CI has received dozens of comments about the US Senate’s failure to advance the CLARITY Act. The legislation would have protected consumers while enabling innovation with defined regulatory oversight. This common-sense approach was crushed by midterm politics and the Democratic Party’s refusal to give Republicans a win before the elections.
After the CLARITY Act debacle, federal regulators are moving forward with rule updates to accomplish much of what the bill would have achieved. While not optimal, the Administration has little choice as it seeks to create an environment where the US leads the world in digital asset innovation, and creators remain stateside.
Konstantins Vasilenko, co-founder and CBDO of Paybis, a MiCA-licensed crypto exchange and wallet with over 7 million users, said that under MiCA a user must show that it is authorized and how its reserves are managed.
“Treasury has raised questions about smart contracts and functions such as “freeze”, “seize”, or “burn”. A check can establish that the issuer has the capability and the process to respond to a lawful order. It cannot guarantee how the issuer will respond in every future case, so Treasury should say what evidence is enough. Europe is still deciding how much it can rely on supervision outside the EU. Mutual recognition should be granted requirement by requirement. Where both sides ask the same question, one answer is enough; where they do not, as with lawful-order capability, the check has to be done twice.”
Matt Price, Head of Global Partnerships at WasabiCard, a globally compliant stablecoin platform, said the demise of the CLARITY Act leaves the industry with ongoing problems, as firms do not have an answer as to how some digital asset products will be classified or which rules apply.
“Companies can spend a lot of time with lawyers trying to work out which rules apply before they commit money to a product. A launch can be delayed, or a commercial agreement can sit on hold, because no company wants to find out after launch that a regulator takes a different view,” says Price. “Firms still have to make launch and funding decisions without knowing whether the SEC or CFTC has jurisdiction. I expect some launches and partnerships to be pushed back for exactly that reason.”
Price said banks and payments companies will remain cautious. Before backing a digital asset project, they want to know what the compliance obligations are. And whether they could change after a product launches.
” This could slow innovation and adoption in the marketplace.”
The Executive Director at the Decentralization Research Center, Kyle Bligen, said the Senate vote was disappointing and that digital asset markets still need durable, clear rules. While Congress is the best route, in the absence of legislation, the SEC and CFTC should leverage their existing authorities to provide regulatory clarity, noting that rules designed around legacy intermediaries do not simply map into the digital asset realm.
“The policy challenge now is to protect consumers and combat illicit activity without imposing obligations on actors that do not actually possess the control or authority needed to comply with them. That work cannot stop because the legislative process has stalled.”
Yesterday, a group of Democrats voiced their support for crypto asset legislation after voting against the CLARITY Act in a profound act of hypocrisy. The announcement is probably best viewed as an attempt to assuage the estimated 67 million US adults who hold digital assets.