Latest (last?) CLARITY draft sparks last-minute stakeholder push

Congress released the latest draft of its digital asset market structure legislation, and stakeholders have been frantically scrambling to ensure their voices are heard before Thursday’s markup session.

Late Monday night, the Senate Banking Committee released the latest draft of its digital asset market structure bill (CLARITY Act). The 309-page draft will be marked up by the committee on Thursday, May 14, and those wishing to make changes to its text had until 5:00 pm ET on Tuesday to submit proposed amendments. Rest assured, there will be amendments (and possibly blood).

The committee’s Republican leaders also issued a CLARITY fact sheet that does the hard-sell on reasons why the bill should be approved by committee members (after which it must be reconciled with the version approved by the Senate Agriculture Committee in January, then sent to the Senate floor for a vote, then sent to the House of Representatives to reconcile with the bill it passed last year, and then—if the House tweaks the bill further—returned to the Senate for a confirmation vote, before finally making it to President Trump’s desk).

While the latest CLARITY draft is the product of nearly four months of haggling between stakeholders and politicians on both sides of the aisle, some serious issues remain. This includes the highly contentious issue of what kind of ‘rewards’ digital asset platforms like the Coinbase (NASDAQ: COIN) exchange can offer to their users who hold stablecoins on these platforms.

We’ll address the stablecoin issue further down, but another potential tripwire, how much legal protection the bill should offer developers of non-custodial decentralized finance (DeFi) platforms, got an update in the new draft. The update follows what Banking member Cynthia Lummis (R-WY) characterized as a DeFi deal between Banking’s leaders and Sen. Chuck Grassley (R-IA), who chairs the Senate Judiciary Committee.

A few months ago, Grassley reacted poorly to Banking inserting a version of the Blockchain Regulatory Certainty Act (BRCA) into CLARITY, calling it an unwarranted incursion onto the Judiciary’s turf. Law enforcement agencies have also voiced their displeasure at the BRCA text, claiming it will hinder their ability to investigate crimes involving digital assets.

The new CLARITY offers a modest tweak to the BRCA text (Section 604), clarifying that the government can still prosecute an individual who acts with “specific intent to transfer, on behalf of another person, funds that are known by the initial person to be (1) derived from a criminal offense; or (2) intended to be used to promote or support unlawful activity.”

Early reaction to the tweak by DeFi advocates has been mostly positive, although the law enforcement types have yet to weigh in. Expect more fireworks on Thursday.

Bankers not going quietly

While Banking’s leaders insist the stablecoin rewards issue has been resolved to their satisfaction, the banking sector continues to push for significant revisions to the so-called ‘compromise’ language in CLARITY’s current draft (Sec. 404).

The language would eliminate rewards for passive holding of stablecoins but permit them for a broad (some say ill-defined) range of activities. Federal regulators/agencies will have 12 months following CLARITY’s passage in which to lock down the precise scope of these activities.

On May 8, a coalition of six major banking sector trade groups sent a letter to Banking chair Tim Scott (R-SC) and ranking member Elizabeth Warren (D-MA), urging them to “address critical concerns raised by banks of all sizes regarding the risk of deposit flight and diminished credit and lending associated with permitting yield on payment stablecoins.”

The banks aren’t wild about the vagueness of the proposed rewards-generating activities, saying the wording allows for “exceptions that will enable evasion of the intended prohibition.” The banks point out that the current text has led “people across industries [drawing] different conclusions about the types of payments that the language will prohibit or allow.”

Other banking-affiliated groups have provided forms that individuals can send to their local senators urging them to “tighten restrictions on paying interest, yield or rewards that function like interest on payment stablecoins to cover all market participants.” The stated goal is to “protect local communities by closing the payment of interest loophole” in CLARITY. (Over 8,000 letters had reportedly been sent as of Tuesday evening.)

On May 10, American Banking Association CEO Rob Nichols reportedly sent a letter to ABA member CEOs, alerting them to the “urgent advocacy fight that requires your immediate engagement.” Nichols urged the CEOs to make use of the forms above because “committee members may not be fully aware of the risks to the economy posed by the stablecoin loophole.”

The banks’ continued efforts to press this issue have prompted a barrage of scornful comments from crypto operators and their political allies. Banking member Bernie Moreno (R-OH) mocked the bankers for being in “full panic mode” while White House crypto adviser Patrick Witt tweeted that bankers had “refused” to attend White House meetings on the rewards issue, adding that he “wouldn’t want to have to defend their position in public either.”

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Ethics fight going down to the wire

CLARITY’s latest draft contains no new language on the thorny ‘ethics’ issue, aka Democrats’ desire to prohibit elected officials—including Trump—and their families from profiting off crypto ventures while simultaneously holding the power to eliminate regulatory obstacles that might limit these ventures’ profits.

