An Inside Look at Why Months of Work on the Clarity Act Completely Collapsed

The Digital Asset Market Clarity Act was doomed from the start.

The legislation faced significant hurdles right out of the gate; a wide array of political, policy, and social conditions needed to align perfectly for it to pass. Ultimately, multiple challenges steadily diminished its chances of survival over the past year. In the end, the measure encountered bipartisan pushback when it reached the Senate floor earlier this month for a crucial make-or-break procedural vote, leaving its destiny hanging in the balance.

Warning signs had been accumulating for months.

Based on discussions with more than a dozen legislative aides and industry insiders over the preceding 10 days—some requesting anonymity to speak freely regarding this difficult procedure—a combination of elements ultimately destroyed the Clarity Act.

The Senate disregarded the House of Representatives’ version of the Digital Asset Market Clarity Act, which had previously secured overwhelming bipartisan backing; the Senate’s alternative was pieced together incrementally; interventions by President Donald Trump and his administration complicated discussions; the cryptocurrency sector maintained an unfocused lobbying strategy throughout the process; Democrats dismissed an ethics compromise they deemed inadequate; and lawmakers ran out of time as midterm elections approached.

Consequently, despite an extensive advocacy effort producing what was dubbed the most pro-crypto Congress in history following the 2024 elections and the enactment of a primary stablecoin measure last year, the digital asset sector’s premier legislative objective—market structure reform—remains unfulfilled.

The Digital Asset Market Clarity Act sought to establish precise oversight boundaries for the industry’s two principal regulators, the Commodity Futures Trading Commission and the Securities and Exchange Commission, regarding the roughly $3 trillion and expanding digital asset ecosystem. While the prior year’s Guiding and Establishing National Innovation for U.S. Stablecoins Act detailed federal supervision specifically for stablecoins, this comprehensive market structure legislation has long been sought by the industry for several reasons.

First, cryptocurrency spot markets presently occupy a federal regulatory blind spot. The CFTC lacks spot market jurisdiction over these venues outside of explicit fraud cases and associated derivative instruments. Second, the SEC had historically never promulgated formal regulations defining its oversight approach for crypto-linked securities, and numerous sector leaders grew alarmed by former Chair Gary Gensler’s attempts to force spot trading platforms into existing securities frameworks. Furthermore, no clear statutory line exists to demarcate where SEC jurisdiction terminates and CFTC authority begins.

Without this statute, the respective agencies began issuing joint guidance earlier this year to clarify their supervisory perspectives on digital asset markets, yet a formal market structure bill could address these matters with greater legal certainty and permanence.

The Ethics Provision

Determining whether the Clarity Act failed strictly because of the contentious clause aimed at restricting high-ranking government officials—specifically Trump—from personal crypto entanglements is difficult, yet ethical concerns shadowed the measure throughout its formulation and persist as a central theme in the broader discourse.

Democratic misgivings regarding President Donald Trump’s digital asset business connections date back to 2025. In May of that year, Senator Ruben Gallego alongside eight additional Democrats announced they would oppose the GENIUS Act due to Trump profiting from the industry. Ultimately, those legislators supported the measure following minor adjustments, but the reality that the Trump family’s digital asset ventures—including American Bitcoin, the $TRUMP memecoin, and World Liberty Financial—would complicate subsequent market structure negotiations remained evident. At the time, Trump stated during Meet the Press that he was not profiting from anything and desired crypto simply because millions of people wanted it. More recently, financial disclosures from June revealed earnings of $1.4 billion generated through his crypto initiatives during his initial year back in office, exceeding half of his total $2.2 billion intake for 2025.

Democrats aimed to prevent Trump from so openly capitalizing on an industry that had invested heavily in his 2024 presidential campaign, inauguration galas, a replacement ballroom for the demolished White House East Wing, a military procession, and his political action committee.

While proponents argued the ethics clause was meant to apply broadly to current and future presidents and senior officials, Democrats remained specifically alarmed by Trump’s commercial ties. Multiple sources noted these anxieties persisted continuously since his return to office, with one observer emphasizing that Democrats genuinely prioritize these principles.

The cryptocurrency sector should not have been caught off guard by the firmness of Democratic resolve on the ethics issue, according to that same source.

During May, long-time digital asset advocate and cosponsor of multiple industry bills Senator Kirsten Gillibrand warned attendees at CoinDesk’s Consensus 2026 conference that the legislation would not progress absent an ethics clause. Similarly, Senator Angela Alsobrooks, who backed the bill during a Senate Banking Committee markup, indicated at the time that she would withhold support from subsequent steps without further modifications.

