Senate shelves Clarity Act, leaving crypto’s yield truce with banks in limbo

The United States Senate has moved the crypto Clarity Act to the back of its schedule, and the slowdown has stalled an important agreement between the crypto industry and the banking lobby on the possibility for stablecoins to yield money to their investors.

The aforementioned agreement is incorporated in the legislation. Banks have spent months negotiating to keep stablecoin issuers from offering interest-like returns on their stablecoin, which may lead to a loss of deposits from banks.

The resulting provisions stop providers from offering returns for simply holding stablecoins while still allowing them to reward customers for engaging in activities that are not equivalent to deposit interest, according to a research by Galaxy. As long as the voting is delayed, this arrangement is not signed into law.

Russia sanctions and a senator’s funeral jump the line

It appears that Senate Majority Leader John Thune has prioritized other issues. It was reported that Thune began the process to approve several nominations on Monday and will tackle a package of sanctions against Russia at the Tuesday night Senate session, at which point he will initiate the clock on cloture.

In accordance with Senate rules, the Senate only allows one bill to be debated at a time, meaning that market structure legislation can only proceed once those particular bills either pass or hit the deadline.

The measure against Russia that would target leadership in Moscow and impose tariffs on trade partners is now known under the name of the late senator Lindsey Graham, who supported the initiative. The funeral of Graham will take place this week, monopolizing the Senate on Tuesday and Wednesday both in Washington and South Carolina.

What can be expected is that the Clarity Act will not be voted upon until next week, just before the Senate starts its summer break on August 8. If this opportunity is missed, the next one does not come until September.

The ethics provision still blocking 60 votes

The larger issue is that the legislation has yet to be finalized. Negotiators are still grappling with a rule, supported by the Democrats, which prohibits high-ranking officials, including President Donald Trump, from having any connections to the crypto industry. While Trump indicated last week that he would comply by the new rule, but the Democrats rejected the proposal stating it would leave his crypto holdings safe.

The battle has taken on a form beyond just conventional rivalry. Axios reports that a number of progressive associations including Indivisible and Demand Progress have sent a letter to every Democratic senator criticizing Senator Kirsten Gillibrand, who is currently trying to negotiate a compromise to resolve the issue. It is evident that money lies at the root of the issue, as Fairshake, which is a super PAC involved in the issue, claims that it has at its disposal total of $125 million.

As negotiations have reached the White House thanks to Republican senators Bernie Moreno, Cynthia Lummis, and Thom Tillis, it is still necessary for the bill to get the support of 60 senators. Until now, only Democratic representatives Ruben Gallego and Angela Alsobrooks have approved of the original proposal of the Banking Committee.

A 616-page bill that still needs Democrats

The legislation being debated by the senators is extensive. According to Galaxy Research, the draft released recently spans 616 pages and consists of 104 sections and four divisions.

In a previous report, Cryptopolitan informed about the content of the bill that combines the bills offered by Banking and Agriculture committees as two major parts, presents ethics limitations, a law enforcement title, amendments of last year’s GENIUS Act, and some other negotiated provisions. Galaxy evaluated the chances of the bill approval at 30%, and the most radical opponent of the bill, Senator Elizabeth Warren heavily criticized the current version of the bill.

Officials from various states are also opposing the legislation. According to New York Attorney General Letitia James, in her testimony before the Senate Permanent Subcommittee on Investigations, the new legislation would transfer oversight from states to the Commodity Futures Trading Commission, thus limiting states’ abilities to regulate scams. James’s office states that it has received three times as many complaints about scams in the past three years.

What happens if the window closes

If Clarity fails to get through this session, there is still hope for the industry in the form of the ongoing implementation of GENIUS Act and rulemaking processes at the SEC and CFTC.

Even if the Senate passes the bill, it will still have to make its way through the House that will be paralyzed by conflict among Republicans, and then subsequently to Trump who is known for refusing to sign bills until Congress agrees on the new set of requirements for verifying voters’ identities.

In the following week, we may see the first moves towards cloture before Congress goes on break. This may represent the highest level of achievement for lobbies promoting crypto before September.

Circle CEO Jeremy Allaire has consistently argued that regulatory clarity would accelerate institutional adoption rather than merely benefit crypto firms.

A comprehensive federal framework for payment stablecoins would strengthen the U.S. dollar and improve the competitiveness of the U.S. financial system.

Allaire explains the market consequences (“institutional adoption remains on hold until Congress provides regulatory certainty”). Instead of banks vs crypto
legislation delayed becomes institutional adoption delayed. The story from a conflict between banks and crypto firms to a broader question of whether delayed legislation is postponing Wall Street’s deeper participation in digital assets.

The Bank Policy Institute has argued that stablecoin issuers performing bank-like functions should face comparable regulatory requirements. The Senate’s delay leaves unresolved whether Congress will eventually require stablecoin issuers offering yield-like products to compete under rules similar to those governing banks. 

Implications to the crypto market

Circle welcomed Senate passage of the GENIUS Act, with Allaire saying:

“The GENIUS Act establishes clear rules that will help modernize the financial system while protecting consumers and supporting innovation.”

Galaxy’s head of research Alex Thorn provided one of the strongest market-impact assessments:

“As the Senate calendar tightens and a lack of progress in negotiations makes passage less likely than several weeks ago.”

He also wrote that a 60-vote bill that still needs a merged Banking-Agriculture text, a motion to proceed, floor debate, an amendment process, and then House action… the runway is quickly declining into just a matter of weeks.

Alex Thorn also says legislative momentum has slowed because “the Senate calendar tightens” and the time available for negotiations is “quickly declining into just a matter of weeks,” even as he still assigns the bill roughly even odds of becoming law this year.

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