The CLARITY Act (the Digital Asset Market Clarity Act) was designed to carve out a clear compliance pathway for crypto assets within the existing US financial regulatory framework, aiming to address the industry’s long-standing disputes over cross-agency jurisdiction. Since the House passed the bill in July 2025 by a vote of 294 to 134, its legislative journey has been far from smooth. After moving to the Senate, the scheduled January 2026 review by the Banking Committee was postponed due to key disagreements—most notably, Coinbase withdrew its support over dissatisfaction with the stablecoin yield provisions. This delay left the bill in legislative limbo for several months, as the banking and crypto industries engaged in a nearly four-month standoff over whether stablecoins should be allowed to generate yields. By mid-April 2026, more than 120 crypto companies had sent a joint letter to the Senate urging immediate progress, highlighting the industry’s urgent demand for a formalized regulatory framework.
What Stablecoin Disputes Did the May 1 Compromise Resolve—and What Remains Up for Negotiation?
On May 1, Senators Thom Tillis and Angela Alsobrooks jointly released the final compromise text on stablecoin yield provisions. On May 5, they confirmed via a joint statement that no further changes would be made to this section. The provision draws a precise legislative line: it explicitly prohibits crypto platforms from paying users "returns that are economically or functionally equivalent to bank deposit interest" for passive holding, but allows reward mechanisms based on "genuine activity or real transactions" to continue. The exemption specifically covers three types of on-chain activities with economic substance: market making, staking, and margin yield. This approach aims to balance two concerns: the banking industry’s fear that stablecoins could displace deposits and reduce available lending capital, and the crypto industry’s insistence on preserving reasonable incentives for on-chain economic activity. Notably, the compromise text does not strictly define "genuine activity," instead granting interpretive authority to the SEC, CFTC, and Treasury. These agencies are required to jointly develop supporting rules within a year of the bill’s enactment, leaving room for future inter-agency negotiations.
What Institutional Variables Lie Ahead: Senate Banking Committee Review, Full Senate Vote, and House Reconciliation
The next critical milestone for the bill is the Senate Banking Committee’s section-by-section hearing, scheduled for May 14 at 10:30 a.m. Committee Chair Tim Scott has set a goal to complete the review by May 21. The committee’s version will then need to be merged with the Senate Agriculture Committee’s version before a unified text can proceed to a full Senate vote. White House Digital Asset Advisor Patrick Witt outlined the administration’s timeline at the Blockchain Consensus conference in early May: finish the Banking Committee review in May, use the Senate’s four working weeks in June for a floor vote, and aim to clear the House by July 4, Independence Day. However, Senator Bernie Moreno warned that if the review drags past mid-May, the legislative window will be squeezed by the midterm election cycle—and could even reset if a new Congress is seated. Additionally, Senator Kirsten Gillibrand has made her support contingent on the inclusion of a conflict-of-interest provision for public officials, demanding a ban on senior government officials profiting from the crypto industry while regulating it. This issue remains unresolved within the committee and could become another sticking point during the bill’s consolidation phase.
How Prediction Market Probabilities Reflect Structural Shifts from the Stablecoin Compromise
Prediction market data offers a useful barometer of sentiment around the bill’s progress. According to Polymarket, after the stablecoin yield compromise was announced on May 1, the probability of the CLARITY Act passing in 2026 jumped from around 46% to 65% following the final confirmation on May 5, and has since stabilized in the 65%-75% range. Regulated prediction market Kalshi priced the same event at about 69%. The convergence between the two platforms suggests a growing market consensus. It’s worth noting that the bill’s probability peaked at 72% in mid-January, then plunged to 39% after Coinbase withdrew its support. The current rebound of over 25 percentage points reflects a shift in expectations, with the stablecoin provision moving from the main point of contention to a driving force for the bill. While Kalshi and Polymarket are now closely aligned, their user bases differ—Kalshi is institutionally focused, while Polymarket is retail-driven. The convergence of their signals adds credibility to the probability estimates. Meanwhile, Galaxy Digital CEO Mike Novogratz offered an even more optimistic 70% chance of passage, betting on Republican political commitments to advance the legislation.