Even industry representatives anticipated a definitive resolution regarding the ethics clause prior to a full floor vote involving all 100 senators. Cody Carbone, leader of the Digital Chamber, informed reporters following the Banking Committee’s endorsement in May that he expected the agreement to be finalized beforehand to ensure organizers felt confident securing sixty votes.

Ultimately, lawmakers from both sides failed to reach such an accord. Senate Republicans and the White House released multiple proposals, Senate Democrats delivered counterproposals, and Senators Thom Tillis and Gallego advanced a bipartisan compromise earlier in the year. All three factions failed to forge a consensus ahead of this month’s floor vote.

Several individuals identified Trump’s June financial disclosure as the catalyst that intensified these worries by providing politicians with a straightforward headline figure to leverage in demanding the liquidation of his digital asset portfolio.

Those anxieties escalated as November approached.

Stu Alderoty, chief legal officer at Ripple Labs, remarked that politics clearly superseded policy, noting it was sound policy but the industry must improve its political acumen.

Ron Hammond, policy and advocacy director at Wintermute, highlighted that both Alsobrooks and Gallego ultimately opposed the bill on the floor, illustrating how the looming election overshadowed all other considerations. Others observed that Gillibrand similarly voted against the procedural motion. Even sympathetic Democrats could not afford appearing lenient toward perceived corruption regarding Trump with an election imminent.

Appearing at CoinDesk’s Policy & Regulation conference last week, Representative Ritchie Torres attributed the collapse directly to Trump’s crypto involvement.

Expressing his personal view, he noted that although the bill’s demise had numerous origins, he remains convinced that absent Donald Trump, both parties likely could have achieved consensus, but the introduction of a personal presidential memecoin created an insurmountable political dilemma for Democrats.

Coinbase and the January Delay

The sector’s direct participation in the legislative timeline also faced scrutiny. The Wall Street Journal reported last week that insiders assigned part of the blame to Coinbase and CEO Brian Armstrong after Armstrong publicly revoked support for the Senate Banking Committee draft prior to a crucial January vote.

Armstrong cited concerns regarding how the draft handled stablecoin rewards and yields as a primary objection. This delay triggered a multi-month dispute between banking and crypto interests while legislators attempted to forge compromises, overshadowing discussions on other outstanding topics.

Although industry figures and Senator Cynthia Lummis rallied to support Coinbase following the report, industry contacts informed CoinDesk that Armstrong’s public statement and the ensuing months-long fight over yields severely damaged the broader push for the Clarity Act.

One crypto lobbying participant suggested that had the ethics proposal released earlier this month been introduced during the spring, the probability of a successful vote would have increased significantly.

Ripple CLO Alderoty noted during a telephone interview that January offered an opportunity for advancement unhindered by midterm pressures.

That timeframe would have provided greater breathing room for negotiations without the looming shadow of midterms, Alderoty explained.

Charley Cooper, president and chief operating officer at Ava Labs, similarly observed that holding the floor vote less than two months prior to election day created a hostile environment for success.

The release of a revised ethics proposal earlier this month initially renewed optimism that the overarching legislation might succeed, he noted, but that hope collided with a fiercely divided electorate and intense partisan combat just six weeks before the election.

To be clear, nobody guaranteed an earlier vote would have succeeded. Many who spoke with CoinDesk praised Armstrong and Coinbase for their overall contributions to the bill’s drafting. Furthermore, despite industry assertions that banking representatives should have contested stablecoin yields during the GENIUS Act proceedings, one observer pointed out that the Senate Banking Committee’s July 2025 discussion draft explicitly invited that debate by asking how legislation should address yield-bearing digital assets and stablecoins.

Had Senate Republicans published their early September ethics proposal during the spring, the debate over specific terms might have yielded better results, three sources suggested, though others remained skeptical, arguing that the political weight of the ethics debate was destined to dominate all other aspects, including stablecoin yields and decentralized finance risks.

However, the timing proved detrimental.

Immediately following the postponement of the Senate Banking Committee’s initial January hearing, the United States entered a conflict with Iran, driving up energy costs and exacerbating an already erratic global financial environment. Voter frustration regarding economic conditions and foreign policy caused Trump’s approval ratings to decline over preceding months. Concurrently, progressive primary victories reinforced Democratic reluctance to risk alienating their core base by supporting a crypto measure.

Neither faction was willing to take a bold risk that might grant the opposition a political victory, Cooper observed, making the ultimate failure unsurprising.

