Ripple's Senate Deal in Jeopardy: Navigating the Complex Landscape of the Clarity Act
The US cryptocurrency industry is mounting a unified effort to push Congress to pass federal market structure legislation, formally known as the “Digital Asset Market Clarity Act of 2025” (H.R. 3633). Industry proponents view this act as the crucial “missing layer” of federal law needed to unlock the industry’s full potential. While the “GENIUS Act” addressed baseline rules for payment stablecoins last year, the Clarity Act aims to establish a comprehensive market structure for secondary trading, asset classification, and intermediary registration. Without it, major players argue, the US market remains fragmented, hampered by a patchwork of state licensing requirements and enforcement-driven guidance. However, the path to a finalized deal is fraught with significant technical and political hurdles, threatening to stall progress and potentially push innovation overseas. This article delves into the key sticking points, the competing interests, and the potential implications for the future of crypto in the United States.
The Current Standoff: A Bipartisan Divide
According to Alex Thorn, Head of Research at Galaxy Research, a bipartisan meeting on January 6th revealed a stark contrast in approaches. Republicans are prioritizing speed in passing the legislation, while Democrats are introducing a series of new requirements that could fundamentally alter the bill’s impact on token issuance and software development. This divergence threatens to derail the momentum and delay much-needed regulatory clarity.
Republicans are pushing for a Senate Banking Committee markup of the bill as early as January 15th, aiming to lock in a framework before the legislative window narrows later in the year. However, Thorn’s analysis suggests that bridging the policy gaps in time to secure a framework acceptable to both chambers remains uncertain.
Key Issues Stalling the Clarity Act
Several critical issues are currently blocking progress on the Clarity Act. These range from the treatment of decentralized finance (DeFi) to the regulation of stablecoin yields and investor protections. Each point represents a significant battleground between industry advocates and regulators.
The DeFi Dilemma: Balancing Innovation and Regulation
The most significant friction point revolves around the treatment of decentralized finance (DeFi). Democrats are pushing for robust measures to bring the DeFi sector under the umbrella of traditional financial surveillance. These proposals include:
- Mandatory “front-end sanctions compliance” for DeFi interfaces: This would require developers to screen users at the point of access, a technically challenging and potentially privacy-invasive requirement.
- Expanded “special measures” authority for the Treasury Department: Granting the Treasury Department greater power to police the DeFi sector raises concerns about overreach and stifled innovation.
- New regulatory category for “non-decentralized” DeFi: This creates a new bucket for projects that claim decentralization but retain some degree of centralized control, potentially capturing a large number of existing projects.
These demands are met with resistance from the crypto industry, which argues that they would stifle innovation and drive DeFi activity offshore. The core debate centers on how to regulate a sector designed to be permissionless and resistant to censorship.
The Stablecoin Yield Battle: A Clash Over Banking Revenue
The debate over stablecoin yield has escalated into a direct conflict over banking revenue. US banks are aggressively lobbying against allowing stablecoin issuers to pass yield from reserve assets (like Treasury bills) to holders. They argue this would siphon deposits away from the traditional banking system.
Crypto firms counter that this stance is protectionist, not prudential. Faryar Shirzad, Coinbase's chief policy officer, argues that Congress already settled the stablecoin question with the GENIUS Act and reopening the yield debate introduces unnecessary uncertainty. He points to data showing US banks earn approximately $176 billion annually on the roughly $3 trillion they hold at the Federal Reserve, and another $187 billion annually from card swipe fees.
Shirzad argues that stablecoin rewards threaten these margins by introducing real competition in payments. He highlights a Charles River Associates study finding no statistically significant relationship between USDC growth and community-bank deposits, suggesting stablecoins serve different users and use cases.
Alexander Grieve, VP of Government Affairs at Paradigm, echoed this sentiment, noting that bank lobbying organizations characterize allowing yield-bearing stablecoins as an “extinction-level event” for their members. However, a December study cited by Grieve found that stablecoins actually assist credit creation.
Institutional Ambitions and the Need for Clarity
For major US crypto firms, the Clarity Act isn’t just about avoiding lawsuits; it’s about unlocking institutional business models currently stalled by regulatory opacity. Reece Merrick, a senior executive at Ripple, emphasizes this operational bottleneck, stating that the US lacks comprehensive regulatory clarity, hindering US-based entities from fully thriving and innovating.
Ripple’s own moves – securing a US national bank charter and seeking Federal Reserve access for its RLUSD stablecoin reserves – demonstrate this institutional pivot. These steps require a federally regulated environment to function effectively. Ripple’s recent purchase of prime broker Hidden Road, which clears approximately $3 trillion annually, further signals a strategic focus on workflows requiring custody, collateral segregation, and audit-ready controls.
Coinbase CEO Brian Armstrong believes the bill will “get crypto further unlocked in the U.S. with clear rules, which will benefit all businesses, protect customers, and unleash builders.”
Global Competition and the Urgency of Action
The argument for passing the Clarity Act is shifting beyond crypto-specific concerns to encompass broader fiscal realities and global competition. Proponents are increasingly linking the structure of the crypto market to the health of government finances. Research from the Brookings Institution connects stablecoin growth to demand for short-term Treasuries, providing a non-bank buyer base for US debt. A 2025 paper estimated that a 1% increase in stablecoin demand could reduce short-maturity T-bill yields by roughly 1 to 2 basis points.
Internationally, the cost of delay is becoming apparent as global competitors move forward. Europe’s Markets in Crypto-Assets (MiCA) regulation is establishing a single-market licensing benchmark, with the European Securities and Markets Authority (ESMA) publishing detailed implementation templates. In Asia, hubs like Hong Kong and Singapore are actively attracting liquidity with tailored regulations.
Senator Cynthia Lummis highlights this jurisdictional arbitrage, emphasizing the need to act quickly to prevent companies from moving offshore. She stated, “For far too long, unclear rules have pushed digital asset companies offshore. Our market structure legislation changes that by establishing clear jurisdiction, strong protections, and ensuring America leads the way.”
Looking Ahead: What’s Next for the Clarity Act?
The next few weeks are critical for the Clarity Act. The Senate Banking Committee markup, potentially as early as January 15th, will be a key moment. However, the deep divisions over DeFi, stablecoin yields, and investor protections suggest a difficult path ahead. The outcome will not only shape the future of the crypto industry in the US but also have broader implications for financial innovation and global competitiveness. The industry is bracing for a complex negotiation, hoping to secure a framework that fosters innovation while addressing legitimate regulatory concerns. Failure to do so risks pushing the US further behind in the rapidly evolving world of digital assets.
Mentioned in this article: Coinbase, Ripple, Cynthia Lummis