Regulatory certainty itself is a public good that can only be truly achieved through Congressional legislation.

Written by: Miles Jennings, Head of Policy and General Counsel at a16z crypto

Translated by: Chopper, Foresight News

It has been nearly four years since Sam Bankman-Fried (SBF) founded the cryptocurrency exchange FTX and subsequently filed for bankruptcy. During these four years, the U.S. Congress has held several hearings, the Department of Justice has obtained guilty verdicts related to FTX's misappropriation of client funds, and creditors have recovered nearly $10 billion in assets.

However, Congress has yet to establish a protective mechanism that could have been implemented much earlier to prevent and curb this fraud.

Congress has been pushing relevant legislation for years. The House of Representatives has passed the market structure bill twice, granting regulators the authority to stop FTX. The most recent vote occurred in July 2025, where it passed with bipartisan support, 294 votes in favor and 134 against. Earlier this year, the Senate Banking Committee and the Senate Agriculture Committee also reviewed a corresponding bill—the CLARITY Act—which is about to enter the Senate's full first round of debate.

On September 15, the Senate will vote on whether to commence debate on the bill. If the bill is officially legislated, cryptocurrency exchanges serving U.S. users must implement the risk control protections that FTX lacked; if the bill fails to pass, these security vulnerabilities will persist.

The collapse of FTX was not due to regulators failing to see through a complex scheme. The fraud was technically unremarkable: FTX deliberately concealed the fact that it was misappropriating client assets. At that time, there were no independent custodians, no client asset segregation systems, no information disclosure requirements, and no regulatory oversight enforcing these protections. Once the fraud was exposed, users rushed to withdraw their funds, leading to the platform's collapse and leaving an $8 billion hole in funds.

These safeguards that could have prevented the crisis have existed for nearly a century, but have never been applied to the digital asset spot market. As early as 1936, the Commodity Exchange Act required futures brokers to segregate client assets, and securities brokers holding client assets must adhere to custody, reserve, capital, information disclosure, and audit inspection requirements, which include the SEC's Customer Protection Rule. The 1970 Securities Investor Protection Act added a complementary system for brokerage bankruptcies.

These are not novel innovations but rather mature regulatory rules that have long been standard in regulated markets.

In other words, the status quo that has been lamented by all parties in Washington for many years is not a neutral natural state. Whether the digital asset market will continue to exist is no longer the question; the real key is: what kind of rules will govern it?

The CLARITY Act brings digital commodity brokers, dealers, and exchanges under regulatory oversight, introducing mature regulatory mechanisms that have been proven in traditional finance into the cryptocurrency industry: client property segregation, qualified custody, restrictions on conflicts of interest between related parties, mandatory disclosures, listing standards, insider trading limitations, and designating a compliance officer responsible for legal compliance.

It clarifies the long-standing and easily misconstrued jurisdictional conflict between the SEC and the Commodity Futures Trading Commission (CFTC). It no longer relies on project owners self-certifying "sufficient decentralization," a claim that cannot be disproven, but instead replaces it with a set of codified legal standards. It stipulates issuers' obligations for information disclosure, lock-up periods, and insider trading restrictions.

In summary, the CLARITY Act requires the digital asset market and its intermediaries to comply with regulatory rules that are roughly equivalent to those in traditional markets and traditional intermediaries.

Currently, there are three types of opposition voices that hinder the bill from being submitted for a full Senate vote. First, some believe that the bill essentially relaxes regulations on the cryptocurrency industry; second, that public officials holding crypto assets would profit from it; third, that stablecoin financial yields would lead to a loss of bank deposits. Each of these viewpoints is worth discussing, but none can justify maintaining the status quo.

First, some believe that CLARITY's "deregulation" will allow cryptocurrencies to develop uncontrollably. This claim is based on the false premise that all crypto assets fall under the jurisdiction of securities regulation. However, that is not the case, as multiple court rulings have confirmed. The securities characteristics of crypto assets remain unclear; mainstream assets like Bitcoin and Ethereum are generally not recognized as securities.

The CLARITY Act attempts to resolve two extreme misunderstandings: that everything on-chain is a security and that nothing on-chain is a security. These two extreme positions have never reflected reality, and the unresolved jurisdictional disputes ultimately burden ordinary consumers. The "wild west" that opponents mention is exactly the status quo.

