CLARITY Act Stalls as Senate Negotiations Run Into Recess Deadline

Trump-linked ethics provisions divide negotiators

Ethics restrictions became one of the most difficult negotiating issues because of President Donald Trump’s cryptocurrency interests, including his memecoin and his family’s involvement with World Liberty Financial. Financial disclosures released in June showed that Trump received millions of dollars connected to World Liberty Financial, increasing Democratic pressure for rules governing the digital-asset activities of elected officials and their families.

Sens. Ruben Gallego, D-Ariz., and Thom Tillis, R-N.C., sent an ethics compromise to the White House during the previous week. Details of the proposal remained unresolved in the negotiations, and Trump’s support was uncertain. The White House did not respond to a request for comment regarding the ethics discussions.

Trump had previously supported language prohibiting public officials and their spouses from issuing or sponsoring digital assets. That proposal would not apply to other family members, would give enforcement authority to the Justice Department and would include a sunset provision ending the restrictions in January 2029.

The Senate Democratic staffer said acceptable language would also need to authorize enforcement by state attorneys general, include a divestment requirement and remove the expiration date. The provision must be “lasting” so that it applies to future presidents, vice presidents and lawmakers, the staffer said.

Democrats did not need advance approval from the White House to move the measure through the chamber, although Trump could later veto it, the staffer added. “To be honest, we don’t need the White House to sign off on it for it to pass the Senate,” the staffer said.

Sen. Elizabeth Warren led the release of a fact sheet Wednesday outlining additional objections. Warren said the legislation still failed to adequately address Trump’s ability to profit from cryptocurrency ventures, consumer and investor protections, and loopholes that could allow bad actors to use digital assets.

Law-enforcement groups challenge DeFi exemptions

Illicit finance formed the second major area of disagreement. Sen. Catherine Cortez Masto, D-Nevada, repeatedly raised concerns that the legislation did not go far enough to protect law-enforcement agencies and consumers.

The National Sheriffs’ Association and other law-enforcement organizations said the bill contained overly broad exemptions involving anti-money-laundering requirements, sanctions laws and know-your-customer rules. The organizations argued that the language could make it more difficult to investigate and prevent financial crimes.

Cryptocurrency industry representatives rejected that interpretation and said the National Sheriffs’ Association was mischaracterizing how the legislation would regulate decentralized finance.

A separate editorial published on August 4 also raised AML and KYC concerns. The editorial argued that exempting certain decentralized networks from those requirements could create opportunities for illicit finance and urged lawmakers to tighten the legislation before sending it to Trump.

DeFi Education Fund CEO Neeraj Agrawal rejected the editorial’s description of decentralized networks. “This is completely wrong. There is no operator. That’s the point,” Agrawal wrote on X.

Blockchain Association CEO Ji Kim said the editorial was “rife with factual and legal inaccuracies” and promised a detailed rebuttal. SkyBridge Capital founder Anthony Scaramucci called the opposition a “last-minute effort to stall things” by the banking lobby.

The editorial also focused on stablecoin rewards. It argued that cryptocurrency exchanges could offer rewards to stablecoin holders even though the GENIUS Act prohibited stablecoin issuers from paying interest directly. Such arrangements could encourage depositors to move funds from traditional banks into stablecoin products, the editorial said.

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Agriculture Committee language remains disputed

Negotiators were also working to determine how to incorporate the Senate Agriculture Committee’s version of the legislation into the final package. The committee advanced its text in January 2026 without Democratic support.

The Senate Democratic staffer said Sen. Cory Booker, D-N.J., was leading discussions over that language. Booker’s team did not immediately respond to a request for comment.

TD Cowen’s Washington Research Group, led by managing director Jaret Seiberg, took a pessimistic view of the available timetable. Seiberg said the only immediate procedural options were extending the recess or obtaining unanimous consent to waive Senate rules.

“The only way to get to a final vote before the recess at this point would be for the Senate to delay the recess for a week or for the Senate to waive the rules, which requires unanimous consent,” Seiberg said.

“We view both as improbable as senators want to return home to campaign and Sen. Elizabeth Warren is guaranteed to object to any effort to expedite votes on the Clarity Act,” he added.

Seiberg also cited continuing law-enforcement concerns and Democratic objections to the Agriculture Committee language. “We also question if there is time left to address either of those concerns,” he said.

Tillis told reporter Eleanor Mueller that an immediate vote would probably depend on senators remaining in Washington beyond Thursday.

Blockchain Association CEO Summer Mersinger offered a more positive interpretation of the procedural delay, saying congressional leaders could be giving negotiators additional time.

“We are optimistic that this delay in filing a motion to proceed is due to the Majority and Minority Leaders providing additional time for ongoing bipartisan negotiations,” Mersinger said. “I am optimistic that what we are seeing signals a desire by both sides to have a bipartisan vote.”

September and year-end packages remain possible

Failure to complete the bill before recess would not necessarily end the legislative effort. The Senate Democratic staffer identified September as another potential window and said negotiators remained optimistic that a bipartisan agreement could emerge.

“It definitely does not die in August,” the staffer said. “I think if we can get it right, it can definitely pass in September, like no doubt.”

Coinbase Vice Chairman Ryan VanGrack also said failure during the current window would not kill the legislation and pointed to the same month as another possible opportunity. Sen. Cynthia Lummis, one of the measure’s principal architects, remained optimistic about its eventual prospects while acknowledging that negotiations could continue through the weekend.

Bitwise Chief Investment Officer Matt Hougan said the cryptocurrency industry would continue developing even without immediate congressional passage. Writing in a Tuesday blog post, Hougan said the industry would “find a way forward” because the SEC could introduce administrative rules addressing many of the market-structure issues covered by the bill.

Hougan cited SEC Chair Paul Atkins, who said the agency was willing and able to issue rules covering many of the same issues. Hougan said an administrative framework could initially be more favorable to the industry than legislation negotiated between the two parties.

“In the short term, rules from Atkins’ SEC are likely to be more crypto- and innovation-friendly than those that would emerge from a bipartisan bill in Congress; they may even be an accelerant,” Hougan said. “The risk is that a future administration appoints a less friendly SEC chair who reverses them.”

Hougan said BlackRock, Nasdaq, JPMorgan, Visa and other traditional financial companies had already become involved in blockchain and digital assets. He argued that the industry would have at least two and a half years to expand before another administration could potentially install a different SEC chair.

“In a world where Clarity fails and the SEC lays out rules instead, crypto will have at least two and a half years — until a new administration could potentially install a new SEC chair — to make continued progress,” Hougan wrote. “At that point, no SEC chair will be able to put the genie back in the bottle.”

Hougan said the legislation could enter a “walking dead” state if it failed to advance immediately because “nothing can actually kill it, but it will lurch along.” Lawmakers could review it again during the fall or winter of 2026 or attach it to a larger year-end omnibus package.

Extended uncertainty would be “bad news” because professional investors could remain reluctant to commit capital while the regulatory responsibilities of the SEC and CFTC remained unsettled, Hougan said.

“To be clear: Congress should pass the bill, and crypto will be better off if it does,” Hougan said. “The Clarity Act is not a perfect bill, but it is a good one. It would boost the U.S. economy, protect investors, improve ethics protections, and help us compete in the era of onchain finance.”

Senators and tribal gaming regulators were also seeking language that would prohibit sports-related prediction markets.