Senate Deal Implodes: CLARITY Act Stalls as DeFi, Stablecoin Talks Collapse
Negotiations on the CLARITY Act have broken down over DeFi liability and stablecoin yields, jeopardizing the January 15 Senate vote.
White House Crypto Czar David Sacks guaranteed a January victory. He spoke too soon.
As of Thursday morning, the Senate Banking Committee is deadlocked on the Digital Asset Market Clarity Act (CLARITY), with a scheduled January 15 markup now looking less like a victory lap and more like a public execution. Despite Sacks’ December assurance that the bill was on track, partisan negotiations have disintegrated behind closed doors, leaving the industry’s most significant market structure legislation on the brink of failure.
Bitcoin struggled to hold $91,200 (-2%) as the news filtered through Washington, reflecting growing institutional anxiety that the regulatory window is slamming shut.
The "Showstopper": DeFi Liability
The primary fracture is ideological. While the House passed its version in July, the Senate draft has hit a wall over Decentralized Finance (DeFi). Democrats, citing national security concerns, are demanding strict anti-money laundering (AML) mandates that would impose liability on front-end developers and protocol interface providers.
Republicans and industry advocates argue this effectively bans DeFi in the United States. Senator Cynthia Lummis admitted negotiations had boiled down to "a couple of DeFi items," but sources close to the committee indicate the gap is widening, not closing.
The dispute isn't technical; it's existential. Democrats want a kill switch for protocols. The industry wants code treated as speech. There is no middle ground here.
The Bank Lobby Strikes Back
Beyond DeFi, a second front has opened: stablecoin yields. The American Bankers Association is aggressively lobbying to strip provisions that would allow stablecoin issuers to offer interest-bearing products. Their argument? "Backdoor yields" on stablecoins could siphon deposits away from community banks.
This puts the bill’s "payment stablecoin" framework at odds with the industry's profit model, specifically targeting potential products from issuers like Circle and PayPal.
The Trump Factor
Complicating the math is a new demand from Senate Democrats for rigid ethics rules targeting the Executive Branch. Negotiators are insisting on provisions that would prevent senior government officials and their families from profiting from digital asset ventures, a clause widely interpreted as a direct check on the Trump family’s World Liberty Financial project.
Next Week or Never
Senate Banking Chair Tim Scott has signaled he intends to force a vote next Thursday, regardless of whether a deal is reached. His goal is to put lawmakers on the record. But without Democratic buy-in, the bill lacks the 60 votes needed to break a filibuster on the Senate floor.
With a government funding deadline on January 30 and the 2026 midterm election cycle ramping up, a failure next week likely buries crypto legislation until 2027.