The House Bill

The timing difficulties stem from another contentious factor: the Senate’s decision to draft its own proprietary legislation. The House of Representatives overwhelmingly passed its version of the Digital Asset Market Clarity Act in July 2025 by a 294-134 margin, drawing support from 78 Democrats. The Senate largely ignored that text to pursue its own measure, initially titled the Responsible Financial Innovation Act before adopting the Clarity Act moniker later.

The Senate employed a comparable approach with the GENIUS Act concerning stablecoins; despite an existing House bill, the Senate developed its own text which ultimately became law. Although representatives repeatedly expressed a desire for the Senate to adopt their version of the Clarity Act throughout the past year, that outcome never materialized.

Wintermute’s Hammond noted that the Clarity Act faced severe obstacles primarily because the Senate chose to bypass the House-passed measure and draft its own legislation.

Many complications that bogged down the Senate bill recently were non-existent last year, he explained in an interview. Banking lobbies were not contesting stablecoin yields throughout most of 2026, political tensions were lower, and interest groups had not yet fully mobilized.

Two additional sources indicated the House likely never anticipated the Senate adopting its bill verbatim, yet passage was necessary. Securing a two-thirds majority in the House demonstrated clear bipartisan momentum to the Senate.

Representative French Hill, chairman of the House Financial Services Committee, noted in April that the Senate bill incorporated elements from House work on both the Clarity Act and its precursor, the Financial Innovation and Technology for the 21st Century Act.

Nevertheless, the Senate authoring its own bill introduced the complication that any amended text would need to return to the House for final approval, with unpredictable results.

With the House scheduled to recess almost immediately after the Senate reconvened this month, even successful Senate votes would have delayed House consideration until the post-election lame-duck session. Moreover, a former House aide remarked that the House would not necessarily have rubber-stamped the Senate text.

Former Representative Tim Ryan, advising various digital asset firms, stated through a spokesperson that the House would first need to evaluate how the Senate measure interacted with its own prior work.

A solid Senate consensus could have catalyzed House action, he noted, provided substance and vote counts aligned. The ultimate objective remains establishing a functional legal framework that fosters domestic innovation.

Negotiating Tactics

Several observers criticized the negotiation methodology itself. Unlike historical legislative efforts where bipartisan staff collaborated directly within closed rooms, this process lacked such cohesion.

Industry contacts reported that Republican staffers typically drafted provisions, submitted them to Democratic counterparts for feedback, integrated revisions into subsequent drafts, and then presented the product as bipartisan collaboration.

However, Republican drafters occasionally inserted unilateral concessions to court Democratic votes, sources noted, citing modifications to the Blockchain Regulatory Certainty Act as an illustration.

A Democratic staffer countered that negotiators would occasionally agree to specific terms only for Republican counterparts to subsequently reverse course.

Earlier this year, after the White House and Senate Republicans agreed to an initial draft of an ethics clause, negotiators briefed industry representatives and actively promoted the language before sharing the proposal with Senate Democrats.

One source criticized Republican staff for excluding Democratic aides from the workflow, arguing that this tactical error handed leverage to the opposition by denying them formal ownership of concessions.

Another observer cited the press release announcing the revised ethics proposal, issued solely through Senator Lummis’s office, as an odd strategy for promoting a purportedly bipartisan initiative.

Punchbowl News covered details surrounding these negotiations last week.

Multiple sources also cited White House adviser Patrick Witt, suggesting he desired the bill’s passage but lacked the experience required to coordinate such intricate legislation. Critics noted that Witt’s social media posts signaling imminent breakthroughs distorted industry expectations. Witt declined interview requests at a Georgetown event last week.

Two legislative aides and an industry participant recounted that a eleventh-hour negotiation led by Senator Tillis during the September 15 procedural vote proposed offering the Tillis-Gallego ethics framework as a floor amendment. One Democratic aide stated the party was on the verge of securing a successful procedural vote before discussions collapsed.

Several sources confirmed the talks were abruptly terminated by a staffer working for Senate Banking Committee Chairman Tim Scott. Senators Chuck Schumer and Gallego issued statements asserting that a viable bipartisan deal had been dismantled.

Eleanor Terrett of Crypto in America initially reported that Scott’s aide halted the negotiations.

A person familiar with the discussions clarified that the staffer had directed his team to withdraw from the talks, noting that representatives from the White House and Senate Agriculture Committee Republican staff were absent. With Republicans having rejected the prior late-night Democratic counterproposal, formal discussions had already concluded. The staffer reportedly did not view the exchange as active negotiation given that the process was closed, and disputed halting any active progress.

