On July 17, 2025, the U.S. House of Representatives overwhelmingly passed the Digital Asset Market Clarity Act by a vote of 294 to 134. At the time, the market was highly optimistic about the prospects of this first-ever federal-level crypto market structure bill. However, nearly ten months later, the bill has yet to begin its review in the Senate Banking Committee, and its chances of passage have steadily declined from a peak of 82% in early 2026. As of May 6, 2026, several institutions have lowered the probability of passage within the year to around 46%, with some assessments even more cautious.
How did a bill that once seemed to enjoy bipartisan consensus end up mired in an irreconcilable ethical deadlock so close to the legislative finish line?
The answer doesn’t lie in a single point of contention. From the protracted negotiations over stablecoin yield provisions, to the collapse of trust among senators regarding the president’s family’s crypto interests, and the tug-of-war over responsibility between law enforcement and DeFi developers, the legislative gridlock facing the CLARITY Act reflects not only technical debates over crypto regulation, but also deep-seated systemic conflicts within Washington’s power structure and interests.
From Rapid Progress to Uphill Battle: How Did the Bill’s Chances Ride a Roller Coaster?
If we use prediction market Polymarket’s data as a "legislative sentiment thermometer," the probability of the CLARITY Act passing in 2026 has gone through three distinct phases. In February 2026, thanks to strong support from the Trump administration and soaring industry expectations, the probability surged to a peak of 82%. A subsequent downturn saw the odds fall below the 38%-50% range in late April, prompting Galaxy Digital’s Head of Research, Alex Thorn, to warn that "if the review is delayed past mid-May, the chances of passage in 2026 will drop sharply." From late April to early May, as Senators Tillis and Alsobrooks announced a compromise on stablecoin yields, Polymarket’s probability quickly rebounded to 67%-70%. Yet, just as the market’s hopes were rekindled, Tillis’s latest statement sent things into a tailspin: he made it clear that if the bill did not include ethics provisions targeting the president’s family’s crypto interests, he would switch from negotiator to a "no" vote. This condition drastically narrowed the remaining negotiating space—by May 6, institutional estimates had dropped back to around 46%.
Polymarket’s data curve vividly traces the path from "almost a done deal" to "up in the air" and finally to "hanging by a thread." Market sentiment has swung violently with each round of negotiations and every ethical standoff, steadily eroding the already narrow legislative window.
How Did Ethics Become the Bill’s Most Intractable "Second Battlefield"?
For months, the stablecoin yield provision was the primary obstacle in negotiations, but this issue saw a breakthrough from late April to early May 2026. The core of the Tillis-Alsobrooks compromise is the prohibition of "passive holding yields"—in other words, crypto platforms may not pay interest or bank deposit-like returns simply for users holding stablecoin balances. At the same time, "activity-based" rewards—such as staking, trading, or genuine platform usage—are permitted.
However, the banking sector remains dissatisfied with this compromise. The American Bankers Association, Bank Policy Institute, and three other major banking groups issued a joint statement pointing out that loopholes remain in the current language, allowing crypto platforms to potentially circumvent the ban via membership programs or balance-linked incentives. Tillis and Alsobrooks responded bluntly: "Both sides respectfully agree to disagree," signaling that, to avoid jeopardizing the overall legislative process, the banking sector’s concerns may have to be "set aside."
Just as the stablecoin dispute seemed close to being "put to rest," a far thornier issue emerged: ethics provisions. Senator Tillis became the first Republican on the Senate Banking Committee to publicly demand that ethics clauses be included in the bill. He called for moral restrictions on digital asset activities by federal officials—including the president—with a special focus on the president’s family’s crypto interests.
Public reports indicate that crypto projects linked to the Trump family are now valued at over $1 billion, including World Liberty Financial, the stablecoin USD1, and the TRUMP meme coin. Democrats have taken an even firmer stance—Senators Gallego and Schiff have stated plainly, "No bipartisan ethics clause, no final bill." Including such a provision could risk a presidential veto. Excluding it, however, would prompt key Republican Tillis to vote against the bill. Without Democratic support, Republicans cannot advance the bill, and Tillis’s position signals a significant rift within the GOP itself. The ethics clause has thus become a structural dilemma for the bill: it’s no longer a technical detail, but a prerequisite for any further legislative progress.
