Layer One: Could the CLARITY Act be a monkey’s paw for the crypto industry?

Could the CLARITY Act be a monkey’s paw for the crypto industry?

Earlier this month, negotiations in the US Senate over the ongoing crypto market structure bill appeared to derail, if only temporarily. A proposed initial vote by the Senate Banking Committee was delayed after a slew of amendments prompted widespread industry backlash.

Coinbase was allegedly accused of a “rug pull” by the White House after dramatically withdrawing its support for the bill, citing concerns over stablecoin yield restrictions. CEO Brian Armstrong in turn accused the banking industry of attempting “regulatory capture” in order to stifle healthy competition. The crypto industry is getting its long-awaited wish, a dovish regulatory environment, but at a cost.

The White House’s crypto council is reportedly planning a summit between crypto and banking industry figures next week, in an attempt to clear this latest logjam. Yet even if this one core issue is resolved, several others will remain fiercely debated.

Democratic lawmakers have been consistently pushing for the inclusion of stricter financial disclosure requirements and conflict of interest amendments to the draft bill. The latter is in direct response to concerns over the crypto-based business ventures and investments of President Trump, with a reported $1.4 billion in crypto-related assets added to his family’s fortune over the past year alone.

So even though there is significant bipartisan support for these regulatory frameworks, divisions remain over the exact terms. Divisions which have been present since the bill first passed the House of Representatives last July, and which could see it bogged down in the Senate until later in the year if no resolutions are forthcoming.

We in this industry have been building on a pile of sand. And what this legislation does is it gives us a stone foundation. I don't think any of us love the particular type of stone that's being used here. But nonetheless, it does put us on more stable footing and allows us to build for the future. – Salman Banaei

So where, ultimately, will the passage of this bill leave the crypto industry? The question is clearly quite a bit more nuanced than the pure bull case espoused elsewhere; greater regulatory clarity in the US doesn’t necessarily mean an instant return to champagne-popping euphoria. But neither does it mean a total surrender to draconian restrictions.

Although the overall outlook remains positive, the reality is that the near future of the US crypto markets will likely be defined by compromise and concession. TradFi players will eventually gain the legal sure-footedness to bring new waves of capital onchain. However, the question that remains is just how much ground the crypto industry will have to give up to get there.

Podcast Recap: Two GCs on the New Legal Foundation Shaping Crypto's Future

In the latest edition of the Layer One podcast. We were joined by Lee Schneider, general counsel at AVA Labs, and Salman Banaei, general counsel at Plume, to discuss how the Senate bill turns crypto's legal foundation from sand to stone, and what that means for the next generation of builders.

Subscribe to Layer One on Youtube, Apple, Spotify or wherever you get your podcasts.

In the Headlines: The stories driving the conversation this week

• Russia is working on its own regulatory framework bill for crypto, which will open up access to retail investors. The bill — slated to enter law in July this year — will allow retail buyers to purchase certain cryptocurrencies up to a yearly cap equivalent to $3,900. The bill is also expected to include updated guidelines for miners and other crypto-adjacent entities.
• Standard Chartered has released a report reaffirming the banking sector's fears that stablecoin adoption will cause a drain in deposits. While the combined market cap of all US-backed stablecoins ($300 billion) is still modest in comparison to total US bank deposits ($18.7 trillion), the report estimates that up to $500 billion in assets could move from the latter to the former by 2028.
• This week the first ever spot AVAX ETF went live for trading on the NASDAQ. This follows months of jostling between several issuers, including Bitwise and Grayscale, each seeking to bring their product to market first. Ultimately VanEck was successful, launching their fund with ticker VAVX on January 26.

Top of the Charts: Polymarket odds swing toward US government shutdown

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