CLARITY Act’s ‘final’ deal is already breaking down before tomorrow’s Senate vote

Opposition to the CLARITY Act widened on Sept. 14 as banks, Democrats, state attorneys general and developer advocates rejected key compromises.

The backlash came hours after Senate Republicans released what they described as their final version of the landmark crypto market-structure bill, incorporating 126 substantive changes Democrats requested and new provisions to resolve disputes over ethics, stablecoin rewards, developers and prediction markets.

However, those changes have yet to win over several of the bill’s most vocal critics, as banking groups said new protections against deposit flight would act too late, and Democrats challenged the strength of ethics restrictions involving President Donald Trump.

The disagreements raise the stakes for Tuesday’s cloture vote, which will determine whether the Senate can begin considering the legislation. The motion on H.R. 3633 is scheduled to ripen at 2:15 p.m. Eastern and requires 60 votes.

Democrats challenge ethics deal as states warn of lost enforcement power

Resistance hardened first around the ethics provisions, one of the final issues Republicans had hoped to settle before the vote.

The latest text requires covered federal officials with substantial crypto-related financial interests to divest those holdings or place them in qualified blind trusts and gives state attorneys general a role in enforcing some restrictions.

Staff for Sen. Elizabeth Warren, a crypto critic, are circulating arguments that the state enforcement power is weaker than Republicans portray, Punchbowl News reporter Brendan Pedersen reported.

Warren’s staff contends that the Justice Department retains key enforcement authority and that state action can be blocked where White House ethics officials have cleared the conduct.

That criticism strikes at a central selling point of the compromise: giving enforcement power outside an administration that could police conflicts involving its own officials.

Sen. Richard Blumenthal also rejected the revised language, accusing Trump of using crypto to profit from the presidency and describing the legislation’s restrictions as “half measures.”

Sen. Chris Van Hollen has also opposed it, saying the legislation still contains loopholes involving Trump’s crypto interests and does too little to combat illicit finance and protect consumers. Van Hollen said he previously offered amendments to address those concerns, but Republicans blocked them.

Beyond Democrats' opposition, New York Attorney General Letitia James led a bipartisan coalition of 17 other attorneys general opposing the bill over its impact on state enforcement.

The coalition warned that CLARITY could weaken state registration and anti-fraud powers while giving the Securities and Exchange Commission (SEC) broader authority to preempt state rules. States have brought more than 330 crypto-related anti-fraud enforcement actions since 2017, James’ office said.

James added:

“My office has proudly led the fight to protect New Yorkers and all Americans from rampant cryptocurrency fraud. As written, the Clarity Act would embolden scammers and potentially strip attorneys general of our authority to protect our states’ investors and their wallets.”

Banks say stablecoin safeguard waits for damage to occur

Republicans also failed to end the fight with banks after adding a Treasury “circuit breaker” intended to address fears that stablecoin rewards could pull deposits from community lenders.

The final draft empowers the Treasury secretary to intervene if stablecoins cause substantial deposit flight from community banks. Treasury Secretary Scott Bessent backed the provision, saying he would use the new authority if stablecoins begin harming the sector.

Bessent said:

“If stablecoins cause harm to community banks, I will not hesitate to use these tools to ensure they remain fully protected.”

Banking groups argued that the approach lets damage begin before regulators respond.

Eight trade groups, including the American Bankers Association (ABA) and Independent Community Bankers of America, said Congress should prohibit stablecoin rewards and incentives that function like deposit interest rather than waiting for evidence of deposit flight.

The banking industry has pressed Congress for months to strengthen the prohibition, arguing that rewards offered through crypto exchanges and affiliates could make stablecoins substitutes for deposits and reduce funds available for local lending.

The ABA and state banking associations had already urged senators to close what they describe as an interest loophole before the latest text was released.

Christopher Williston VI, president and CEO of the Independent Bankers Association of Texas, dismissed the new Treasury mechanism as a “meaningless nothing” and “a joke.”

Meanwhile, developer advocates also found a different problem in the final compromise.

The bill preserves regulatory protections preventing developers from being treated as money transmitters or financial institutions merely for writing software, while extending coverage to miners and validators. But Republicans removed explicit protections tied to 18 U.S.C. Section 1960, the criminal statute governing unlicensed money transmitting businesses.

Jason Somensatto, Coin Center’s director of policy, called the limitation disappointing. He said codifying regulatory protections still helps developers, but the absence of criminal-law protections makes Michael Lewellen’s legal challenge against the Justice Department more consequential.

Tribal opposition persists as bill retains startup support

Another attempted compromise also failed to settle the fight over prediction markets and tribal gaming.

The final text narrows decentralized-finance protections so they do not alter derivatives rules or create a new exemption affecting prediction markets. Indian Gaming Association Chairman David Z. Bean said those changes still “do not address the concerns of Indian Country.”

The association wants explicit protections for tribal and state gaming laws and the Indian Gaming Regulatory Act, along with restrictions preventing federally regulated prediction-market platforms from offering sports betting and casino-style contracts.

Bean has said the legislation would otherwise expand Commodity Futures Trading Commission authority at the expense of tribal sovereignty.

However, Sen. Cynthia Lummis, one of the leading voices for the passage of the CLARITY Act, disputed Bean’s characterization, saying she met with him and the association on June 25 and that the group had been consulted on the fix without expressing opposition.

Still, Support for the legislation remains strong within parts of the technology and crypto industries. Y Combinator said it was “bullish on the Clarity Act,” arguing that clearer regulatory responsibilities would make it easier for US fintech founders to build products using blockchains.

That support makes Tuesday’s vote a direct test of whether the concessions Republicans assembled can overcome the growing opposition.

The final draft has addressed many of the categories that delayed the bill for months, but critics across banking, Democratic politics, state enforcement, developer rights, and tribal gaming now argue the fixes stop short of what they sought.

Failure to reach 60 votes would prevent the Senate from beginning debate, leaving Republicans with a heavily revised bill and little evidence that the revisions produced the coalition needed to move it forward.