Did the "Clarity Act" not pass, is this a bad outcome?

Author: Zhou, ChainCatcher

In the early hours of September 16, Beijing time, the U.S. Senate held a vote to terminate debate on the "Digital Asset Market Clarity Act," with the final vote tally at 49 in favor and 50 against, failing to reach the 60 votes needed for passage. The Republican Party currently holds 53 seats, with at least 3 members not voting in favor.

After more than a year of back-and-forth and two delays in voting, the bill still could not cross this threshold. Following the news, Bitcoin briefly fell to around $75,000, and crypto-related stocks such as Coinbase, Circle, Robinhood, and Strategy collectively declined. The probability of the bill becoming law by the end of 2026 on Polymarket dropped from over 30% at the beginning of the week to about 5%.

The direct reason for the failure was that the Democrats did not accept the text released by the Republicans on September 14. The Republicans referred to that version as the final proposal before the vote, but the Democratic negotiators did not accept it and submitted a counter-proposal just hours before the vote. Mark Warner later stated that while the disputes over enforcement and national security were close to resolution, the conflict of interest regarding public officials profiting from the crypto industry had not been resolved, leading to his vote against the bill. Democrats involved in the negotiations, such as Ruben Gallego, Angela Alsobrooks, Kirsten Gillibrand, Catherine Cortez Masto, and Cory Booker, ultimately sided with the opposition.

The counter-proposal remained stuck on ethical provisions. The core issues included expanding the scope of restrictions, requiring the forced sale of equity in specific crypto companies, tightening enforcement and disclosure by initiators, and adding protections related to DeFi. The revised text still did not restore the criminal safe harbor for developers, miners, and validators found in the BRCA. Cynthia Lummis's office spokesperson Katie Warbinton responded that if the Democrats genuinely wanted to reach an agreement, they should start real negotiations instead of resubmitting their original demands and calling it progress. Neither side made further concessions before the vote.

However, this defeat only means that the bill cannot temporarily enter the formal review and amendment process; it does not equate to a final rejection. There is currently no timetable for whether another attempt can be made to gather 60 votes within the year.

What concessions did the Republicans make?

On the eve of the vote, the text from September 14 was written by the Republicans as the final proposal before the vote. Compared to the merged draft in July, the changes focused on ethics, stablecoin yields, DeFi and developer protections, and agricultural committee provisions.

Specifically, regarding ethical provisions, Trump accepted about 80% of the content from the proposals by Thom Tillis and Ruben Gallego, requiring federal elected officials, judges, and their spouses who hold significant economic interests in token issuers to divest their positions or place them in blind trusts. For the first time, state attorneys general were granted some enforcement powers, but their authority was limited to prosecuting trading platforms that list non-compliant assets, without reaching the president himself. Previously, this power was only granted to the federal Attorney General. The provisions are set to sunset in 2029, and old positions are not required to be liquidated.

Regarding stablecoin yield provisions, payment stablecoins generally still cannot pay passive interest solely because users hold them. The new text includes a maximum 18-month circuit breaker mechanism, allowing federal regulators to intervene if there are signs of large-scale deposits flowing from community banks to stablecoins, with the determination of whether to trigger it made by Treasury Secretary Scott Bessent. This is a direct result of months of lobbying from the banking industry, but eight groups, including the American Bankers Association, do not buy it, believing that the circuit breaker only activates after deposits have already fled.

In terms of DeFi and developer protection provisions, decentralization was divided into two scenarios. Those truly not handling user assets, such as validators, node operators, and those releasing wallet software, received clearer safe harbor exemptions. Trading protocols that are nominally decentralized but still retain control must register with the CFTC and comply with the Bank Secrecy Act. The BRCA, or Blockchain Regulatory Clarity Act, was also narrowed, removing previous references extending to criminal cases, leaving only protections under the Bank Secrecy Act and civil matters.

What does this mean for exchanges, stablecoins, and protocols?

The "Clarity Act" has stirred the crypto market because it touches on three long-standing unresolved issues: whether digital assets are considered securities or commodities, which agency should lead—SEC or CFTC, and whether stablecoins straddle the line between payment tools and deposit-like products, as well as the boundaries of rewards. Protocols must achieve greater decentralization to avoid being treated as regulated intermediaries.

For exchanges, the real change lies in the compliance costs of listing assets. The ethical provisions delegated prosecutorial authority to state attorneys general, meaning exchanges must now consider not only federal compliance lines when reviewing tokens but also the accountability risks from individual states. Letitia James led 18 state attorneys general in sending a joint letter before the vote, stating that the text would weaken the first line of defense against fraud at the state level.

Miles Jennings, head of policy at a16z crypto, believes that arrangements such as customer asset segregation, qualified custodians, and restrictions on conflicts of interest are precisely the mechanisms missing when FTX collapsed. The bill essentially transfers rules that have long existed in traditional financial markets to the crypto industry. Nate Geraci, president of ETF Store, reminded that these changes are more about enhancing certainty and accelerating innovation; the bill itself is not the key variable determining the direction of cryptocurrencies.

For stablecoin issuers and related banks, the 18-month circuit breaker mechanism does not genuinely address the concerns of banks, which is also a specific reason for the loss of Republican votes. Eight groups, including the American Bankers Association, wrote to the Senate leaders of both parties, arguing that the circuit breaker would only activate after large-scale deposit outflows had already occurred, failing to provide real protection.

Republican Senator John Cornyn publicly stated before the vote that the new text might still not address the core concerns of community banks, which is one reason he was considered a potential opposing vote. The White House Economic Advisory Council had attempted to use an interactive tool to refute claims that the growth of stablecoins would squeeze community bank deposits, but it failed to change the positions of banking groups and legislators like Cornyn.

For protocols, the real watershed is whether the teams are willing to relinquish control, and this dividing line is drawn in a way that leaves no one satisfied. The developer rights organization Coin Center expressed disappointment at the narrowing of the BRCA's protection scope, believing that removing references extending to criminal cases weakened the previously achieved developer protections.

Mike Novogratz, founder of Galaxy Digital, stated that the inadequacy of developer protection provisions was one of the reasons for opposition from at least four Republican senators, indicating that this dissatisfaction exists not only within the developer community but also permeates the Republican base.

Not passing does not mean regulation is at zero

So, does this count as a bad outcome for the market?

Previously, Mike Novogratz stated that if the bill does not progress, the U.S. might not see crypto legislation for a long time, or perhaps never, leading to more parts of the industry moving overseas. White House crypto advisor Patrick Witt also mentioned that once procedural voting fails, no one can predict when the next window will open.

However, some voices believe that the regulatory process will not be interrupted by a single vote. SEC Chairman Paul Atkins stated that regardless of whether the bill passes, the SEC will continue to advance the Project Crypto agenda, including establishing rules for crypto asset issuance, incorporating blockchain ownership ledgers into transfer agent rules, and clarifying custody requirements for investment advisors and regulated funds.

Zach Pandl, head of research at Grayscale, noted that regulatory frameworks for areas such as stablecoins, token issuance, tokenized securities, and perpetual futures are gradually becoming clearer, and the "GENIUS Act" has already established a federal framework for payment stablecoins. Bernstein warned that if legislation is blocked and combined with tightening monetary policy signals, crypto assets and crypto stocks may experience significant pullbacks.

This text, referred to by the Republicans as "the last best and final" proposal, did not secure 60 votes but left behind a baseline of concessions the Republicans are willing to make, potentially serving as a starting point for the next round of negotiations.