On May 12, the Senate Banking Committee released updated text of the CLARITY Act ahead of a scheduled May 14 markup.
The bill would establish new rules for digital asset intermediaries, define how certain network tokens are treated, expand the role of federal market regulators, and create a path for banks to offer crypto-related services.
It also preserves protections sought by decentralized finance developers and adds restrictions to prevent crypto platforms from offering deposit-like yield on payment stablecoin balances.
The release moves the Senate effort from private negotiation into a public committee process. If approved by the panel, the bill would still require further negotiations before reaching the Senate floor.
However, its path remains uncertain because Democratic concerns over ethics restrictions for federal officials were not resolved in the text released this week.
Still, several US lawmakers believe that the legislation could reach President Donald Trump’s desk before July 4. Senator Thom Tillis said:
“After months of painstaking negotiations with stakeholders, the updated CLARITY Act language is a bipartisan compromise that will provide regulatory certainty needed to foster innovation in the United States.
I was proud to work with my colleagues on both sides of the aisle to develop this improved, consensus-based product, and I look forward to Congress quickly passing this legislation and sending it to President Trump’s desk soon.”
Stablecoin rewards face new limits in CLARITY Act
The most closely watched provision in the updated bill is Section 404, which targets stablecoin yield.
The text would prohibit covered digital asset service providers and their affiliates from paying US customers passive interest or yield on payment stablecoin balances.
That language is designed to prevent exchanges and other crypto platforms from offering products that resemble interest-bearing bank deposits without being regulated as banks.
However, the bill still leaves room for activity-based rewards. Programs tied to transactions, payments, platform use, staking, governance, or loyalty activity would remain possible under future rules from the SEC, CFTC, and Treasury.
That distinction gives crypto firms a narrower path to preserve customer incentives while handing banks a partial victory in their push to stop stablecoin issuers and exchanges from competing directly with deposits.
Banking groups have argued that stablecoin reward programs could accelerate deposit flight from the banking system, especially if customers can earn yield-like benefits on dollar tokens outside insured accounts.
However, crypto firms have countered that rewards tied to platform activity are not equivalent to bank interest and should not be banned outright.
The compromise attempts to separate passive yield from commercial incentives. That line will be tested during markup, where banks, exchanges, and stablecoin issuers are likely to press lawmakers for narrower or broader wording before the bill advances.
DeFi developers keep core protections
The bill preserves key protections for software developers and infrastructure providers, a major win for DeFi advocates who had been watching whether law-enforcement concerns would narrow the language.
The Blockchain Regulatory Certainty Act (BRCA) language would clarify that non-custodial blockchain developers and service providers are not money transmitters merely because they build software, validate transactions, provide computational work, or support decentralized networks.
The text also preserves criminal liability for those who intentionally transfer funds on behalf of another person while knowing the assets are tied to unlawful activity.
That balance reflects one of the bill’s central dividing lines: regulation would attach more clearly to control, custody, and customer-facing intermediation, while software development and network participation would receive explicit protection.
The DeFi provisions also address concerns that decentralized governance systems could be treated as a single controlling person or group. The text would clarify that routine governance actions, infrastructure participation, and limited cybersecurity emergency measures do not automatically establish centralized control.
Other sections of the CLARITY Act would direct regulators to develop rules for non-decentralized finance trading protocols, require risk-management programs for intermediaries routing activity through DeFi protocols, and instruct the Treasury to provide guidance for certain web-hosted front ends.
The result is a framework that protects core development activity while still giving regulators channels to police financial crime, sanctions evasion, fraud, and market manipulation.
Banks get clearer crypto clarity
The updated CLARITY Act text would also give banks and credit unions a broader statutory basis for digital asset activity.
Section 401 would clarify that national banks, state banks, financial holding companies, and certain credit unions may use digital assets and blockchain technology for activities they are otherwise allowed to conduct, including payments, lending, custody, and trading.
That provision could prove significant for traditional financial firms that have moved cautiously into crypto because of regulatory uncertainty.
Banks have long sought clearer rules on custody, tokenized assets, settlement activity, and the extent to which digital assets can be treated as incidental to existing banking powers.
However, the bill does not give banks unlimited authority to enter any crypto business. Activities would still need to fit within permissible banking functions and remain subject to prudential supervision.
Nonetheless, this language would give regulated institutions more confidence to build custody, settlement, lending, and market infrastructure around digital assets.
Meanwhile, the banking provisions also sit beside broader market reforms.
The bill would require joint SEC and CFTC rules for portfolio margining, direct regulators to modernize recordkeeping for distributed ledger systems, and create mechanisms for regulatory coordination across tokenized securities, digital commodities, and digital asset intermediaries.
For crypto firms, the banking language cuts both ways. It could bring more institutional liquidity and custody capacity to the market, but it could also intensify competition from established financial institutions once legal uncertainty subsides.
Other provisions broaden the CLARITY Act
Beyond stablecoins, DeFi, and banking powers, the CLARITY Act includes several provisions on market supervision, customer protection, tokenization, and agency coordination.
The bill would create a disclosure regime for certain network tokens classified as ancillary assets, treating the tokens themselves as commodities while requiring initial and semiannual disclosures for covered transactions.
It would also create a rebuttable presumption that a network token is an ancillary asset unless an originator or digital asset intermediary certifies that the token does not meet that standard.
The text includes resale restrictions for related persons and preserves federal insider trading laws for securities transactions involving ancillary assets.
It also states that tokenized securities remain securities, while directing the SEC to study custody, cross-border coordination, consumer protection, and other issues related to tokenized financial instruments.
Customer property receives separate treatment. The bill would treat ancillary assets and digital commodities as customer property in Chapter 7 liquidation and create an insolvency safe harbor for digital commodity transactions, mirroring protections available in conventional derivatives and securities markets.
The legislation would also require educational materials from the SEC and CFTC, disclosures on how digital commodities and payment stablecoins would be treated if a broker-dealer enters insolvency, and studies on retail financial literacy in digital asset markets.
Other provisions include a CFTC-SEC micro-innovation sandbox, an SEC-CFTC memorandum of understanding, an advisory committee on digital assets, voluntary adoption of post-quantum cryptography standards, and additional Treasury-led work on illicit finance risks.
The bill would authorize $30 million per year for FinCEN for five years and allow the agency to pay salary premiums to recruit qualified personnel.
One provision outside the core crypto framework would create a pilot program to incentivize housing development in certain Community Development Block Grant jurisdictions, giving the bill a broader legislative footprint than market structure alone.
Ethics dispute remains unresolved in the latest CLARITY Act
Despite all the progress in the CLARITY Act, its biggest political vulnerability lies outside its technical market rules.
The latest text does not include provisions restricting federal officials, including the president, vice president, lawmakers, or senior officials, from profiting from digital asset ventures while participating in crypto policy.
Democrats have increasingly tied their support to ethics language addressing public officials’ crypto holdings, transactions, and business interests.
Notably, Senator Elizabeth Warren has consistently reiterated this stance, saying:
“Any crypto legislation that doesn’t shut down this presidential corruption and protect investors isn’t worth the paper it’s written on.”
Considering this, its omission in the updated bill could complicate the committee vote, even after negotiators narrowed fights over stablecoin rewards and DeFi protections.
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