What the Clarity Act Means for the Rest of the World

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In brief - Supporters say the Clarity Act would make the U.S. the global leader in crypto regulation and influence policy abroad. - Critics like Sen. Elizabeth Warren warn it could weaken anti-money laundering standards worldwide. - The bill would legalize most crypto activity in the U.S. and move much of the industry under CFTC oversight. The Clarity Act in the United States hardly needs more drama. Over the last year, the still-yet-to-be-passed crypto bill has weathered starts, stops, eleventh hour mutinies, all-out inter-industry battles, and heaps of frustration from lawmakers. But after narrowly surviving a key committee vote two weeks ago, the bill is finally making its way to the Senate floor for a do-or-die final vote. The stakes could not be higher—and not just because of what the Clarity Act’s passage would mean for the United States, but also for the rest of the world. The legislation would, if passed, formally legalize most crypto activity in the United States. But due to America’s sway over the global financial system, the bill’s language would also reverberate around the globe and set a new standard for crypto regulation in many other countries, stakeholders say. “The U.S. has always led on global financial regulation, and digital assets are no different,” Kristin Smith, president of the Solana Policy Institute, told Decrypt. “The rest of the world is watching Washington right now.” Smith emphasized that when President Donald Trump signed the stablecoin-focused GENIUS Act into law last summer, “jurisdictions around the world began advancing similar frameworks almost immediately.” Indeed, in the months following the GENIUS Act’s passage, the UK, South Korea and Canada all introduced comparable stablecoin policies. Hong Kong and Japan likewise made adjustments to their existing stablecoin regimes. Stablecoins are cryptocurrencies pegged to the value of fiat currencies—typically, the U.S. dollar. They allow crypto traders and users to enter and exit positions, or send remittances overseas, without the need to access dollars or other fiat currencies directly. Prior to the GENIUS Act, stablecoins existed in a somewhat legal gray area in the United States, which remains true for much of the cryptocurrency industry unless the Clarity Act is also signed into law. The Clarity Act is much broader in scope than the GENIUS Act, given it establishes a regulatory regime for all manner of cryptocurrencies, not just stablecoins. It also sets rules for the sprawling decentralized finance (DeFi) ecosystem, and lays out what measures crypto platforms and projects must take to discourage money laundering and sanctions evasion. The bill would retroactively rewrite America’s securities laws, which were crafted in the wake of the Great Depression, to include exemptions for newly defined categories of crypto assets. Under this regime, the vast majority of existing crypto tokens and trading platforms would be regulated by the more hands-off CFTC, as opposed to Wall Street’s more stringent top cop, the SEC. Certain types of crypto projects and platforms would be exempted from regulatory oversight entirely if deemed sufficiently decentralized. While the SEC has aggressively pursued similar pro-crypto policies since President Trump’s return to power last year, that pivot could theoretically be reversed or slowed by a future president. Codifying such policies in federal law would make them much more difficult to later undo, regardless of what swings in American politics come next. The Clarity Act’s passage would therefore, in all likelihood, have significant implications for the global economy, on a scale far exceeding the GENIUS Act. Analysts have predicted that if the bill becomes law, institutional crypto adoption—and demand for crypto assets—would skyrocket. Cody Carbone, CEO of industry trade group Digital Chamber, said he’s worried that if the bill doesn’t pass, the U.S. could lose its chance to lead other nations on crypto—and instead fall behind other jurisdictions that already have regulatory frameworks in place. “The GENIUS Act set the precedent that when the U.S. leads, the industry can surge forward,” Carbone told Decrypt. “The U.S. can really compete with countries that have already put structures in place to monitor and regulate crypto, but only if we get Clarity signed into law.” But just as the Clarity Act’s potentially global impact has supporters invigorated, it also has the bill’s opponents worried. “It’s already too easy for terrorists and criminals to launder huge sums of money and move it across borders,” Sen. Elizabeth Warren (D-MA), a noted critic of the bill, told Decrypt. “If we water down global illicit finance standards, we’ll open the door to more cross-border sanctions evasion, money laundering, and terrorist financing—and give other countries cover to adopt similarly weak rules.” “As it considers crypto market structure legislation, Congress has a responsibility to set a high standard for other countries to follow,” she continued, “not make it easier for cartels and criminals to put Americans and our national security at risk.” Warren, the top Democrat on the powerful Senate Banking Committee, has long argued that the Clarity Act would facilitate money laundering and sanctions evasion by granting crypto projects legal immunity to offer certain privacy tools. DeFi advocates have countered that such tools protect user privacy. During a key committee vote on the legislation last week, Senate Banking chair Tim Scott (R-SC) prevented Warren from introducing an amendment to the bill, backed by law enforcement, that would have tightened its DeFi-related provisions. Even if stronger language on illicit finance was added to the Clarity Act, however, some critics of the bill are skeptical that change would eradicate the issue on a global scale. Bartlett Naylor, a financial policy analyst at consumer advocacy group Public Citizen, told Decrypt that industry-friendly havens like El Salvador have courted major crypto companies in recent years precisely because of their lax regulations. No matter what happens with the Clarity Act, those policies are unlikely to change, he contends. “I’m not convinced some of these nations would bother with even a nod to anti-money laundering issues,” Naylor said.

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