Ranking member Warren issued a typically pejorative statement Tuesday, saying the draft’s lack of ethics language “will turbocharge Donald Trump’s crypto corruption.” Citing the sizable financial windfalls that numerous Trump-linked crypto businesses have enjoyed to date, Warren said, “The American people are watching.” Warren urged Banking members to vote down the bill absent any presidential restraints. (More on the Trump family’s latest crypto escapades lower down.)

Last week, Politico reported that several Banking Dems planned to withhold their support for CLARITY unless ethics language was included. Banking’s GOP leaders claim this issue is beyond the committee’s scope, suggesting that ethics language could be added if/when CLARITY reaches the Senate floor.

At last week’s Consensus conference in Miami, Banking member Kirsten Gillibrand (D-NY) stated that Banking’s Dem members wouldn’t vote to advance CLARITY if it didn’t include ethics language. Banking’s GOP members are all expected to vote in favor of CLARITY, and the bill can be approved without any Democratic support. However, some observers have theorized that CLARITY could face an uphill battle on the Senate floor if it passes out of committee on a purely partisan vote.

Gillibrand and Ruben Gallego (D-AZ), another Banking member demanding strong ethics language, met Tuesday with colleagues Lummis, Moreno, Thom Tillis (R-NC), and others—plus the White House’s Witt—to discuss the ethics concerns.

Moreno emerged spitting his usual fire, calling the meeting “super annoying” and a “circus.” Moreno accused Dems of “trying to find reasons to vote against the bill and making up a bunch of bullshit excuses.” Gallego retorted that Moreno was “prone to exaggeration” and suggested that if the Ohioan didn’t think such meetings were productive, “maybe he should stop going to the meetings.”

Gallego added that whatever ethics language emerges as acceptable to both sides, “it has to be signed off by Trump. And if he doesn’t sign off on it, then it doesn’t happen.” Lummis, who in January worked on ethics provisions that the White House ultimately rejected, said she and Gillibrand were seeking a direct meeting with Trump to try to reach some kind of agreement.

Gallego offered a mixed message regarding the Banking leadership’s claims that jurisdictional issues bind its hands on the ethics issue. Gallego said the issue “will have to be addressed before the Banking Committee,” but “it doesn’t necessarily have to be addressed through the Banking Committee.”

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Unions throw their hardhats into the ring

The SEIU/AFT isn’t wild about this possibility and believes that CLARITY “invites the cryptocurrency industry to take outsized risks, knowing that if those risky bets do not pay off, it is working people and retirees, not crypto billionaires, who will pay the price.” CLARITY’s welcoming of tokens into mainstream finance “jeopardizes the stability of workers’ retirement plans, including public pensions, and introduces significant volatility to retirement savings accounts.”

The AFL-CIO letter warns that “absent sufficient regulation, embedding cryptocurrencies … and other digital assets into the real economy will have a destabilizing effect, while benefiting issuers and platforms at the expense of working people.”

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Exchanges pressed Ag committee to water down token manipulation rules

Crypto operators are hammering the message that they’re only seeking ‘regulatory clarity’ while Banking’s GOP leaders insist that CLARITY “protects everyday Americans” by establishing “clear protections for digital asset market participants.” And yet, crypto operators appear far more concerned with protecting their own bottom lines.

Politico reported last week that three major U.S. exchanges—Coinbase, Kraken, and Gemini (NASDAQ: GEMI)—pushed to remove language from the Ag committee’s CLARITY draft that would have prevented exchanges from listing the kind of sketchier tokens on which these exchanges have come to rely for much of their trading volume.

Specifically, the exchanges sought to purge language that requires them to self-certify that the tokens they list are “not readily susceptible to manipulation.” This includes memecoins that are thinly traded or whose tokenomics offer too much control to insiders who hold the bulk of the token supply.

Coinbase’s chief policy officer, Faryar Shirzad, responded to the report by saying, “We’ve entered the ‘leak months-old negotiating docs and pretend it’s a scandal’ phase of crypto legislation.” Shirzad called the details in the report “old news” that had been “debated openly,” including during the Ag committee’s January markup.

But Amanda Fischer, a former Securities and Exchange Commission (SEC) chief of staff and current director at consumer watchdog Better Markets, issued a lengthy tweet-thread that recalled Coinbase’s chief legal officer Paul Grewal’s former enthusiasm for an asset certification process involving “rigorous analysis” to explain “why the contract is not readily susceptible to manipulation.”

At the time, Grewal was advocating for the bulk of crypto oversight to be handled by the Commodity Futures Trading Commission (CFTC), despite the CFTC having a fraction of the staff and budget available to the SEC. Grewal assured Congress that the CFTC “has experience utilizing disclosures to equip customers with the information they need to understand the risks of trading a particular asset.”

Fischer notes that the CFTC imposes these allegedly onerous requirements on “every other commodity market” over which it has oversight. But crypto operators apparently want “special dispensation” that alleviates them from this consumer-friendly responsibility.