How the GENIUS Act, CLARITY Act, and SEC Reform Fit Together in the US Crypto Regulatory Landscape
The legislative breakthrough of the CLARITY Act is not an isolated event—it’s a crucial piece in the long-term evolution of US crypto regulation. The GENIUS Act, which took effect in July 2025, established a federal framework for payment stablecoins, requiring 1:1 full reserves and banning issuers from directly paying interest or yields. However, it did not block third-party institutions from offering yield products through affiliated channels. This prohibition essentially serves as a regulatory defense for the banking system’s deposits. In contrast, Section 404 of the CLARITY Act takes a broader view, extending oversight from issuers to third-party platforms and covering a wider range of potential financial market participants. At the same time, SEC Chair Paul Atkins publicly called on May 9 for new rules for on-chain financial markets and software applications, noting that the current SEC framework cannot fully address protocols running autonomously via smart contracts. This signals a future regulatory shift from centralized exchanges to decentralized on-chain finance. Chronologically, the GENIUS Act set baseline compliance for stablecoin issuance, the CLARITY Act clarifies SEC and CFTC jurisdiction over digital assets, and the SEC’s rulemaking aims to create a more adaptable framework for decentralized protocols. Together, these three initiatives are moving US crypto regulation from a fragmented, piecemeal approach toward a more systematic structure.
From Higher Compliance Barriers to DeFi Innovation: How the Bill Could Reshape the Crypto Market
If the CLARITY Act is ultimately passed and enacted, it will impact the crypto market on three progressive levels. On the regulatory front, the bill divides digital assets into securities, digital commodities, and stablecoins, with statutory confirmation of the SEC and CFTC’s respective jurisdictions. Highly decentralized assets like Bitcoin and Ethereum are expected to fall under the CFTC’s exclusive digital commodity oversight—ending years of legal uncertainty over token classification and providing clear legislative guidance for project compliance. In terms of market structure, digital commodity exchanges will be required to register with the CFTC and meet capital and risk management standards, raising compliance costs for small and midsize platforms and likely increasing industry concentration. The bill also includes developer protection clauses—exempting non-custodial DeFi protocol developers from SEC/CFTC registration—thereby preserving room for on-chain innovation, provided anti-fraud rules are followed. On the capital flow side, Bitcoin ETFs recorded a net inflow of about $2.44 billion in April alone, with total assets under management surpassing $100 billion. Corporate treasuries have added over 145,000 BTC since January. This data signals sustained institutional inflows, and the regulatory clarity provided by the CLARITY Act will directly influence capital allocation decisions by establishing greater certainty. If the bill passes, the crypto market will shift from a phase dominated by regulatory arbitrage and enforcement uncertainty to one driven by clear rules and compliant capital inflows.
In summary, the CLARITY Act is at the most critical legislative juncture of 2026. The Senate Banking Committee’s review on May 14 will directly determine the pace of further progress. The compromise on stablecoin yields has resolved the bill’s main political obstacle, but ongoing pushback from banking interests, the unresolved conflict-of-interest provision for public officials, and the limited window before the midterms remain sources of uncertainty. Prediction markets’ 65%-75% probability range reflects cautious optimism about a regulatory breakthrough, while continued inflows into Bitcoin ETFs provide a demand-side foundation for market expansion once regulatory clarity is achieved.
Summary
The legislative breakthrough of the CLARITY Act marks a pivotal shift in US crypto regulation—from fragmented enforcement battles to an institutionalized rule-based framework. The May 1 stablecoin yield compromise—banning passive deposit-like yields but permitting activity-based rewards—was the key to breaking the legislative deadlock. The Senate Banking Committee’s section-by-section review on May 14 will determine whether the bill can complete the legislative process by July 4. Prediction market data shows the probability of passage holding at 65%-75% for this year, and the combination of sustained institutional inflows into Bitcoin ETFs and greater regulatory clarity for DeFi is set to drive a structural transformation of the crypto market if the bill is enacted.
FAQ
Q1: What is the relationship between the CLARITY Act and the already effective GENIUS Act?
The GENIUS Act took effect in July 2025, establishing the federal baseline for payment stablecoin issuance—requiring 1:1 full reserves and prohibiting issuers from directly paying yields. The CLARITY Act focuses more on clarifying SEC and CFTC jurisdiction, defining token classifications, and setting exchange registration requirements. The two acts overlap on stablecoin yield issues—GENIUS restricts issuers, while Section 404 of CLARITY extends oversight to third-party platforms. Together, they form the regulatory puzzle for US crypto assets.
Q2: Under the stablecoin yield compromise, what types of yields are prohibited and which are allowed?
Prohibited yields include "returns that are economically or functionally equivalent to bank deposit interest" for passive holding—that is, earnings from simply holding stablecoins without any on-chain activity. Permitted yields include "activity-based rewards" tied to trading rebates, market making, staking, or margin usage, provided the rewards are backed by substantive economic activity.
Q3: If the bill passes, what is the most direct change for ordinary crypto users?
The most immediate impact for everyday users will not be price action, but the much greater clarity of rules governing trading, staking, and other on-chain activities on exchanges, wallets, and DeFi protocols. Token classifications will be clearer, and compliance pathways for projects more accessible. However, it’s important to note that while the bill bans passive deposit-like yields, it will shift user incentives from "holding to earn" toward "activity to earn," leading to medium- and long-term changes in on-chain behavior patterns.
