Senate Releases Final Draft of CLARITY Act Before May 14 Markup: Key Provisions Explained

The Senate Banking Committee released the final draft of the CLARITY Act on May 12, one day before its scheduled May 14 markup. The legislation aims to establish a comprehensive regulatory framework for digital assets, addressing key concerns from lawmakers, industry stakeholders, and regulators.

What the CLARITY Act Changes

The bill introduces several major provisions:

• New rules for digital asset intermediaries: The act sets standards for exchanges, brokers, and other service providers operating in the crypto space.
• Token classification and treatment: It defines how certain network tokens—including those used in decentralized finance (DeFi)—are regulated under existing financial laws.
• Expanded role for federal regulators: The Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Treasury Department would gain greater oversight of digital asset markets.
• Path for banks to offer crypto services: Federally regulated banks would be permitted to custody, trade, and issue digital assets, aligning crypto activities with traditional banking functions.
• Preserved protections for DeFi developers: The Blockchain Regulatory Certainty Act (BRCA) language ensures that non-custodial developers and infrastructure providers are not classified as money transmitters, shielding them from excessive regulatory burdens.

Stablecoin Yield Restrictions Face Scrutiny

The most debated provision in the CLARITY Act is Section 404, which targets stablecoin yield programs. The bill would prohibit covered digital asset service providers—including exchanges and their affiliates—from paying passive interest or yield on payment stablecoin balances held by U.S. customers.

This restriction is designed to prevent crypto platforms from offering products that mimic interest-bearing bank deposits without subjecting them to banking regulations. However, the bill does not ban activity-based rewards, such as those tied to transactions, staking, governance, or platform usage. These programs would remain subject to future rules from the SEC, CFTC, and Treasury.

The distinction between passive yield and activity-based incentives is a key compromise. Banking groups argue that stablecoin reward programs could accelerate deposit flight from traditional banks, particularly if customers can earn yield-like benefits on dollar-pegged tokens outside insured accounts. Crypto firms counter that activity-based rewards are not equivalent to bank interest and should not be banned outright.

During the markup process, lawmakers are expected to hear from banks, exchanges, and stablecoin issuers, who may push for adjustments to the wording before the bill advances.

DeFi Developers Secure Key Protections

The CLARITY Act preserves critical protections for DeFi developers and infrastructure providers, a major victory for the decentralized finance community. The BRCA language explicitly clarifies that non-custodial blockchain developers and service providers are not considered money transmitters under federal law.

This provision addresses long-standing concerns that overly broad enforcement could stifle innovation in DeFi. Law-enforcement agencies had previously raised questions about whether certain DeFi activities could facilitate illicit finance, but the final draft maintains a balance between regulatory oversight and developer autonomy.

Legislative Path and Political Challenges

The release of the final draft marks a shift from private negotiations to a public committee process. If approved by the Senate Banking Committee, the bill would still require further negotiations before reaching the Senate floor. Its path to becoming law remains uncertain, as Democratic concerns over ethics restrictions for federal officials were not resolved in the released text.

Despite these hurdles, several U.S. lawmakers remain optimistic about the bill’s prospects. Senator Thom Tillis (R-NC) stated:

“After months of painstaking negotiations with stakeholders, the updated CLARITY Act language is a bipartisan compromise that will provide regulatory certainty needed to foster innovation in the United States. I was proud to work with my colleagues on both sides of the aisle to develop this improved, consensus-based product, and I look forward to Congress quickly passing this legislation and sending it to President Trump’s desk soon.”

Some analysts suggest the bill could reach President Donald Trump for signature before July 4, though its timeline hinges on resolving remaining political and technical disputes.