The CLARITY Act, bipartisan legislation creating a comprehensive rulebook for crypto capital markets, is coming down to the wire. The bill needs to clear the US Senate in the next two weeks (before the August recess), or it will likely get drowned out by midterm election politics.
On July 22, Senate Republicans released a complete draft text for the bill for the first time.1 Grayscale supports passage of the CLARITY Act and believes it will create a solid legal foundation for software developers, token issuers, investors, and other market participants, helping drive growth of public blockchain adoption.
The key sticking point is around the so-called “ethics” provisions—limits on public officials from issuing or sponsoring digital assets while in office. The Republican draft includes those limits but press reports suggest Democrats would like to see revisions.
Other key elements of the bill are less contentious. The legislation includes protections for non-custodial software developers—key for ensuring continued growth in decentralized finance (DeFi)—as well as rigorous requirements around KYC/AML and other protections against illicit finance.
Prediction markets put the probability of passage close to a toss-up (Exhibit 1). If the bill does not become law, public blockchain technology will continue to make inroads into the mainstream financial system, in our view, with use cases like stablecoins and tokenized assets. But investors and developers would need to continue to rely on guidance from regulatory agencies, without the long-term certainty offered by legislation.
Key Takeaway: The CLARITY Act may soon clear the Senate if bipartisan negotiators can make progress on a few remaining issues. The bill would create long-term regulatory certainty for crypto investors, developers and market participants and help drive the adoption of public blockchain technology.
Exhibit 1: Prediction markets suggest passage of CLARITY Act is a close call
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