standards
• Custody and safeguarding obligations
• Anti-money laundering compliance

However, provisions that would restrict or limit yield-like rewards paid on stablecoin holdings have become a sticking point.

Coinbase Chief Executive Brian Armstrong objected publicly, writing, “We’d rather have no bill than a bad bill.”

He said the draft had “too many issues” and warned that it risked weakening the CFTC’s authority relative to the SEC.

For crypto-native firms, stablecoin rewards are viewed as core to competitiveness. Exchanges often share revenue from reserve yields or platform activity with users. Restricting those incentives could alter business models and shift activity offshore.

Banks and traditional financial institutions, on the other hand, argue that allowing crypto firms to offer quasi-deposit-like rewards could siphon funds from the regulated banking system. That concern intersects with broader financial stability debates: whether stablecoin issuers should be treated more like narrow banks or payment utilities.

The disagreement underscores a deeper philosophical divide over how integrated crypto should become with the existing financial system.

Treasury Secretary Scott Bessent has emphasized that recent volatility in crypto markets reinforces the need for clear rules.

“What we’re seeing in the crypto market over the past few months means more than ever that the U.S. needs market structure, we need clarity, and we need to get this across the line this spring,” Bessent said in an interview on Fox Business.

He criticized “recalcitrant actors” resisting compromise and suggested that both banks and segments of the crypto sector are increasingly aligned in support of passage.

“For crypto to remain a viable digital asset and move forward, we need to get this Clarity Act done,” he said.

The reference to a spring timeline reflects legislative constraints. As the congressional calendar fills with budget negotiations and election-year priorities, available floor time becomes limited. If committee markup is not secured soon, the bill could lose momentum.

Supporters argue that the absence of federal market structure legislation deters institutional capital. Asset managers, pension funds, and banks often cite legal uncertainty as a barrier to broader participation in digital asset markets.

A clearly defined regulatory framework could:

• Enable federally regulated exchanges to list digital commodities without fear of retroactive enforcement
• Provide custody clarity for banks and broker-dealers
• Standardize disclosure requirements for token issuers
• Reduce jurisdictional litigation

The legislation is also seen as a strategic competitiveness measure. The European Union’s Markets in Crypto-Assets (MiCA) framework is already operational, and several Asian jurisdictions have adopted licensing regimes. U.S. policymakers worry that prolonged ambiguity could push innovation and capital formation overseas.

National Security and Compliance Dimensions

Beyond investor protection and market efficiency, national security considerations loom large.

Lawmakers continue to debate how the CLARITY Act should address:

• Sanctions compliance in decentralized networks
• Anti-money laundering standards for intermediaries
• Foreign influence risks in digital asset infrastructure
• Oversight of algorithmic stablecoins

Recent enforcement actions and high-profile collapses in the crypto sector have sharpened scrutiny over governance, transparency, and systemic risk.

The integration of stablecoins into payment rails also intersects with U.S. dollar dominance. Some policymakers argue that properly regulated dollar-backed stablecoins could strengthen the dollar’s global role. Others warn that insufficient guardrails could create shadow banking vulnerabilities.

Industry Fragmentation Weakens Leverage

One of the bill’s most consequential dynamics may be the visible fragmentation within the crypto industry.

Exchanges, decentralized finance advocates, stablecoin issuers, venture-backed startups, and institutional players do not share identical regulatory priorities. While many agree on the need for clarity, they differ on the scope of SEC authority, treatment of rewards, capital requirements, and the degree of bank-like regulation.

This lack of consensus weakens lobbying leverage and complicates negotiations with lawmakers seeking a unified industry position.

If major platforms withhold support, senators may hesitate to advance legislation that could face opposition from the very firms it aims to regulate.

Senators involved in the negotiations have indicated that additional closed-door meetings are planned to reconcile disputes over stablecoin incentives, agency jurisdiction, and supervisory mechanisms.

The outcome will determine whether the United States finally transitions from enforcement-driven oversight to a legislated digital asset framework.

Failure to pass the CLARITY Act would likely prolong reliance on court rulings and agency actions to define crypto’s regulatory boundaries. Passage, by contrast, would represent the most comprehensive federal intervention in digital asset markets to date.