CLARITY Act Takes New Turn...Negotiations During Recess Become Crucial

The Senate vote on the cloture for the CLARITY Act, a comprehensive bill on digital assets in the U.S., has been pushed to September, making the behind-the-scenes negotiations between the White House and both Democratic and Republican parties during the August recess a key variable for the future success of the legislation. Cloture refers to the procedure that requires more than 60 votes to end a Senate filibuster and move to a vote in the full chamber.

According to the U.S. Senate website, from September 10 to September 11, it is a period for district activities. During this time, members of Congress will leave Washington, D.C. for their district activities and return to the full chamber schedule on September 14. Initially, experts predicted that if the CLARITY Act did not pass the Senate before the August recess, it would be difficult for the legislation to succeed as the midterm elections in November approached.

Cloture Request Revives Hope

However, a change occurred just before the Senate went into recess. Senate Minority Leader John Thune submitted a request for cloture on the agreement to consider the CLARITY Act in the full chamber on August 8. As a result, the cloture vote is scheduled for September 15 at 2:15 PM. There were growing concerns that the bill might stall as no vote schedule had been set until just before the recess, but the last-minute request for cloture has revived hope.

Of course, even if cloture is achieved, there are still procedures to process amendments, additional cloture requests, and a vote in the full chamber. However, Thune's request for cloture just before the recess indicates a commitment to prioritize the bill immediately upon returning in September, which is significant. The White House has also consistently expressed its intention to move forward with the bill. Patrick White, the Executive Secretary of the White House Digital Assets Council, stated on X on September 11 that "the administration is committed to passing the CLARITY Act in September."

Ethics Provisions and Stablecoins at Stake

As a result, how much behind-the-scenes negotiation occurs on the key issues of the bill during the August recess is becoming a point of interest in the market. The biggest issue is the ethics provision addressing the conflict of interest concerning digital asset business interests of President Donald Trump. The Democrats have been demanding stronger restrictions on high-ranking officials, including the president, profiting from digital asset businesses while in office. The bipartisan compromise proposed by Republican Senator Thom Tillis and Democratic Congressman Ruben Gallego reportedly includes a requirement for President Trump to divest his stake in digital asset businesses and strengthen enforcement mechanisms. Currently, the White House remains silent on the bipartisan compromise.

Resolving the ethics provision alone will not be sufficient. Recently, repeated pushback from local banks has emerged as a new variable that could sway Republican internal support. Banks argue that if stablecoins compete with bank deposits, funds could flow out of local banks, claiming that the protections in the CLARITY Act are insufficient. In particular, the provisions related to stablecoin compensation and revenue are crucial. Banks believe that if stablecoin holders receive economic benefits similar to interest, the competitiveness of deposits could decline. Conversely, the digital asset industry argues that overly restricting stablecoin compensation could hinder industry innovation.

Additionally, provisions related to blockchain regulatory clarity defining the regulatory responsibilities of blockchain developers and non-custodial software providers are also being raised as additional issues. This provision aims to alleviate the legal responsibilities of decentralized protocol developers, which the industry supports, but law enforcement agencies are concerned that it could make money laundering investigations more difficult. Further adjustments are also expected regarding the provisions that define the U.S. Commodity Futures Trading Commission's (CFTC) supervisory authority over digital goods and the detailed market structure.

Three Weeks Left Before Midterm Elections

Experts believe that there are only three weeks left for legislative action before the midterm elections after the Senate's schedule resumes in September, so significant progress in negotiations during the August recess is necessary for the legislation to be possible. Senators will return to Washington, D.C. on September 14, but there is a non-session day scheduled for September 21, and from October 5 to November 6, they will again enter a period of district activities. As the midterm elections approach, the likelihood of both parties compromising on politically sensitive issues is expected to decrease as members begin their district election activities.

Therefore, to secure 60 votes in the first cloture vote on September 15, it may not be sufficient for members to return to Washington, D.C. and start negotiations from scratch. It has become crucial how much of a compromise the White House, both party offices, the industry, and the banking sector can establish during the recess.

Limits of SEC and CFTC Rules

Even if the legislation fails, the restructuring of U.S. digital asset regulation will not stop. Separately from legislation, the U.S. Securities and Exchange Commission (SEC) and the CFTC can utilize the authority granted by existing laws to establish rules and interpretive guidelines.

On the 14th, the SEC will review tailored issuance rules for specific investment contracts related to digital assets in a public meeting. The SEC is considering providing registration exemptions for digital asset issuances that meet certain requirements. The CFTC will also hold its first meeting of the Innovation Advisory Committee on the 20th, with key figures from traditional finance and the digital asset industry, including Coinbase, Ripple, Robinhood, and Nasdaq. The committee will advise on how to modernize the CFTC's regulatory framework in line with technological changes such as blockchain. Previously, the SEC and CFTC issued a joint interpretation in March that clarified when investment contracts surrounding digital assets, digital collectibles, digital tools, stablecoins, and digital securities begin and end.

However, it is difficult for the administrative agencies' rule-making alone to fully replace the CLARITY Act. The SEC and CFTC must operate within the scope of authority granted by Congress through existing laws. Establishing a consistent market structure applicable to the entire digital asset market and redefining the jurisdictional boundaries of the two agencies requires stronger and more sustainable foundations through congressional legislation. SEC Commissioner Paul Atkins stated in March, "Only Congress can make digital asset regulation sustainable."

In this regard, Song Chang-seop, Director of Blob Web3, stated in that "the willingness of the bipartisan leadership in the U.S. to negotiate is positive for the passage of the bill in September, but given the limited time before the midterm elections, it will be important for legislative actors to strongly demonstrate their willingness to negotiate during August."

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