An industry participant observed that during the vote, Tillis and negotiating Republican staff acted without leadership backing. A Democratic aide added that party leadership ultimately undermined Tillis and Lummis after they had essentially forged an agreement. The industry source confirmed that while terms on certain provisions were agreed upon, formal written text remained pending.

The cryptocurrency sector’s own negotiating approach also drew criticism; one observer noted that while the industry eventually aligned on crypto-specific provisions, alternative strategies—such as emphasizing real-world merchant use cases rather than abstract concepts in Washington—would have better served their interests.

Leaders could have exerted more pressure to foster genuine bipartisan compromise, an aide suggested.

The Upcoming Midterm

The year 2026 brings midterm elections. Earlier projections anticipated Republicans losing the House while retaining the Senate.

Many analysts argued this dynamic precluded Democrats from handing Trump a legislative victory prior to the election, particularly given that progressives generally oppose digital assets.

Senator Bill Hagerty recounted warning colleagues at a Georgetown University forum that proximity to the November 3 election diminished passage odds, though he suggested revival remains possible post-election.

Acknowledging the unfortunate political reality, he noted potential opportunities for continued refinement of specific provisions.

The Future of Fairshake

The failed vote raises questions regarding the trajectory of crypto political action committees. Fairshake, the leading super PAC, has already allocated $30 million against former Senator Sherrod Brown, challenging Ohio Senator John Husted. Brown, who previously chaired the Senate Banking Committee, consistently opposed digital asset legislation and committee hearings while in office, though he remained quiet on the issue during his recent campaign.

WisdomTree Chief Legal Officer Ryan Louvar noted neither party perceived significant political risk in letting the Clarity Act fail.

Whether Fairshake and affiliated PACs can influence the 2026 election outcome remains uncertain. Recent polling indicates Democrats gaining House seats alongside competitive Senate contests. Exclusively aligning super PACs with the Republican party could backfire if Democrats reclaim control of either congressional chamber or capture the presidency in 2028.

Fairshake was not structured for a wave election, one observer noted, citing two high-profile misfires. The PAC invested $10 million opposing Lieutenant Governor Juliana Stratton’s Senate bid in Illinois, yet Stratton won and remains favored in the general election.

PACs must maintain delicate strategic equilibrium and avoid complete alienation of Democrats.

Another source questioned whether Fairshake’s threats proved ineffective or if Democrats simply ran out the clock strategically to evade multimillion-dollar opposition spending.

The Elusive Crypto Voter

A Democratic aide cautioned that the digital asset industry cannot assume future administrations or legislatures will remain uniformly bipartisan or favorable, warning against political pendulum shifts. Directing PAC funds against Democrats as retribution for this month’s vote risks alienating vital allies.

A former legislative staffer identified a lack of grassroots infrastructure in Washington as another systemic vulnerability for PACs like Fairshake.

Informing lawmakers that millions of citizens own digital assets proves ineffective unless local constituents demonstrate why the issue matters to them, the source explained. Elected officials remain skeptical when home-district feedback fails to reflect industry claims.

Alderoty, heading the Ripple-supported National Cryptocurrency Association, noted estimates of roughly 67 million American holders, yet the organization struggled to arrange meetings between senators and constituents to discuss practical applications.

Furthermore, digital assets rank low among voter priorities. A CoinDesk-commissioned survey of 1,000 registered voters nationwide revealed only 1% considered crypto a primary concern, far behind the cost of living, employment, the economy, Social Security, and Medicare.

Unfavorable views toward digital assets outweighed favorable perceptions among self-described and strong Democratic voters, discouraging legislative action. Independent voters similarly reported unfavorable impressions.

Additionally, 62% of survey respondents expressed distrust in the Trump administration’s oversight capabilities regarding the crypto sector.

Lessons

The ultimate fate of the Clarity Act remains undecided. While some hope to revive the measure before year’s end, a newly sworn-in Congress in January will require restarting the legislative process entirely.

One industry participant suggested Democrats will likely draft their own alternative market structure bill to establish a baseline for future discussions, even if that specific text stalls.

WisdomTree’s Louvar emphasized the utility of increasingly tangible digital asset products, particularly tokenization and non-crypto blockchain applications. Demonstrating utility by separating blockchain technology from cryptocurrencies can educate lawmakers despite their skepticism.

In the absence of statute, the SEC and CFTC continue issuing guidance to fill regulatory gaps, though SEC Chair Paul Atkins repeatedly stresses that comprehensive market structure legislation remains essential to grant missing enforcement authorities.

Concluding his thoughts, Ripple’s Alderoty noted that the crypto bill unfortunately morphed into an ethics debate, representing a lost opportunity of significant magnitude.