GENIUS and CLARITY: Congress Advances Digital Asset Legislation, but Key Questions Remain

Summary

Congress accelerated efforts toward an updated regulatory framework for digital assets, specifically addressing stablecoins and broader market structure via two important pieces of pending legislation. On May 22, 2025, the Senate voted 66-32 in favor of a procedural motion to advance the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, a margin that should defeat any filibuster if it holds and which would implement significant regulatory guardrails designed to institutionalize and legitimize the U.S. stablecoin ecosystem.

And on May 29, 2025, the House of Representatives unveiled its market structure bill, the Crypto Legal Accountability and Regulatory Integrity Through Yearly updates (CLARITY) Act, aimed at streamlining and, as the name suggests, clarifying regulatory jurisdiction, namely between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

These legislative efforts represent the most consequential legislative developments yet in the push to provide coherent, pro-innovation, and reliable regulation for the digital asset sector. These efforts run in parallel with the SEC’s own rulemaking efforts that new Chairman Paul Atkins has promised.

What to Know

GENIUS Act: Stablecoin Regulation

• 1:1 Backing: Mandates that stablecoin issuers rigorously maintain a 1:1 reserve ratio, strictly limited to cash, short-term U.S. Treasury securities, or equivalent high-liquidity instruments.
• Two Track Charter: Federally supervised “payment stablecoin banks” must be used by issuers who issue over $10 billion value in stablecoins. Smaller issuers must use a payment stablecoin bank or a state-sanctioned institution, provided the issuer maintains 1:1 cash/T-bill reserves and files quarterly attestations.
• Audit Requirements: Imposes mandatory periodic reserve audits conducted by independent, accredited auditors, reinforcing financial transparency.
• Who Regulates: For national banks and nonbank entities that apply for permission to be a “qualified nonbank payment stablecoin issuer,” the primary federal regulator would be the Office of the Comptroller of the Currency (OCC); for state-chartered banks in the Federal Reserve system, the primary federal regulator would be the Federal Reserve and for those not members of the Federal Reserve system, the primary federal regulator would be the Federal Deposit Insurance Corporation (FDIC).
• Federal Preemption: Unlike the similar Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) bill pending in the House, the GENIUS Act does not include language that the act’s provisions would preempt any conflicting state law and supersede any state licensing requirement.
• Firewall: Large commercial companies may not issue coins—but Democrats have argued that wide loopholes remain for Big Tech firms and affiliates.
• Foreign Impact: GENIUS explicitly prohibits participation from foreign stablecoin issuers unless fully compliant with U.S. anti-money laundering protocols and OFAC sanctions screening. Major offshore stablecoin issuers, particularly Tether, would face heightened and costly compliance obligations.

CLARITY Act: Market Structure and Digital Asset Classification

• New Categories: Provides new asset definitions, categorizing digital commodities under the exclusive oversight of the CFTC and digital securities under SEC jurisdiction. The CFTC would gain affirmative regulation over spot markets for the first time for the newly defined digital commodity category.
• Provisional Registration: CLARITY establishes provisional registration for digital commodity exchanges, brokers, and dealers. Provisionally registered companies must comply with recordkeeping, disclosure, and membership requirements until formal registration.
• Maturity Threshold: A “mature” blockchain is one that is truly decentralized, fully built-out, and open to anyone who wants to use or develop on it. Certifying maturity becomes important for reduced disclosure obligations, exemptions, and digital commodity classification.
• Restrictions on Insiders: Attempting to address information asymmetry issues, restrictions on token sales would apply to affiliated and related persons, with rules tapering off after a blockchain system is deemed mature as explained above.
• DeFi: DeFi safe harbor provisions are expanded and exempt non-custodial protocol developers and validators from registration. Decentralized Finance Trading Protocols explicitly exclude systems where no party controls funds or order execution.
• Airdrops:  Airdrops (called “End User Distributions”) are not securities transactions provided: the drop is of a unit of a digital commodity; the drop does not involve an exchange of more than a nominal value; and the drop is broadly and equitably distributed in a manner that can be satisfied by any participant in the blockchain.
• Investment Contract Update: Digital assets sold via investment contracts are not securities, making explicit an oft-debated question implicated by the Howey analysis regarding investment contracts. 
• Federal Preemption: CLARITY preempts conflicting state securities laws for qualifying digital commodities.
• Punts On Specificity: Delegates substantial rulemaking authority around harder-to-solve issues to regulatory agencies, prompting industry concern regarding potential regulatory ambiguity and expansive administrative discretion.

What comes next (and what could still go wrong)?

• Timing for GENIUS: GENIUS and, more likely, CLAIRTY, face competition for floor time. Most notably, the House passed the One Big Beautiful Bill Act on May 22, and it is now up to the Senate to debate and revise the massive reconciliation package focused on tax cuts, changes to the social safety net and Medicaid. Several Republican Senators have expressed opposition to the bill in its current form, and former DOGE leader Elon Musk called it a “disgusting abomination”, meaning more time will be taken up negotiating a compromise and passing it through the Senate first and then likely the House and Senate again.
• GENIUS Amendment Process: Senate Majority Leader John Thune has committed to an “open amendment process” on GENIUS which could mean that any Senator can offer changes to the draft bill on the floor, and such changes must then be voted on. Reporting indicates that Senate leadership on both sides are negotiating down from 60 potential amendments to a more manageable number. If they aren’t able to reach a deal on this, procedural hurdles may drag out potential passage into mid-June or later. 
• What About Yield?: GENIUS does not currently provide for stablecoins to offer yield-generating features to consumers, a notable omission given widespread consumer interest in yield-bearing digital assets. The big banks are opposed to stablecoin yield, as they worry it will cannibalize deposits in traditional bank accounts, and they have lobbied aggressively against it. Industry will push for future legislative amendments or regulatory adjustments to legalize yield.
• Is the House STABLE?: If the Senate, as expected, passes the GENIUS Act, does the House take up the bill as is and quickly pass it, or does the House attempt to pass its similar but distinct STABLE bill, thus leading to a potential bicameral conference committee to iron out the differences into a new bill that would need to pass both houses of Congress again?
• Clarity on CLARITY? Given industry PTSD from the Gensler era, there is real resistance to punting on specificity and providing extensive discretionary latitude to regulatory agencies. While SEC Chair Paul Atkins and incoming CFTC Chair Brian Quintenz are pro-crypto, the next President could appoint antagonistic regulators. There is much work to be done to enhance statutory precision in the bill now, rather than wait on subsequent regulatory interpretations that could foment market uncertainty and hinder industry growth and innovation. Also, the industry is still figuring out what it wants CLARITY to include. Just today, eight industry interest groups publicly called for CLARITY to be amended to include another bill, the Blockchain Regulatory Certainty Act (BRCA).
• Bipartisanship Wobbles: At the first hearing on CLARITY before the House Financial Services Committee yesterday, the Trump family’s crypto money-making efforts came up repeatedly as a friction point. Democrats who have supported bipartisan crypto regulatory bills before, like Jim Himes and others, flagged that while they might be inclined to support CLARITY on the merits, they couldn’t do it without protections against Trump monetizing the presidency through digital assets.
• Call Your Lawyer: For digital asset platforms, stablecoin issuers, and protocol developers - prepare for evolving regulatory and compliance requirements. The GENIUS and CLARITY Acts, if enacted, will reshape licensing, disclosures, and permissible activities, including around custody, yield, and airdrops.