Key facts
- Democrats are pushing for a vertical integration provision in the CLARITY Act to establish new standards for crypto companies.
- Republicans fear a future Democratic president could weaponize the vertical integration provision.
- Vertical integration in crypto involves companies controlling multiple stages of their supply chain, like FTX controlling an exchange and acting as a market maker.
- Treasury Secretary Scott Bessent urged senators to pass the CLARITY Act to maintain US crypto leadership.
- Coinbase CEO Brian Armstrong stated that regulatory clarity will be achieved even if the CLARITY Act fails.
- There is a 17% chance President Trump will sign the CLARITY Act into law this year, according to Polymarket.
The CLARITY Act faces a significant hurdle as Democrats and Republicans clash over the inclusion of a vertical integration provision, with a crucial cloture vote scheduled for next week. Democrats advocate for the provision, arguing it would direct regulators to establish new standards for vertically integrated crypto companies to prevent conflicts of interest, similar to provisions Republicans previously supported.
However, Republican senators express concerns that such a provision could be weaponized by a future Democratic administration. The crypto industry has also voiced opposition to its inclusion. Vertical integration, exemplified by FTX's control over both its exchange and market-making operations through Alameda Research, is a key point of contention.
Negotiations are ongoing, with Senator Cory Booker (D-N.J.) and Senators Cynthia Lummis (R-Wyo.) and John Boozman (R-Ark.) reportedly discussing the language. Booker indicated shared values but stressed that he would not support the bill without consumer protections against the potential downsides of Web 3.0.
Amid these challenges, including ongoing debates over ethics provisions and lobbying against a stablecoin yield provision, Treasury Secretary Scott Bessent has urged senators to pass the CLARITY Act to maintain U.S. leadership in cryptocurrency. Despite these efforts, the crypto industry is preparing for the possibility that the cloture vote may fail. Coinbase CEO Brian Armstrong stated that regulatory clarity will eventually be achieved, regardless of the bill's passage. The House's cancellation of late-September sessions and early recess further complicates the timeline, potentially delaying a final vote until after the midterm elections, even if the cloture vote succeeds. Data from Polymarket suggests only a 17% chance of President Trump signing the bill into law this year.