With debate still raging as legacy banks and left-wing policy advocates line up to challenge the CLARITY Act, the legislation is on track for a markup hearing at the Senate Banking Committee tomorrow (Thursday, May 14, 20226).
While some in the opposition offer foolish justifications for opposing the bill, the banking industry simply wants a greater regulatory moat to protect its top-line revenue from emerging competition.
CI has received multiple comments on the pending legislation. tZERO CEO Alan Konevsky says the bill’s current language provides the necessary foundation for institutions to transition from pilot programs to scaling digital products globally.
“While this progress is vital, we continue to believe the bill can be further optimized to enhance licensing efficiencies for broker-dealers, so they can operate their digital asset businesses ‘under one roof,’ with full federal preemption from state laws. Reducing fragmented requirements for digital assets will allow firms to deliver the seamless, unified experience that will meet investor demand, foster convergence and optimize efficiency.”
Andrew Forson, President of digital asset manager DeFi Technologies, supports the legislation.
“Regulatory clarity will enable DeFi product creators to better innovate. Limiting access to stablecoin yield to a great extent provides a DeFi and crypto-friendly moat as more innovative pathways to issuing yield will be created. This legislation is a boon to the digital asset space and ensures that finance will continue to innovate with structured instruments that are created and exist outside of the banking sector.”
Can-Luca Köymen, Investment Strategist at Sygnum Bank, a digital asset bank based in Switzerland, says the most recent draft of the CLARITY Act is the cleanest version they have seen and the one most institutionally usable.
“Three things matter for allocators. First, the 1:1 reserve mandate, with high-quality liquid assets limited to short-dated Treasuries under 90 days, overnight repo, and central bank deposits, would remove the structural ambiguity around stablecoin reserve quality that has kept conservative allocators on the sidelines. Second, the CFTC’s confirmed jurisdiction over digital commodities – including BTC – gives mandates that allow commodities but not securities a clearer pathway. Third, the DeFi carveouts and the activity-based rewards provisions preserve the on-chain yield infrastructure rather than collapsing it, which is structurally supportive for tokenization infrastructure.”
While he views the ban on stablecoin yield as a headwind for centralized platforms, he sees it as a tailwind for DeFi protocols and regulated banks that already operate within a compliant framework.
“From a portfolio-construction standpoint, this draft, and the promising progress on the CLARITY Act this year, is one of the structural drivers behind BTC’s declining correlation to equities, from above 0.61 in early February to around 0.50 today. As the framework moves toward passage, BTC’s case as a strategic allocation with unique diversification benefits in a balanced portfolio only strengthens,” posits Köymen. “Once the CLARITY Act passes, the regulatory framework, one of the key remaining barriers for many institutional mandates, would be removed from the equation, and the question becomes ‘how do I size the position?’ The framework likely also raises the probability that some professional investors begin to consider small, highly selective altcoin allocations.”
Download the legislation here.
