Republican senators have introduced the CLARITY Act, a bill that would create a comprehensive regulatory framework for cryptocurrencies in the US.
However, as Reuters reports, Senate approval of the bill is still in doubt: Democrats are dissatisfied with the half-measures in the provisions prohibiting President Donald Trump from issuing his own cryptocurrency.
Key Provisions of the Bill
Anti-Money Laundering. One of the key provisions of the document is to extend anti-money laundering requirements to cryptocurrency exchanges, brokers, and dealers. The bill proposes to officially equate them with financial institutions. This means that market participants will be required to conduct customer identification, verify transactions, and report suspicious transactions in much the same way as banks. The US Treasury Department previously proposed a similar initiative.
Decentralized Platforms. The CLARITY Act also, for the first time, defines in detail the criteria for decentralized platforms (DeFi). If a service has the ability to block users, has special privileges for certain participants, or centralized control over the system, it cannot be considered fully decentralized and will be required to comply with financial regulations.
Stablecoins. The bill also aims to prevent stablecoins from becoming equivalent to bank deposits, while encouraging their use as a means of payment. The CLARITY Act prohibits the payment of interest on unused stablecoin balances if such payments effectively cause stablecoins to act as bank deposits. However, the ability to pay rewards, such as cashback, for the use of stablecoins in payments and other transactions remains.
Registration of DFA Issues. The document allows digital asset issuers to raise up to $50 million annually and up to $200 million in total without mandatory registration of the issue with the US Securities and Exchange Commission (SEC). This measure significantly reduces the administrative burden on startups, as it will prevent the SEC from classifying most token issuances as illegal offerings of unregistered securities.
Tokenization. The bill also focuses on the tokenization of traditional financial assets. The authors emphasize that digitizing stocks, bonds, or other securities on a blockchain does not exempt them from securities laws. Furthermore, the SEC will be required to conduct additional research into the regulation of tokenized assets and prepare appropriate proposals.
Conflicts of Interest Around Trump
One of the most controversial provisions of the CLARITY Act is the regulation regarding conflicts of interest for government officials, primarily Trump. The bill prohibits the US President, Vice President, and certain members of Congress from issuing or sponsoring digital assets until January 2029. It is proposed that enforcement of the ban be transferred to the US Department of Justice.
Democrats have been demanding the inclusion of strict ethics restrictions in the bill for months, citing the growing presence of Donald Trump and his family members in the cryptocurrency business. Critics believe the current president could potentially benefit personally from decisions affecting industry regulation.
Negotiations over these provisions of the bill have been ongoing for several months. According to sources at The Block, Trump finally approved the ethics provisions on Monday, July 20.
However, as Reuters reports, they have already sparked discontent among members of the Democratic Party. Democrats doubt the effectiveness of the proposed model, as the Justice Department, which is tasked with overseeing the ban, is part of the executive branch, headed by the president himself. Some lawmakers propose granting oversight authority to individual state attorneys general if federal authorities fail to take necessary action. However, the current version of the bill explicitly rules out this possibility.
To pass the bill in the Senate, Republicans need the support of at least eight Democrats. Many Democratic Party members have already stated that they are willing to support cryptocurrency regulatory reform only if a truly independent and effective mechanism is established to monitor potential conflicts of interest among senior officials.