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Crypto PACs, astroturf groups put senators on notice

The crypto sector isn’t sitting idly by ahead of Thursday’s markup. Punchbowl News reported that Coinbase CEO Brian Armstrong—whose opposition to CLARITY’s previous draft resulted in the last-minute cancellation of the scheduled Banking markup session in January—will speak at a closed-door Senate GOP Steering Committee lunch on Wednesday.

Meanwhile, Coinbase’s astroturf group Stand with Crypto (SwC) tweeted a warning to Banking members on Monday that it “will score the Senate Banking Committee’s May 14th markup vote on the CLARITY Act.” SwC “strongly” urged senators to vote in favor of CLARITY, warning that its letter-graded lawmaker ratings “will be updated based on these recorded votes.”

SwC’s report cards aside, Coinbase is one of three key funders of the Fairshake political action committee (PAC), which has nearly $200 million to spend on the November midterm elections. So far, Fairshake and its two affiliated PACs have had a mixed record in the current election cycle, but this game has only just begun.

Fairshake’s biggest scalp of the 2024 election cycle was former Banking chair Sherrod Brown (D-OH), who lost his Senate seat to Bernie Moreno thanks in part to $40 million in pro-Moreno/anti-Brown funding. Brown is now mounting a comeback by campaigning for the Ohio seat currently held by Sen. Jon Husted, who was appointed by Ohio’s governor after J.D. Vance left to become Trump’s Vice-President.

Brown became a crypto PAC target due to his vocal criticism of the industry’s excesses. But Politico recently profiled the New & Improved Sherrod Brown™, who appears to have tempered his crypto criticism in the hope of not reclaiming his status as the crypto PAC lightning rod.

Brown’s campaign manager, Patrick Eisenhauer, emphasized his candidate’s new attitude by saying Brown “recognizes that cryptocurrency is a part of America’s economy.” Eisenhauer added that Brown will “keep an open mind towards all issues as they come before the Senate, and work to ensure that as more people use cryptocurrency, it expands opportunity and lifts up Ohioans.” (So how was Damascus, Sherrod?)

Meanwhile, the Tether-linked Fellowship PAC doled out more money to its preferred candidates last month, including $628,597 to Rep. Andy Barr and $221,403 to boost Nate Morris, both of whom were seeking Senate seats in Kentucky. (Morris has since withdrawn his bid last week and threw his support behind Barr after Trump requested that he sit this one out and offered Morris a job in his administration.)

Surveys show that Americans think there’s too much money flowing into elections from deep-pocketed special interest groups, with crypto PACs and digital asset billionaires in particular not winning U.S. voters’ favor. Voters also don’t trust Trump to oversee crypto regulation, in part due to his many and varied conflicts of interest.

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Is World Liberty worth more to Trump than Mar-a-Lago?

Speaking of, Tuesday saw Bloomberg issue its latest calculation of just how much money the Trump family’s World Liberty Financial (WLF) crypto project has netted them since its launch in late 2024.

Bloomberg teamed with analytics firm Tokenomist.ai to crunch the WLF numbers, finding that the family has generated $1.55 billion in sales of the project’s tokens, though the net increase in the family’s collective fortune is a more modest $660 million.

Regardless, Bloomberg declared that WLF “is now worth more to the family than any other business, including their stake in Trump Media & Technology Group (TMTG) (NASDAQ: DJT), or even the famed Mar-a-Lago resort.”

Speaking of TMTG, the company’s Q1 earnings report showed a net loss of $405.9 million dollars on revenue of just $871,200. TMTG, operator of the Truth Social platform, has yet to launch any of its other promised ventures (including a prediction market), leaving it reliant on Truth Social ads for revenue.

TMTG’s losses stem from its ill-fated digital asset treasury strategy based on buying the BTC token and waiting for its price to rise. As of March 31, TMTG had 9,452 BTC on its balance sheet, acquired at a cost of $1.13 billion, but worth only $647 million at the end of Q1.

TMTG also owns 756 million CRO, the native token of the Cronos blockchain, acquired at a cost of $114 million and now worth just $53 million. Cronos is controlled by the Crypto.com exchange, with which TMTG has partnered on a variety of crypto ventures.

Things are going so great at TMTG that its CEO Devin Nunes abruptly stepped down in April, saying he intended to “focus more intently on my role as chairman of the President’s Intelligence Advisory Board.” TMTG named Kevin McGurn, who previously served as a TMTG advisor, as its interim CEO.

TMTG’s shares closed Tuesday down 1.% to $8.73 and have lost one-third of their value since the year began and two-thirds of their value over the past 12 months. Thank heaven for WLF, otherwise the Trumps would be busy scraping the gold leaf off that new statue of the president now gracing the Mar-a-Lago landscape.

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