Citi: The CLARITY Act remains the key to legalizing digital assets in the US

Citi believes the CLARITY Act remains the central driving force in legitimizing the digital asset market in the US, despite legislative progress slowing down due to debates over sensitive provisions.

The bank states that some milestones in spring could still be achieved, but the risk of delays is increasing, and the final passage may be pushed back beyond 2026. While the Senate Agriculture Committee has pushed forward a version of the bill, the most contentious issues remain under the jurisdiction of the Banking Committee.

According to the analysis team led by Peter Christiansen, passing the CLARITY Act is an essential catalyst to promote and legitimize the digital asset sector in the US. The bill aims to define which regulatory agency oversees digital assets, how to classify tokens, and which activities fall under securities or commodities laws — key factors to bring legal clarity and attract activity back to the US.

Citi believes that the definition of decentralized finance (DeFi) is the biggest obstacle. The debate centers on determining when protocols, software, and decentralized developers are considered service providers subject to regulation. A too strict framework could put pressure on Web3, decentralized exchanges, derivatives, stablecoin yields, and layer 2 networks. Any compromise is likely to revolve around custody and oversight requirements rather than maintaining absolute neutrality over software.

Conversely, Citi sees more room for compromise regarding stablecoin rewards. Options could include capped yields over time or alternative incentive mechanisms, as banks worry about legal circumvention risks while crypto companies view rewards as a key factor to incentivize users. However, Citi believes this debate does not alter the long-term prospects of stablecoins in cross-border and business-to-business payments.

Regarding tokenized stocks, the report states that concerns over bypassing traditional market infrastructure are creating opposition. However, reconciliation solutions could include clearly classifying tokens as securities, maintaining distribution through existing channels, using hybrid settlement models, or implementing pilot programs under SEC supervision. These approaches could support innovation without disrupting the current securities value chain.