Only Two Weeks Left Before 2030? How the Political Calendar Locks in the Bill’s Fate
If the ethics clause represents a structural divide, the midterm election clock imposes a hard deadline on resolving it.
Senator Lummis—a Wyoming Republican who has announced she won’t seek re-election—repeatedly highlighted this urgency in April: if the bill isn’t passed in 2026, the next legislative window may not open until 2030. This conclusion is based on a sober assessment of the legislative cycle: the November midterms will see 33 Senate seats and all 435 House seats up for grabs. Any shift in party control could unravel the current coalition backing the CLARITY Act. The new Congress will need time to form committees and set priorities, and complex financial legislation like this often struggles to get on the agenda ahead of traditional priorities like M&A and budget bills.
Ripple CEO Brad Garlinghouse issued an even starker warning at the Consensus conference on May 5: if the Senate Banking Committee doesn’t begin review within the next two weeks, the bill’s chances of passage will plummet. Once the legislative process is swept up in campaign season, it will be nearly impossible for lawmakers to reach consensus on such a complex crypto issue.
Tillis himself has offered the earliest possible legislative timeline: he will push for the Senate Banking Committee to schedule a review after its May 11 session resumes. But this means the bill has only a few weeks—from late April to mid-May—to complete the committee’s markup phase. It must then clear a 60-vote threshold in the full Senate, be reconciled with the Agriculture Committee’s version, and finally be harmonized with the House version—each of which could take months.
The SEC vs. CFTC Turf War: What Core Problem Is the Bill Trying to Solve?
Underlying these disputes is the central challenge the bill aims to address: who should regulate crypto in the U.S.—the SEC or the CFTC, and what exactly should each oversee?
The CLARITY Act seeks to establish a dual-agency framework, using the degree of "sufficient decentralization" as the classification standard to determine whether a digital asset falls under the CFTC as a "digital commodity" or the SEC as an "investment contract asset." It would create a CFTC-led registration regime for digital commodity exchanges, brokers, and dealers, aiming to end years of "regulatory gray zones" and allow crypto businesses to operate under a clear federal framework, rather than navigating the costly patchwork of 50 state regulations.
However, the division of power between the SEC and CFTC is not just a technical classification issue—it’s also a political power struggle. Republicans currently hold three of the five SEC seats, and Democrats are demanding balanced party representation on the commission. The impending expiration of some SEC commissioners’ terms and uncertainty over their successors further complicate the bill’s prospects.
In addition, the bill makes no substantive changes on the tax front. The IRS still treats crypto assets as "property" for tax purposes, and crypto trades are not subject to securities wash sale rules. This means investors can realize tax losses more flexibly, but cannot benefit from certain preferential tax treatments available to securities or commodities, nor can they elect mark-to-market under Section 475 or claim the 20% qualified business income deduction.
Why Are Law Enforcement Agencies Unhappy? The DeFi Developer Liability Clause as a "Hidden Landmine"
Beyond the three headline disputes—ethics, jurisdiction, and stablecoin yields—a fourth, less-noticed controversy is quietly intensifying between law enforcement and the crypto industry: the definition of DeFi developer liability.
The bill includes a provision shielding decentralized protocol developers from liability, based on the widely accepted tech principle that "infrastructure providers should not be held responsible for third-party user actions." In other words, coders shouldn’t be prosecuted for illegal activities carried out by third-party users leveraging their code. However, law enforcement and prosecutors strongly object, arguing that such protections could become a major obstacle to combating money laundering, fraud, or illicit financing, turning DeFi into an environment where "no one is truly accountable."