It is the absence of rules that allowed FTX to masquerade as a legitimate business. An overseas exchange, subject to little information disclosure, directly competes alongside local institutions; meanwhile, local institutions are forced to navigate fragmented state regulations, uncertain asset classifications, and repeatedly shifting law enforcement standards. This hardly constitutes a fair market but rather penalizes compliant participants.

Secondly, concerns that officials holding cryptocurrencies might profit from them are valid. Public officials should not profit from the industries they regulate. However, this is a matter of government ethics that applies to all asset classes.

Whether a trillion-dollar market should establish a federal regulatory framework and ethical guidelines for public officials are two separate issues. Bundling the two effectively negates the latter legislation to express dissatisfaction with the former, ultimately exposing millions of market participants to risk.

This concern is not unique to cryptocurrencies. Officials trade stocks, hold real estate, and own shares in private companies; the rules constraining their conflicts of interest do not target specific asset classes. If ethical standards are formulated for specific assets, it becomes a whack-a-mole game, as anyone determined to profit can easily circumvent the rules. If Congress believes existing regulations are too weak, the solution should be to strengthen oversight for all assets, not to tie the market structure bill to an additional clause targeting only one asset without addressing others.

The text of the CLARITY Act itself already establishes unprecedented constraints. Rejecting the bill will not limit anyone's asset holdings; rather, it will leave relevant activities in an unregulated state. The bill requires token issuers to fulfill the same disclosure, lock-up, and insider trading restrictions as public companies, and these systems are currently completely lacking. The "opaque, unregulated asset market" described by opponents is precisely the state that will persist if the bill is rejected.

Third, concerns that stablecoin rewards will siphon deposits from the banking system have been raised. Banks contend that stablecoin balances yield interest similar to unregulated savings accounts, diverting funds that would otherwise flow to bank credit for households and small businesses.

This perspective currently lacks empirical support. Even if we assume the risk is valid, the negotiated modified bill text has already addressed it: the bill prohibits purely passive financial yields but allows rewards from real business activities. The latest version also authorizes the Treasury Department to impose further restrictions if there is clear evidence of deposit outflow.

However, this issue is not merely about deposits. The White House Council of Economic Advisers estimates that if such yields are completely banned, the impact on bank credit volume would be about $2.1 billion, only 0.02% of the total bank lending volume. This resembles a competitive anti-competitive plea packaged as a reason for financial stability.

Even if the Senate version of the CLARITY Act is submitted for presidential signature, it will be a product of multi-party compromise; that is how legislation works. The cryptocurrency industry accepts a federal regulatory framework in exchange for clear codified laws. No one can deny that this trade-off is far better than maintaining the status quo.

Regulators alone cannot solve this dilemma. The rules enacted by regulators can be overturned with the new administration; any regulatory rules may also be litigated in court, dragging on for years. Over the past few years, the entire industry's legal treatment has indeed undergone massive swings with government transitions.

Businesses holding others' funds should not operate under a compliance framework that could be overturned by the next administration; large institutions are also unlikely to invest in building critical infrastructure in such an environment. Regulatory certainty itself is a public good that can only be truly achieved through Congressional legislation.

If the Senate does not act now, the destructive potential of the next major cryptocurrency crisis will be greater.

When FTX went bankrupt, the cryptocurrency industry was largely relegated to the retail market on the fringes of the financial system. But times have changed. In July 2025, Congress passed the GENIUS Act, establishing a federal regulatory framework for USD stablecoins. Since then, the total supply of stablecoins has surpassed $300 billion, trading volumes have skyrocketed, and stablecoin issuers have become one of the major holders of U.S. Treasury bonds. However, the GENIUS Act only regulates the on-chain circulation of USD and does not touch the blockchain infrastructure that carries these assets.

Other on-chain sectors have also seen significant growth. The market capitalization of tokenized assets has substantially increased, far exceeding that of native cryptocurrency assets. The U.S. Depository Trust & Clearing Corporation, which safeguards over $114 trillion in securities, completed its first formal transaction in tokenized assets in July and will fully launch tokenized services next month. BlackRock, Fidelity, Franklin Templeton, and Goldman Sachs have all launched digital asset businesses and publicly expressed support for the CLARITY Act.

Negotiating representatives from both the House and Senate have completed the most challenging bargaining work; now it is up to the Senate to complete the legislative process. Every week that drags on means more exchanges can hold U.S. user assets without having to comply with the safety protections that should be standard in other financial sectors.