Author: CryptoSlate

Translator: Deep Tide TechFlow

Deep Tide Overview: The updated CLARITY bill from Senate Republicans will prohibit the President, members of Congress, and other federal officials from issuing or holding cryptocurrencies, including the Trump family's crypto business. This is a crucial step for the United States to establish a national cryptocurrency regulatory framework, but the bill still requires Democratic support to pass the Senate's 60-vote threshold, with conflicts of interest for officials being the biggest point of contention.

On July 22, Senate Republicans released an updated version of the CLARITY bill, bringing one of Washington's most important cryptocurrency bills closer to possible in-house voting.

The revised text has undergone weeks of negotiation and aims to establish a broad federal market structure framework for digital assets in the United States.

The proposal addresses several controversies that have hindered its progress in Congress, including ethical restrictions on federal officials, stablecoin rewards, and regulatory treatment for crypto developers and intermediaries.

Senator Cynthia Lummis said of the legislation, "I want to thank my Democratic colleagues for their significant contributions to this draft, and express my commitment to reaching an agreement in the coming days to make this legislation law. Consumer protection and policies that support innovation are not oppositional — this bill proves that."

Asset management company Grayscale also stated that the bill will unlock the next wave of adoption for this emerging industry.

Republicans expect to need Democratic votes to reach the 60-vote threshold necessary to overcome procedural hurdles in the Senate.

The CLARITY Bill Prohibits Federal Officials from Issuing Digital Assets

The revised legislation will impose a new set of restrictions on cryptocurrency activities for the President, members of Congress, and other senior federal officials, addressing a conflict of interest issue that has become one of the biggest barriers to Democratic support for the CLARITY bill.

According to the proposal, the President, Vice President, members of Congress, federal judges, and other covered officials will be prohibited from issuing or sponsoring cryptocurrencies and other digital assets for compensation during their term. Their spouses will also be subject to restrictions.

The legislation will further require covered officials to handle their existing cryptocurrency and digital asset investments. They must sell the affected holdings, place them in a blind trust they cannot control, or use a combination of the two methods.

Cryptocurrency sales exceeding $1,000 must also be disclosed, adding digital asset transactions to the financial activities of officials that will be more strictly scrutinized during their government service.

The proposal will instruct the Government Accountability Office to study whether there are additional loopholes in the federal ethical rules governing cryptocurrency and recommend further changes as necessary.

These restrictions respond to months of pressure from Senate Democrats who believe Congress should not set new rules for the cryptocurrency industry without addressing the ability of the President, members of Congress, and other officials to profit from companies that may benefit from these policies.

This pressure has largely focused on the increasing digital asset involvement of President Trump and his family.

Massachusetts Senator Elizabeth Warren, a senior Democrat on the Senate Banking Committee, repeatedly cited Trump's crypto ventures while calling for stronger conflict of interest provisions.

These concerns remained after the Banking Committee advanced the CLARITY bill by a 15-9 vote in May. The committee version proceeded without the ethical protections sought by Warren and several other Democrats, leaving this issue to be addressed before the legislation can gain wider support in the Senate.

This week, Trump accepted a Republican proposal that eliminated a source of uncertainty surrounding negotiations, establishing the limitations the White House is prepared to accept.

However, this language is unlikely to be final. Democrats have yet to sign off on the current wording and have expressed concerns about making the Department of Justice the primary enforcement body without providing a role for state attorneys general.

Further negotiations are expected on the ethical provisions as Republicans seek to secure the Democratic votes needed to advance the broader CLARITY bill.

Developer Protections Retained, Criminal Provisions Expanded

While lawmakers took a stricter approach to public officials, the revised draft also retains protections for software developers, sparking another battle between crypto advocates and some law enforcement groups.

The Blockchain Regulatory Certainty Act framework generally protects developers and infrastructure providers from being classified as money transmitters solely for writing software or maintaining decentralized networks, provided they do not control users' assets.

This protection has become a significant issue for DeFi developers, who argue that writing software without holding customer funds should not trigger the same regulatory obligations imposed on financial intermediaries.

The draft retains restrictions on those who knowingly promote illegal transactions, reserving a pathway for prosecutors to pursue criminal actions, rather than extending blanket immunity to activities involving decentralized technologies.

Republicans paired these protections with a new package aimed at responding to law enforcement concerns about crypto crime.

The draft will provide additional resources for state and local investigations involving digital assets and expand access to blockchain analysis tools.

It will also establish training programs for investigators and prosecutors and create a dedicated center to address threats related to foreign actors (including North Korea and Iran).

A public-private joint special task force will coordinate the government and industry response to cryptocurrency fraud, while stablecoin issuers will face requirements to comply with effective government orders, including actions like freezing or seizing assets.

These changes build on earlier versions from the Banking Committee, which already subjected digital asset brokers, dealers, and exchanges to the requirements of the Bank Secrecy Act and included protections for developers who do not control customer funds.

This combination reflects a core balancing act in Senate negotiations: protecting peer-to-peer software development while ensuring these protections do not hinder investigations into money laundering, sanctions evasion, and other crimes.

Stablecoin Compromise Avoids Another Reopening

Another controversy that threatened the CLARITY bill earlier this year has largely been resolved in the new draft, reducing the number of issues negotiators will need to renegotiate before an in-house vote.

The stablecoin section retains the compromise negotiated by North Carolina Republican Senator Thom Tillis and Maryland Democratic Senator Angela Alsobrooks.

Companies will be prohibited from paying interest simply because customers leave stablecoins in their accounts. Rewards related to qualified activities, including trading and the use of certain other tokens, can continue as long as they do not operate like interest payments on traditional bank deposits.

This distinction arose after bank warnings that allowing stablecoin providers to offer deposit-like returns could draw funds away from insured bank accounts, while crypto firms argued that a broad ban might eliminate loyalty programs and other activity-based incentives.

Meanwhile, the updated legislation also retains bankruptcy protections aimed at clarifying what happens to customers' digital assets when exchanges or custodians fail.

Protected customer assets will remain customer property rather than automatically becoming part of the bankruptcy estate available to creditors. After failures like Celsius and FTX exposed how differently customer claims can be handled based on custodial arrangements and contractual terms, this distinction became a significant issue.

These provisions address asset ownership and treatment of creditors during bankruptcy, rather than preventing fraud, liquidity issues, or management failures that could lead to the collapse of crypto companies.

What’s Next for the CLARITY Bill?

The revised text now moves the CLARITY bill into another round of negotiations, as lawmakers still need to resolve differences on ethical and other provisions before Senate leaders can assess whether there is enough support for an in-house vote.

The calendar adds pressure to these negotiations. The Senate is scheduled to begin its August state work period on August 10, leaving negotiators with less than three weeks to resolve outstanding issues, complete necessary procedural steps, and secure in-house time.

As of publication, no Senate vote on CLARITY has been scheduled.

Even if the bill passes the Senate, it will face another legislative hurdle before reaching the White House.

The Senate has significantly revised the version passed by the House, meaning both chambers need to reconcile their differences and approve the same language before legislation can be sent to President Trump.

The federal market structure bill, which allocates digital asset regulatory responsibilities to the SEC and CFTC, sets rules for intermediaries, addresses self-custody and Bank Secrecy Act (BSA) coverage, and adds anti-CBDC provisions. The bill is awaiting a full Senate vote until June 3, 2026.