This clause highlights a fundamental clash between the law enforcement system and the Web3 industry over responsibility. Law enforcement believes the bill should not create a "liability loophole" between DeFi and traditional finance. The industry, in contrast, warns that without such protection, a severe "innovation chilling effect" will result, exposing open-source protocol developers to unquantifiable legal risks and ultimately stifling decentralized innovation. Tillis has made it clear that law enforcement’s objections must be resolved before the bill can move forward.
What’s at Stake if Passage Is Delayed Until 2027 or Even 2030?
All these disputes and standoffs ultimately point to the same question: what’s the cost if the bill doesn’t pass in 2026?
First, there’s the prolonged lack of regulatory certainty. U.S. crypto firms are still struggling under the SEC’s enforcement-driven "regulatory squeeze" and the fragmented compliance requirements of various states. While the SEC and CFTC have signed a memorandum of understanding to coordinate at the agency level, both are waiting for formal legislation from Congress before making major rule changes. Without the federal framework provided by the CLARITY Act, regulatory uncertainty will persist across the industry until at least 2030.
Second, there’s the risk of capital and talent flight. In April 2026, over 100 crypto companies jointly wrote to the Senate Banking Committee, warning that without a clear federal regulatory framework, jobs and business will accelerate their shift to overseas jurisdictions with stable regulatory regimes. The EU’s Markets in Crypto-Assets Regulation (MiCA) has entered full implementation, and Singapore, Hong Kong, and the UAE are all optimizing crypto-friendly frameworks. In contrast, the U.S. is caught in a cycle of escalating political infighting.
Third, the window for systemic reform could close. Lummis’s "2030" estimate is not rhetorical, but rooted in the realities of the legislative process. If the bill "dies" in this Congress, the process must restart from scratch: redrafting the bill, recruiting new sponsors, and repeating the committee review process in both chambers. After a shift in congressional power, the new Congress may adjust its priorities, potentially causing crypto legislation to lose all momentum.
FAQ
Q: What is the current status of the CLARITY Act in the Senate?
A: The bill passed the House on July 17, 2025, and is currently stalled in the Senate Banking Committee. The committee has yet to schedule a markup hearing. The Senate Agriculture Committee advanced its own version in January 2026. Senate Banking Committee Chair Tim Scott has not announced a formal review date.
Q: What are the bill’s core points of contention?
A: The main sticking point has shifted to the ethics clause—Senator Tillis insists the bill must include ethics restrictions targeting the president’s family’s crypto interests, or he will vote against it. Other unresolved issues include the stablecoin yield provision, DeFi developer liability protections, the SEC/CFTC jurisdiction split, and law enforcement’s anti-money laundering rules.
Q: Why do Polymarket’s predictions differ from institutional forecasts?
A: Polymarket is a crypto-native prediction market, so its data mainly reflects the sentiment and expectations of crypto-native traders. Institutional forecasts rely more on analysis of legislative procedures, political windows, and the congressional calendar; the two use fundamentally different methodologies. As of May 6, 2026, Polymarket’s odds had rebounded to the 67%-70% range, while multiple institutional assessments remained at about 46%. Notably, Polymarket’s recent rebound was driven by optimism over the stablecoin yield compromise, but this was quickly offset by the negative impact of the ethics deadlock.
Q: If passed, how would the bill affect crypto tax treatment?
A: The bill does not change the IRS’s current stance of taxing crypto assets as "property." Crypto trades are not subject to securities wash sale rules, so investors can more flexibly realize tax losses, but cannot access certain preferential tax treatments available to securities or commodities. Unless Congress amends the tax code or the IRS updates its guidance, crypto tax treatment will remain unchanged.
Q: How will the 2026 midterm elections affect the bill’s prospects?
A: The midterms in November will see 33 Senate seats and all 435 House seats up for election. If Democrats regain control of either chamber, the current coalition supporting the bill could fall apart. Analysts believe that if committees don’t advance the bill by mid-May, the partisan environment of campaign season will make passage highly unlikely for the foreseeable future. As a result, May is widely seen as the bill’s "final window of opportunity."
